Unlocking energy upgrades with EPCs
Energy performance contracting (EPC) is a delivery model in its infancy in Australia. Its introduction was catalysed by the Victorian Government’s formation of the (now closed) Greener Government Buildings Programme. EPCs have been around in the U.S. for over 30 years but Australia is still trying to work out how to get maximum gain with minimum risk.
EPCs deliver energy savings by upgrading inefficient infrastructure in buildings. The procurement shift is that a client engages a single service provider (an energy services company) to scope, design, and install the solution, and then guarantees the forecast savings so the investment meets an agreed payback period. Sometimes described as a ‘financial solution to a technical problem’, EPCs provide a mechanism to channel big money into a difficult area (there are various ways to secure finance depending on location, organization type and usual balance sheet constraints).
While it’s true that the basis of the EPC framework is a ‘spend to save’ model, and that the headline message is one of energy and carbon savings, the reality is that such savings are often enabling other more important outcomes for property managers. From an asset management perspective, the real attraction of an EPC is that it provides a powerful mechanism to respond to the issue of ageing assets. Almost invariably across the public sector, a legacy of under-investment in asset replacements has led to a substantial asset management headache, which under ‘business as usual’ procurement models, would take many years and man hours to rectify (not to mention a lot of money). EPCs ease the headache by providing a framework that allows lots of small asset replacement works to be bundled into one larger contract, which then attracts the big market players and their thinking.
We’re currently working with RMIT University on its $98m Sustainable Urban Precincts Program – by far the largest of its kind in Australia and being delivered through two parallel EPCs. In this role we’ve been connecting our clients with colleagues in the U.S. who have many decades of delivery experience and, in many cases, the type of experience that isn’t available domestically. EPCs change the fundamentals of project delivery, where there’s typically a client- side design team and a contractor on either side of the fence. In Australia, AECOM’s role has become one of client support – leveraging capabilities across various disciplines to ensure the project is structured properly and delivered smoothly.
RMIT is now recognised as paving the way for other organisations by taking on such a large project. While the catalyst for the project was a commitment to sustainable development, the opportunity is now being realised to achieve a wider set of benefits including asset replacements and learning, teaching and research outcomes that connect the physical programme to the core business of the University. For further information on the RMIT project, visit: http://www.rmit.edu.au/thinkgreen/supp
Despite the opportunities that EPCs present, public funding remains an issue. With the limitations on Government agencies securing pure debt, the market is scratching its head and asking serious questions as to how to increase the flow of private finance where public ‘loans’ had previously met the need. Unfortunately this is a natural part of the market feeling its way along the maturity curve. EPCs will likely be here to stay as a valuable delivery model; however more work is required to resolve how they will be financed.