Which provisions should an EPC contract contain?

Answer by Alejandro Morell (Creara)

The contract between the ESCO and the client must establish all aspects that define operations over the duration of the contract. The main points of an EPC should include the following:

Objective. Description of the general terms of the energy services procured. This section should define the facilities included in the contract and those that are excluded from its scope.

Terms and duration of the contract. This clause states everything related with the date of entry into force of the EPC, the criteria for automatic renewal, et cetera

Usually, the contract duration will depend primarily on the amount of the investment financed and the distribution of the savings agreement.

Infrastructure and resources. Description of human and material resources that each party should provide for the provision of services. It should thoroughly describe the equipment to be installed, as well as the existing equipment which will be provided by the customer.

Ownership of equipment and systems. It mainly depends on who assumes the investment of the project and on the obligations of the ESCO towards the client. Typically, the client retains ownership of the equipment and systems that were in the facility prior to the entry into force of the EPC.

Obligations of the ESCO and customer. This clause defines the obligations of each party, including aspects such as conditions to be ensured during the contract (temperature, minimum illumination, et cetera) or access of employees and technical staff to facilities whenever necessary.

Measurement and verification Plan. This plan should detail the measurement and verification to be conducted under the ESCO project. Among other things, it should detail:

  • The protocol to be used
  • The skills of the technician in charge of implementing the plan
  • The deadlines for the completion of the plan, the implementation of systems of measurement and reporting
  • Procedure in case of discrepancy between the ESE and the customer

Economics. This clause is related to the characteristics of the funding necessary for the implementation of ESCO project.

Another important aspect to define is the kind of split of savings (if any), and the following features for managing savings:

  • Percentage of distribution of savings between both parties
  • Percentage of guaranteed savings (if applicable)
  • Penalties in case the guaranteed savings level is reached (if applicable)

Finally, it is important to define the different concepts related to economic exchanges that take place between the ESCO and the client (compensation of the ESCO, liquidation savings, billing calendar, et cetera)

Other issues. The contract shall include any other section that should be defined to avoid problems between stakeholders such as the causes of suspension of services under the contract or other obligations of the parties.