How do you negotiate a fair and realistic savings guarantee in an EPC?

1 Baseline and methodology

The baseline is the reference point for measuring the energy savings achieved by the ESCO. It is usually based on historical data of energy consumption and relevant variables, such as weather, occupancy, production, etc. The methodology is the set of rules and formulas that define how the baseline is adjusted and how the savings are calculated and verified. You should make sure that the baseline and methodology are clearly defined, transparent, and consistent with industry standards and protocols. You should also review the data sources, assumptions, and adjustments used by the ESCO, and validate them with independent experts or auditors.

2 Scope and performance

The scope is the list of energy efficiency measures that the ESCO will implement, and the performance is the expected level of energy savings that the ESCO will guarantee. You should make sure that the scope and performance are aligned with your goals, needs, and budget. You should also check that the ESCO has conducted a comprehensive energy audit and feasibility study, and that the proposed measures are technically sound, cost-effective, and suitable for your facility. You should also verify that the performance is based on realistic estimates, and that the ESCO has sufficient experience and track record in delivering similar projects.

3 Risk and reward

The risk and reward are the allocation of responsibilities and benefits between the ESCO and the client. The risk refers to the factors that can affect the energy savings, such as changes in energy prices, operational conditions, maintenance, etc. The reward refers to the share of savings that the ESCO and the client will receive, and the payment mechanism that will determine how and when the payments will be made. You should make sure that the risk and reward are balanced and fair, and that they reflect the value and quality of the services provided by the ESCO. You should also negotiate the terms and conditions that will govern the performance guarantee, such as the measurement and verification (M&V) protocol, the baseline adjustment mechanism, the savings reconciliation process, the dispute resolution procedure, etc.

4 Flexibility and adaptability

The flexibility and adaptability are the ability of the EPC to accommodate changes and uncertainties that may occur during the contract period. For example, you may want to modify or expand the scope of the project, or you may face unexpected events or circumstances that affect the energy consumption or savings. You should make sure that the EPC has provisions for flexibility and adaptability, such as clauses for change orders, force majeure, termination, renewal, etc. You should also discuss with the ESCO how to handle potential scenarios and contingencies, and how to communicate and collaborate effectively throughout the contract duration.

5 Transparency and trust

The transparency and trust are the foundation of a successful EPC. They refer to the level of openness, honesty, and mutual respect between the ESCO and the client. You should make sure that the EPC is transparent and trustful, and that it reflects the true intentions and expectations of both parties. You should also establish a clear and regular communication channel with the ESCO, and monitor and evaluate the project performance and outcomes. You should also provide feedback and recognition to the ESCO, and address any issues or concerns promptly and constructively.

An EPC can be a great way to improve your energy efficiency, reduce your costs, and enhance your sustainability. However, it requires careful planning, negotiation, and management to ensure that you get a fair and realistic savings guarantee. By following these tips, you can increase your chances of achieving a successful EPC that meets your needs and goals.

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?