Assessment of the Energy Performance Contracting

Features favourable for municipalities

Features NOT favourable for municipalities

  • The contractor provides his know-how, develops, invests and operates the plant.

  • The contractor is involved in the success of the savings, so that higher savings can also be achieved because he has self-interest.

  • The project does not appear in the debt of the municipality, the contracting rate is recorded as an operating expense in the accounts, therefore repayment of obligations related to the investment does not block the creditworthiness of municipality.

  • Not charging the commune with the initial costs of investing in energy saving.

  • Technical and financial risk of investment is transferred to an external company if the contract is well developed.

  • The remuneration of the contractor is paid from the savings generated by the investment.

  • For small projects, the cost of project development and contract preparation is high and unprofitable.

  • When the market with EPC is not fully developed and there are not many competing and credible companies available the risk of inconvenient agreements for municipaliti increases.

  • Hardly suitable for small municipalities

  • Complicated terms of a legal contract between partners

  • Choosing only those parts of the investment that will be most economically advantageous to implement


BOO (Build - Operate - Own) specifics

  • The municipality is guaranteed an immediate saving relative to its current bill. The ESCO takes on the responsibility for providing the agreed level of energy service for lower costs than the current bill or for providing an improved level of service for the same bill. The more efficiently and cheaply it can do this, the greater its earnings.

BOO (Build - Operate - Own) specifics

  • Deliberate estimation of lower value of savings is a standard practice for the ESCO to secure itself for the guaranteed performance with some buffer. The real questions are how big this buffer is and how the ‘excess’ savings above the estimated ones are split between the client and the ESCO.

BOT (Build - Operate - Transfer) specifics

  • Risk transfer from municipality to ESCO firm which bears a substantial part of the risk (political risk, technical risk and financing risk).

  • When the payback period is shorter than the physical lifetime of the project,

  • When the municipality intends to avoid financial risks that might be caused by different factors (exact amount of savings is not calculable due to meteorological or technological reasons, new technologies are integrated, etc.)

  • When the necessary competences and capacities are not available at the municipality to run the investment and related technologies.

BOT (Build - Operate - Transfer) specifics

  • Due to the long-term nature of the arrangement, the fees are usually raised during the contract period.

  • When the necessary competences and capacities of running the investment’s technology (e.g. a geothermal plant) are available at the municipality;

  • When the financing can be solved in 100% by other sources (own sources or OP calls) and the municipality intends to avoid the risk of cooperating with third party.


BOOT (Build - Own - Operate - Transfer) specifics

  • Municipality enters into long term supply contracts with the BOOT operator and is charged accordingly for the service delivered where the service charge includes capital and operating cost recovery and project profit.

  • Same as BOT with the additional feature that the municipality is entitled and intends to forward the ownership of the investment to the contracted concession company.

BOOT (Build - Own - Operate - Transfer) specifics

  • Not favourable for municipalities that don’t want to be obliged by contract for a long term.

  • Same as BOT, in addition the municipality does not have the legal possibility or does not intend to forward the ownership to third party.

  • In this way, the municipality finances the investments in its own property, but transfers its management to companies that provide public services.

Types of EE projects or EE services suitable to be financed this way

  • Generally, the projects with a high energy cost savings potential

  • New heating systems or improvements and optimization in heating systems, public lighting, thermal insulation of buildings

BOO (Build - Operate - Own)

  • Useful where the municipality wants to outsource facility services and investment (building heating, public lighting, roads maintenance etc.)

  • Usable for projects with long payback period for which the contractual duration coincides with the useful life of the asset.

BOT (Build - Operate - Transfer)

  • Popular type of co-operations with ESCOs. Usually these investments contain energy generation based on renewables (heat-pumps, solar panels, biomass-based district heating, geothermal heating, etc.).

  • Interventions of new construction of medium-large sized technological systems and public services structures.

BOOT (Build - Own - Operate - Transfer)

  • Large projects for public services with long contractual durations

Recommendations for deployment

  • It requires an administrative structure with adequate skills to manage project finance of long duration and technical skills for O&M.


  • For all kinds of contracting there is a strong need for a clear definition of the goal, intended and experienced energy experts for project definition and development of technical solution and contract. Different offers should be obtained and compared!


  • Design of comprehensive EPC demonstration projects for pools of public buildings to provide market development on demand side


  • Development of innovative financing schemes targeting small and medium ESCOs


  • Provision of improved standardized contracts, procurement procedures, savings measurements and verification protocols


  • Establishment of focal point in charge of the EPC in the public sector


  • Introduction of permanent training of key actors (decision makers in the public sector, officials in public sectors, project developers)


In Austria the Energy performance contracting is probably the most favorable way to finance energetic improvements in public buildings like change of heating system, energetic refurbishment, thermal insulation and lighting etc.

Municipalities can choose from different models. For the development of a contracting model, an independent consultant like an energy agency should assist the municipality in the development of the actions and measures, and analyzing the best fitting contracting model and contract for the needs of the municipality.

  • A lot of success stories are available in Austria just like District heating grid based on waste heat from pulp&paper mill Zellstoff Pöls AG. Some other examples can be provided by Energieagentur Obersteiermark upon request.

In Tolna County, Hungary, BOT (Build - Operate - Transfer) energy performance contracting will be suggested by integrating also the savings generated by consumer behavior campaigns. This special type of EPC is referred as EPIC, Energy Performance Integrated Contract. At EPIC, technical and social aspects of energy consumption are considered together, and an improved energy performance of buildings is guaranteed not only by technological investments, but also by a better organization of the use of spaces and by the involvement of building users towards a more aware behavior in the use of buildings. According to the experiences of demand side management campaigns in different countries’ public buildings, further 4-5% energy saving can be achieved beyond the savings generated by the technological interventions.

In Slovenia, the Ministry responsible for energy publishes a list of energy service providers that already provide energy contracting services according to the model of contractual provision of energy savings (updated November 2018):

  • Petrol d.d. Bled

  • Resalta d.o.o. Ljubljana

  • Stin d.o.o. Dravograd

  • Tames d.o.o. Ptuj

  • Plistor d.o.o. Ptuj

  • Interenergo d.o.o. Ljubljana