Advantages of EPCs

Energy Performance Contracts (EPCs) are a potentially relevant tool to serve a public policy in favor of the thermal renovation of public buildings. The main advantage of EPCs is to enable a quantified measure of the energy efficiency of a project, before and throughout its duration. The private partner is committed to an energy performance target, and is penalized in case of non-achievement of the quantitative targets (in energy volume) that have been agreed with the public owner. In this case, the public partner is thereby compensated.

The mainstream development of EPCs in the public buildings stock appears as a powerful tool for the assessment of public policies, for example in relation with France’s international commitments on GHG reduction. The performance guarantee also allows a better understanding and control of the “self-financing” of projects achieved (partially or totally) through energy savings, in each renovation operation. The professionalism and solidity of private operators ensures a very low – but real – level of industrial risk in the implementation of their performance commitment in these operations.

The specificity of EPCs could allow the creation of a new asset class – Incorporating the financing of EPCs in assets such as “green bonds” – that would deliver well-identified, measured and controlled impacts in favor of energy shift objectives.

Different legal financing vehicles are possible and are considered in this approach based on EPCs, including for instance “CPPE” (contrats de partenariat de performance énergétique[1]) and “CREM” (marchés publics de Conception Réalisation Exploitation Maintenance). Third-party investment schemes are also to be studied given the optimization they allow, for example to bring together different public entities. In addition to the measurement of efficiency in the long run, a CPPE allows earmarking the financing to its contribution to the energy and ecological shift, while there is still no real earmarking in most of the public sector’s financing today. Although it is strategic, it is also to be noted that only limited volumes of financing are directed towards the energy shift in our economy as a whole today.

EPCs are recent (law “Grenelle I”, 3rd August 2009), and the few EPCs that have already been completed will be studied in the ESFA project, in order to make concrete proposals for their improvement, i.e. with a comprehensive and massive approach optimizing costs and addressing the following issues:

• structure costs considered significant (technical, financial and legal expertise);
• long-term flexibility allowing other EE operations to take place on the same building;
• Projects that SMEs may find difficult to address directly.

In consultation with supervisory authorities as well as financial and industrial actors, the project aims to clearly identify risks (occurrences, consequences, guarantees, etc.) in the context of an EPC and a CPPE. In addition, it will make proposals to better calibrate the risks assumed by the entire national community through its government and industrials[2]. A national – and then European – observatory of EPCs should be considered to ensure price transparency and to facilitate financial and economic analyzes.