Risks in Energy Performance Contracting (EPC) projects

Abstract

Compared with conventional energy retrofit projects, Energy Performance Contracting (EPC) projects present a different risk picture to the contracting parties as its primary focus is to deliver promised energy savings to building owners (hosts). This study aims to identify the key risks inherent in EPC projects, and investigate the hosts’ concerns on the use of EPC, as well as propose practical measures to enhance the wider adoption of EPC. Two separate questionnaire surveys were conducted with respondents comprising ESCOs (n=34) and hosts (n=168) in Hong Kong. Results indicate that the key risks to ESCOs are possible payment default of hosts after installation, uncertainty of baseline measurement, and increase in installation costs in EPC projects. For hosts, their primary concerns in considering the use of EPC include possible long payback periods, project complexities and repayment ability. In addition, the respondents agree with three practical measures to enhance the adoption of EPC in future, including the promotion of successful projects, modification of government procurement practices, and government's backup of loans. The findings of this study provide useful pointers to key stakeholders of EPC projects for harnessing their risk perceptions and mitigating their concerns on this procurement approach.