a) When should an EPC be used?

The flow chart below can be used to help identify if an EPC should be used by a municipality and whether Guaranteed Savings or Shares Savings Schemes should be followed.

Energy Performance Contract Decision Steps

Step 1 - Electricity Baseline

In order to implement an Energy Performance Contract it is necessary to have reliable, accurate and detailed energy consumption baseline information in place. This can be achieved by including the baseline as requirement of the Monitoring and Verification (M&V) team. This requirement is explained in more detail in the section "How do I establish a baseline?", but in summary you can require the M&V team to comply with SANS 50010 and this will ensure that adequate metering takes place. Alternatively a baseline can be established by installing metering equipment in the buildings that you are intending to implement the EPC through. The baseline should ideally include hourly consumption data for at least 2 months but preferably 12 months. This will take into account seasonal fluctuations in energy consumption (e.g in summer there may be increased costs due to higher use of air-conditioning). More information on establishing a baseline can be found here.

Step 2 - Assess Availability of Capital

Once your baseline is in place, you should be able to determine the number of buildings and facilities you would like to include in the EPC. In order to clearly assess the potential capital requirements, it is necessary to conduct a preliminary audit of the identified buildings and facilities. The main purpose of this audit is to determine the number of potential retrofits that will be required. In some municipalities, asset registers are available for each building which can list all the potential fittings (e.g lights, air-conditioners, water heaters, etc...). In the event that asset registers do not exist, then walk through audits where these fittings are counted need to be conducted. It is then necessary to calculate the potential cost of the retrofit per fitting, per facility and for the entire program.

Once the capital costs are known it will be necessary to secure funding in the municipal Medium Term Expenditure and Revenue Framework (MTERF). This will typically be done over a 3 year period. If it is not possible to secure funding through the municipal MTREF or other grant funding sources, then it is necessary to consider funding the intervention through debt financing.

Step 3 - Assess Availability of Debt

It is important to assess whether your municipality can access debt financing, as this will most likely reduce the overall cost of the EPC. This is because municipalities can typically leverage debt financing at preferential rates or rates that are more competitive than the private sector. Loans can be secured through institutions such as the Development Bank of South Africa or even commercial banks. Typically loans will require very detailed business plans with clearly defined pay-back periods. More details on funding options have been included in the section "How do I finance an EPC?"

Step 4 - Assess Technical Capacity 

If it is possible to secure financing, it is important to assess the level of capacity available to implement an energy efficiency program that includes a bulk of the buildings managed by the municipality? EPCs can assist with capacity constraints by providing expertise through the implementing ESCO. ESCOs typically have a very detailed understanding of technology options and can provide technical insights not necessarily considered by municipal officials.

It is important to note though that there will always be a need for in-house technical capacity within the municipality to ensure that the Energy Efficiency contracts are implemented correctly. In the event that a municipality has access to capital financing and there is sufficient internal capacity, it is unlikely that there is a benefit to EPCS. There will be additional costs associated with EPCs, that would be better used on building internal capacity. However in the event that there is a lack of capacity or a lack of capital financing, the municipality should consider an EPC.

Click on the links below for more information on EPCs.