How do you compare the costs and benefits of EPC and traditional procurement?

1 What is traditional procurement?

Traditional procurement is the conventional way of implementing energy efficiency projects. You hire a contractor to design, install, and commission the energy-saving measures, and you pay for the upfront capital costs and maintenance. You are responsible for the performance and risk of the project, and you reap the savings from lower energy bills.

2 What is EPC?

EPC is an alternative way of implementing energy efficiency projects. You sign a contract with an energy service company (ESCO) that guarantees a certain level of energy savings over a specified period. The ESCO designs, installs, and commissions the energy-saving measures, and finances the project through the savings. The ESCO is responsible for the performance and risk of the project, and shares the savings with you.

3 What are the benefits of EPC?

EPC offers various advantages compared to traditional procurement, such as no need for upfront capital costs, guaranteed savings, comprehensive service, technical expertise, and continuous improvement. With EPC, you don't have to invest your own money or borrow from external sources to fund the project. The ESCO will also provide a turnkey solution that covers the whole project lifecycle from design to operation and maintenance. Furthermore, the ESCO is equipped with the skills and experience to identify and implement the most effective energy-saving measures for your facility. The ESCO will also monitor and optimize the project performance throughout the contract period and can propose additional measures to increase the savings.

4 What are the challenges of EPC?

EPC, while a viable procurement option, has some challenges compared to traditional procurement. Negotiating and agreeing on a detailed contract that specifies the scope, baseline, savings, payments, and responsibilities of both parties is complex. Additionally, you need to commit to a long-term relationship with the ESCO, which may limit your flexibility and control over the project. Furthermore, performance verification is necessary to measure the actual savings achieved by the project, which may require additional equipment and expertise. Lastly, transaction costs may be higher due to the legal, technical, and financial aspects of the contract.

5 How to choose between EPC and traditional procurement?

When considering whether EPC or traditional procurement is more suitable for your energy efficiency project, it is important to factor in your budget and cash flow, risk appetite and tolerance, project scope and complexity, and organizational culture and capacity. To accurately compare the costs and benefits of the two options, it is recommended to conduct a feasibility study that assesses the technical, economic, and financial aspects. Additionally, you should consult with experts and peers who have experience with both approaches to gain insight into their best practices and lessons learned.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?