|Financing Solution Name||Energy Performance Contract (EPC)|
|Financing Solution Description||Energy Performance Contract (EPC) is a form of ‘creative financing’ for capital improvement which allows funding energy upgrades from cost reductions. Under an EPC arrangement an external organisation (ESCO) implements a project to deliver energy efficiency, or a renewable energy project, and uses the stream of income from the cost savings, or the renewable energy produced, to repay the costs of the project, including the costs of the investment. Essentially the ESCO will not receive its payment unless the project delivers energy savings as expected. In other words, an EPC is a contractual arrangement between the beneficiary and the provider of an energy efficiency improvement measure in which the provider, an Energy Service Company (ESCO), provides a guarantee of performance for the installed measures . The ESCO does not generally provide the required capital but usually works with established lenders to facilitate provision of finance, although the customer can also decide to directly finance the project with its own equity. ESCOs usually operate as the Main Contractor with turnkey responsibility for the energy assessment, project development, technical design, bidding, construction, commissioning, and provision of a savings guarantee. The ESCO’s guarantee is meant to ensure that the savings are sufficient to pay debt service. If there is a shortfall, the host, but not the lender, has recourse to the ESCO. The savings guarantee is the critical element that makes a contract an EPC and binds the various pieces together. Lenders require ESCOs with good track records and strong balance sheets that can ensure construction is completed on time and on budget and can support the performance guarantee.|
|Financing Solution Reference||https://e3p.jrc.ec.europa.eu/articles/energy-performance-contracting|
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