Which are the steps to follow for developing an EPC contract?

Answer by Alejandro Morell (Creara)

Once parties have decided to pursue an EPC project, they need to keep in mind that it will be a relatively long and complex process, which comprises the following phases:

Pre-contracting activities

Prior to signing an ESCO contract, parties need to carefully analyze all criteria to determine the technical, economic and financial feasibility of the project. In order to do this, the ESCO may conduct an in-depth study of the facilities.

This study includes a detailed inventory of the energy consuming equipment, an analysis of real energy consumption, the proposal of energy saving measures and the energy service project definition.

A preliminary contract is usually signed between the ESCO and the customer. The  feasibility study should be budgeted separately

Definition of Energy Performance Contract

The energy contract establishes the rights and the obligations of both parties (the ESCO and the client). By signing the contract, the ESCO commits itself to obtaining a determined level of energy saving and hence, economic savings.

Implementation of energy saving measures

Once the contract is signed, the ESCO begins coordinating the implementation of energy saving measures. Several tests may be necessary to fully optimize the facilities.

Operation and maintenance

Another provision of the ESCO contract will be related to the definition of the maintenance and operation protocol in order to improve and maintain high levels of energy performance.

Measurement and Verification (M&V)

Since savings need to be established to determine whether the project has reached the expected levels of performance, a M&V plan is highly recommended. A measurement plan including variables, frequency and measurement equipment will be designed.

Although it is not mandatory to use any M&V standard in an EPC project, ESCOs often include them since they ensure a proper methodology for savings calculation.

This is a key phase of the EPC project because payments will be based on the measurement and verification of the results.

End of contract

At the end of the EPC contract, the client assumes the energy management back as well as the full benefits from the savings due to lower energy costs. Generally, ownership of the equipment is assumed by the client.

Of course, the contract can be extended or amended when the client and ESCO deem it appropriate.

Finally, it is important to bear in mind that the time required to implement an EPC project depends on many factors, such as suppliers of equipment and energy, investment financing, tendering process, et cetera.

In general, the implementation of measures of and EPC project can take 2-3 years from the beginning to the end of the project.