What are the different implementation methodologies?

The implementation methodology is the method by which the projects are technically and operationally implemented in the field, most often by using contractors or subcontractors. Typical implementation models are Energy Performance Contracting, Energy Supply Contracting and Separate Contractor Based.

Separate Contracting Based (SCB) methodology

Separated Contracting Based is a method to implement multi-technique energy efficiency or renewable energy projects, by which each step of the process is dealt with by a separate party (energy auditor, engineering company, installer or contractor, maintenance company) and by which individual projects (e.g. boiler replacement, relighting, isolation, etc.) are executed by separate contractors for each technique.

This method is typically time consuming and requires a project coordinator to manage the process of getting all of the individual projects executed in a timely manner. For a public authority to use this method requires separate public tenders for each individual project. It requires also gaining a good knowledge of all the techniques involved in the field of energy efficiency and renewable energy, which is not easy. The method is therefore relatively resources and operational tools intensive and leads to more long completion times. In this method, the Program Delivery Unit (PDU) can act either as a facilitator or integrator (see below), but it can be useful to have the Program Delivery Unit (PDU) or another organization to act as an integrator to ensure an end-to-end delivery of the energy efficiency program and provide a consistent level of service from the different contractors.

A major disadvantage of this method is the fact that none of the subcontractors finally takes responsibility for the result of the global performance at the building or building stock level. This also means that the beneficiary or the Program Delivery Unit in case of integration takes on the technical and financial risks. Another disadvantage is the relatively high cost of transaction, meaning the cost of project design, procurement and management per euro invested. If they are not properly controlled, transaction costs can quickly represent a substantial share of achievable energy savings, reducing the potential scope of action of the model. In this method, there is also little room to access Third party financing (TPF).

Energy Performance/Supply Contracting (EPC/ESC) methodology

In the Energy Performance Contracting (EPC)/Energy Supply Contracting (ESC) methodology, the Program Delivery Unit (PDU) relies on private ESCOs (Energy Services Company) or specialized contractors competing for the signing of an Energy Performance Contract (EPC) or Energy Supply Contract (ESC) for one or several buildings/projects (in case of bundling/pooling and/or aggregation).

This is one project, one contract that includes all buildings/projects, measures and technologies. The ESCO/Contractor performs the audits (as part of its offer), studies, design and works (at the start of the contract) and then operates and maintains the facilities.

In the EPC case, the ESCO/Contractor delivers a performance guarantee on the energy savings and takes responsibility for the end results (technical and financial). The EPC contract is the contractual agreement by which the output-driven results are agreed upon. Other aspects like maintenance can also be integrated and potentially be performance based. Performance guarantees are associated with a bonus and penalty scheme. Measurement and Verification (M&V) and Monitoring are key features of successful EPC contracts. EPC contracts can include financing schemes in which the ESCO/Contractor acts as financier or investor, but the beneficiaries can also finance these with own funds or through a financial institution.

In the ESC case, the ESCO/Contractor delivers « useful » energy (e.g. heat, cold, steam, electricity) to the customer at a contractually agreed price per kWh. The ESCO/Contractor is in charge of dimensioning, engineering, installing and maintaining the local production installation (e.g. boiler, combined heat & power, photovoltaic solar panels) for the duration of the contract. It typically manages the production efficiency of the installation to optimize the cost of transformation of the fuel into useful energy. The price for the useful energy delivered typically includes a fixed component to cover for the investment of the installation and a variable component to cover for the fuel usage.

In the EPC/ESC method, the Program Delivery Unit (PDU) can act either as a project facilitator or project integrator (see FAQ on Operational Services Framework). The tasks are mainly project management and coordination of larger contracts; the method is therefore less resources and operational tools intensive than the Separate Contracting Based one. The EPC/ESC method has the major advantage of outsourcing to ESCO/Contractors the technical risks and financial results of the projects thanks to the guaranteed energy savings or fixed price. This means that the beneficiary or the Program Delivery Unit in case of integration do not take on the performance risks of the projects. Another advantage of the method is the financial predictability of the projects thanks again to the guaranteed savings or fixed price. At the same time, experience shows that the transaction costs, meaning the costs of design and project management per euro invested could be lower than in the Separate Contracting Based method. Finally, the EPC/ESC methodology is also the key condition to access to ESCO and/or Third party financing (TPF).