Finance Sustainable Buildings

Energy Performance Contracting and Energy Services Companies

Type of instrument



Long term


An Energy Services Company (ESCO) is a company that offers energy services which may include implementing energy-efficiency projects on a turn-key basis. ESCOs finance the up-front costs of an energy performance improvement project from the energy cost savings during operation. An ESCO may substitute the traditional utility provider, or contract the client only for the implementation of a set of measures agreed together. (Robinson et al., 2015).

An Energy Performance Contracting (EPC) is a guarantee-based agreement between the client and the ESCO, often with the participation of third-party, such as a bank, whereas the ESCO issues a performance guarantee, and their remuneration is directly linked to the savings achieved (Bertoldi & Boza-Kiss, 2017; Pätäri & Sinkkonen, 2014). Essentially, the ESCO will not receive its payment unless the project delivers energy savings as expected. Alternatively, the guarantee ensures that the energy savings resulting from the investment will be sufficient to repay monthly debt service costs.

Socioeconomic impacts

The ESCO assumes the performance risk, so an ESCO-implemented investment helps the end-user to invest without major risks in an unknown field. After the operation, the end-user has a better performing building and lower energy costs. As ESCOs assume the technical and sometimes even the financial risks that normally an end-user would have to bear, transaction costs are higher than in other financial instruments.

The remuneration of ESCOs is directly tied to the energy savings achieved. This instrument is dedicated to investing only in energy efficiency projects seeking a return based on savings achieved.
EPC is a means to deliver infrastructure improvements to facilities that lack energy engineering skills, manpower or management time, capital funding, understanding of risk, or technology information. Cash-poor, yet creditworthy customers are therefore good potential clients for EPCs.

Related to

This scheme is related to the energy efficiency investments such as: energy management equipment, equipment for lighting, heating, ventilation and cooling, building envelope isolation, renewable energy systems as well as urban infrastructures like traffic and street lighting. Thus, EPC is also related to the SER framework enabling the adoption of renewable energies for every household, besides the reduction of operational emissions derived from the installation of energy efficiency measures.

Study Case: Energy Performance Contracting and Energy Services Companies

LABEEF program in Latvia

In Latvia, the LABEEF program was introduced to repurchase the long-term investments necessary for multifamily building renovation. The Latvian experience proved that ESCOs could solve and eliminate many of the previously hindering technical and financial barriers of projects, even in sectors previously considered difficult (Augustins et al., 2018). The tertiary sector holds a huge potential of energy savings through EPC, and the Trust EPC South8 project implemented in the southern EU countries (improves the financing access and conditions of sustainable energy solutions in this sector, by improving trust and confidence in the financing parties (Frangou et al., 2018).