Financing sustainable change: spend-to-save


Although this has proven an impossible concept to grasp for certain German political leader, spending to save is actually an option, and not a bad one at all.

Energy Performance Contracts (EPCs) set the framework by which installed energy efficiency measures, which are verified and monitored during the whole term of the contract, are paid for by reference to the agreed level of energy efficiency improvement or financial saving generated. In other words, the service provider  (installer) implements the service or technology agreed by the parties for reducing energy consumption or for generating energy sustainably (what is known as the Energy Conservation Measure), thereby offering a financial saving, which is in turn used to fund the cost of the improvements and services.

The objectives behind an EPC project can be varied, from renewable energy generation, to reduction in CO2 emissions, cost savings and improved building environment. Similarly, the Energy Conservation Measure may at the same time contain a wide range of different measures, such as lighting, heating, combined heat and power or metering. Therefore, it is critical to clearly identify objectives and requirements in the contract, as they can sometimes be conflicting. For example, a CO2 reduction may be our main objective, however, the biggest cost saving may not necessarily give the largest CO2 savings, or vice-versa. 

The other cornerstone of these type of contracts is the savings guarantee, meaning that the service provider has to achieve the savings or else, they face being liable for that underperformance. The duration of the guarantee will typically last until the project costs have been covered by the savings. Sure enough, austerity does not always have to be the answer.

In the UK, a number of such projects have been undertaken within the public sector, particularly following the entry into force of The Energy Efficiency (Encouragement, Assessment and Information) Regulations 2014. This piece of legislation sets the basic duties of the competent authorities in relation to energy services and energy performance contracts.

Unfortunately, on 7 August 2015, Eurostat published a guidance note titled "The impact of Energy Performance Contracts´ on government accounts" stating that under Eurostat Accountability rules, energy efficiency investments are considered to be a cost in terms of deficit targets. Unsurprisingly, stakeholder Veolia Spain has said that the guidance note has caused a delay or avoidance of public tenders to enter into energy performance contracts for public buildings.

Once again, while rules and legislation in the field of renewable energy and energy efficiency are pointing one way, common sense, technology and facts are pointing elsewhere.