The impacts of project scale, scope and risk allocation on financial returns for clients and contractors in Energy Performance Contracts – a stochastic modelling analysis
Pamela Fennell, UCL Energy Institute
With a projected annual value of €1bn, the UK energy performance contracting market has the potential to unlock a large number of energy efficiency projects by reducing investment risks for building owners. However, market development has been slow and little analysis has been undertaken to understand the characteristics of successful projects. A better understanding of the impact of project scale, scope and risk allocation on outcomes for building owners and ESCOs would enable investment programmes to be targeted more effectively.
This study combines stochastic approaches to both energy simulation and economic modelling to explore the range of possible outcomes for clients and ESCOs. The subject of this study is a project consisting of a typical group of UK schools. This study will explore the effects on client and ESCO financial returns of varying the number of sites in the project, the range of applied retrofit measures and the risk allocation between Client and ESCO.
Energy Performance Contracts suffer from a tension between the challenges of understanding the precise impact of retrofit measures in large, multi-user buildings and the need to minimise monitoring and transaction costs. Compromises in the risk allocation between client and ESCO are the likely result of this tension. This study attempts to quantify the effects of potential compromises introduced due to the strategies adopted for measuring and verifying energy savings.
A key feature of this work is the use of semi-structured interviews to quantify transaction costs. Despite evidence from previous work that transaction costs are critical to financial outcomes of projects there is an absence of data on transaction costs in the current literature.