As is known, energy costs are written on the cost rulers as a large input, especially in industry, so large industrial organizations and industrial areas strive to reduce energy costs. The most important way to do this is to find and implement ways and methods that save energy and make investments for it.
At this point; Increasing its importance and implementation in our country in the Energy Efficiency sector; Energy Performance Contracts (EPC) which is between contractor and investor. From the largest facilities to the smallest facilities; The concept of predictability, warranty-maintenance-repair services, professional follow-up of the business and the combination of many services are important incentives for investors. In this sector, where undeniable figures are made in terms of cost, the concepts of guaranteeability and predictability are especially vital for investors.
What are Energy Performance Contracts?
Energy Performance Agreements can be defined as a type of contract between two or more parties based on the acquisition of certain results, such as reduction in energy costs or reimbursement of investment within a specified period of time. The main purpose of this contract is; energy efficiency by minimizing energy costs. Energy service companies with these contracts signed; it is aimed to improve the performance, comfort conditions and energy use of the enterprise by providing the necessary maintenance and repairs in facilities and buildings.
Energy Performance Companies that provide energy services have an important place in the formation of contracts. ESCO’s are the leading companies. ESCO’s can be identified as natural or legal persons who provide energy services in existing facilities or buildings or take other actions to improve energy performance and, in doing so, accept a certain level of financial risk. Any investments that enable energy management and/or energy efficiency in the user facility can be evaluated within the framework of ESCO. ESCO, the practitioners of Energy Performance Contracts, takes financial risks to guarantee performance. All or part of the payments to be made to the companies providing energy services; depends on the improvements to be made in the facilities and buildings and the provision of agreed performance criteria.
Energy Performance Contracts Structure and Energy Performance Contract Types
Energy Performance Commitments are a creative form of financing in which costs are reduced and energy efficiency is maximized. Engineering, Procurement and Installation concepts form the basis of Energy Performance Contracts. In an EPS edit; energy service companies (EVD, ESCO) save costs and energy and increase energy efficiency. In such investments, the payment cycle is provided by cost savings or revenue streams from the energy generated.
Project contractors in Energy Performance Contracts; advises on where and how to improve energy efficiency in plants and buildings. ESCO companies from project contractors carry their technical knowledge and experience to enterprises and design comprehensive solutions for energy efficiency, water efficiency, operational efficiency, renewable energy use or energy generation projects. Turnkey takes responsibility for the project and provides field survey, detailed design, engineering, application, commissioning and measurement evaluation services. These productivity-oriented companies calculate long-term project risks and guarantee energy gains by financing their client’s investment through a performance agreement.
ESCO provides investors with indirect earnings guarantees. This earnings guarantee is the performance guarantee of the equipment or project. ESCO’s take on all performance-related risks in terms of project equipment.
Another action of ESCO’s in project formations is that they provide financial resources. ESCO’s do not make any financial demands from investors in plant and building improvements. Reimbursements of the costs made by ESCO are provided by energy productions and savings according to the type of Energy Performance Agreement signed. The duration of the contract is directly proportional to the energy savings provided; the larger the savings, the shorter the contract duration.
Types of Energy Performance Contracts; It can be listed as Guaranteed, Shared, Non-Invested.
Guaranteed Performance Contracts; The serviced company guarantees a certain level of energy savings and thus protects the customer from performance risk. The customer receives the entire amount saved and pays the company the service fee for years to go. If the guaranteed savings are not realized, the company pays the customer.
In the Shared Energy Performance Contracts Model; Cost savings are shared between the customer and the company within the framework of a predetermined rate for a predetermined period of time. If the guaranteed savings are not realized, the company pays the customer. When the savings are exceeded, the exceeded amount is shared.
In non-investment energy performance contracts; Savings during the contract period to ESCO; the savings obtained by the end of the contract belong to the investor. If no savings are made from the project, ESCO loads the lost costs.
Energy Performance Contract and Its Practitioners’ Place in Our Country and Regulatory Practices
Companies committed to ensuring energy efficiency in our country are referred to as Energy Efficiency Consultancy (EVC) Companies in the provisions of the regulation. Although Energy Efficiency Consulting Companies have the same mentality as ESCO’s, they differ in terms of the services they provide. In this respect, the services provided by ESCO and EVC companies will be useful.
Energy Efficiency Consulting companies do not carry out as extensive service work as ESCO’s. The activities of EVC companies are superficial compared to ESCO. EVDs provide energy audits, energy management consultancy, energy efficiency improvement project consultancy and energy manager training services. The vast majority of STATE-licensed SDs; They do not have the expertise and funding to meet the services offered by ESCO’s by developing, designing, building and funding EPC-based projects.
EVCs provide their customers with competence only in terms of audit and consultancy services. The main difference that distinguishes EVCs from ESCO’s is that they are not the only ones that are able to make a difference. Services provided financially by ESCO’s to their customers. EVCs are not financially liable. These differences can be addressed over time with government subsidies and experiences. Although there are no state-sponsored ESCO’s in our country, structures similar to ESCO established by foreign investors or local distributors of multinational energy companies are limited.
Energy Efficiency Law No. 5627, which came into force in our country as of 2007, has raised the concepts of efficiency in energy. With the law no. 5627, it is aimed to “increase efficiency in the use of energy sources and energy in order to use energy effectively, prevent waste, relieve the burden of energy costs on the economy and protect the environment”, and legislative updates have been made to date.
The legislative updates were followed by the provisions of the ‘Regulation on Increasing Efficiency in the Use of Energy Sources and Energy’ published in the official newspaper on October 27, 2011. This regulation; Authorization of universities, professional chambers and energy efficiency consulting companies, energy management practices, duties and responsibilities of energy managers and energy management units, training and certification activities related to energy efficiency, studies and projects, supporting projects and voluntary agreement applications, demand side management, electricity management energy efficiency is increased in energy production, transmission, distribution and consumption, waste heat of thermal power plants, open area lighting, promoting the use of alternative fuels such as biofuels and hydrogen, and administrative sanctions.
The Circular issued on 16 August 2019 stated that public buildings aim to save a minimum of 15% energy by the end of 2023. With the Regulation on The Amendment of the Regulation on Increasing Efficiency in the Use of Energy Resources and Energy published in the Official Gazette dated January 25, 2020 published after this circular; It has been arranged that the studies to be carried out in public buildings can be made by the ministry to EVD companies. With the decision published on 21/08/2020, it has determined the procedures and principles of energy performance contracts to be made to reduce energy consumption or energy costs of public institutions and organizations. It wants a minimum energy saving guarantee of 20% in the tenders to be held with the published decision.
With the publication of the Communique on the Implementation of Public Energy Performance Contracts published in the Official Gazette on April 15, 2021, arrangements were made regarding the issues within the scope of the energy performance contracts that public administrations and other public institutions and organizations within the scope of general administration will contract to reduce their energy consumption or energy costs. With this arrangement, many responsibilities were added to the contractors and the obligation to provide at least 70% of the savings guarantee promised by this communiqué in the payments to be made to the contractor.
With the aforementioned regulations and the Energy Performance Contracts signed between the parties as explained, companies providing energy services become liabilities in multiple areas. In particular, each article of the contractual provisions should be evaluated individually, taking into account the multiple areas affected by ESCO, investment costs and efficiency principles.
Energy Performance Contracts, which are a multidisciplinary field that touches on many legal, technical and financial issues in itself, are contracts that must be prepared very meticulously from a legal point of view.
On the other hand, due to the fact that our country is highly dependent on energy and decarbonization efforts are accelerating in our country as well as all over the world, the expansion of the application area of Energy Performance Contracts is of great importance.