1. Conference on Pollution Prevention & Energy Efficiency (P2E2)
U.S., Hong Kong, China Cooperation
9-10 May 2005
Technology and market potential
of energy performance
contracting for buildings
Dr. Sam C M Hui
ASHRAE Hong Kong Chapter &
Department of Mechanical Engineering
Hong Kong
The University of Hong Kong
E-mail: cmhui@hku.hk

2. Agenda
• Introduction to EPC
• Market Potential
• Major Barriers and Risks
• Key Issues
• Conclusion

3. Introduction to EPC
• Energy performance contracting (EPC)
• = energy savings performance contracting
• A financing technique to raise money for energy
efficiency investments based on future savings
• Energy service companies (ESCO)
• Offer EPC services, without upfront capital on
building owners (e.g. by guaranteed saving)
• Become an important trend in many countries like
USA and Japan

4. Client’s benefits
ESCO’s benefits Client’s
benefits
Recovered costs
Energy
+ O&M Energy Energy
costs $ Cost savings + O&M + O&M
costs $ costs $
Before EPC
Before EPC During EPC
During EPC After EPC
After EPC
契約終止後
Basic concept of energy performance contracting (EPC)

5. Introduction to EPC
• Performance contract
• Contract with payments based in performance
• Can be used for energy conservation projects, to
mitigate indoor air quality concerns, to reduce
water & sewage usage, or to implement renewable
energy systems
• ESCO guarantees and takes the risk of not
achieving savings; it is paid back out of the
savings (around 4-10 years)

6. Introduction to EPC
• Benefits of EPC for a business
• Reduced risk (contractor guarantees)
• Turnkey services (contractor provides all services)
• The business needs less internal expertise
• Project financing could be ‘off balance sheet’
• Advanced products & services can be used
• Savings can be much higher than done by itself
• Additional improvements to built environment

7. Introduction to EPC
• Typical saving measures include:
• Energy reduction via equipment retrofitting
• Such as replace lighting equipment, chillers & boilers
• Fuel saving measures
• Such as add window films, insulation or pool cover
• Load shifting
• Such as by energy management control systems
• Modification of operating procedures
• Water & resource efficiency measures

8. Introduction to EPC
• Different ways of structuring such a contract
• ‘Guaranteed savings’
• Most common; length 4-8 years
• Allow extra measures to be added
• ‘Shared savings’
• The Client & ESCO share the savings; up to 10 years
• Actual cost not included in contract
• ‘Pay from savings’
• Variation from shared savings; operates like a loan
• ‘Chauffage’ or full services (ESCO takes over)

9. Market Potential
• External factors
• Large stock of existing buildings (esp.
commercial)
• Energy cost is a concern for developers/owners
• Savings not difficult to obtain from equipment
optimization, retrofitting or retrocommissioning
• Potential ESCO market
• In HK, potential market around US$100 million
• Air-conditioning & lighting are major areas

10. Total floor area ('000 sq.m) Building Newly Completed in 1968-2000
5,000
1977-1992 (10 to 25 years old, from 2002) Combined residential &
non-residential
4,500
Non-residential
4,000
Residential
3,500
3,000
2,500
2,000
1,500
1,000
500
0
1968
1969
1970
1976
1977
1978
1979
1980
1981
1982
1983
1989
1990
1991
1992
1993
1994
1995
1996
1971
1972
1973
1974
1975
1984
1985
1986
1987
1988
1997
1998
1999
2000
Year
Building completed in 1968-2000 in Hong Kong

11. Market Potential
• Current EPC active players
• Automatic control companies
• Building services consultants/contractors
• Semi-government bodies (e.g. HKPC)
• Power companies (for demand side management)
• Private energy/environmental consultants
• Government energy projects
• Electrical & Mechanical Services Dept. (EMSD)
is active in promoting EPC

12. Market Potential
• Prospects
• Growing concern on energy & environment
• Achieving sustainable performance!
• Saving energy & operating costs
• Policy tools & programmes by government
• Building energy codes (performance-based), energy
labels, pilot renewable energy projects
• Water-cooled air-conditioning systems (converting of
air-cooled systems)
• Need to maintain & upgrade existing buildings

13. Major Barriers & Risks
• Major barriers
• Weak awareness & experience
• Skepticism of stakeholders
• Problems with conventional procurement process
• Problems with measurement & verification
• Key factors for successful EPC
• ESCO has the technical, financial & mgt. skills
• Customer & ESCO have a partnership
• Good understanding of project goals

14. Major Barriers & Risks
• Typical EPC project stages
• Stage 1: The opportunity assessment
• Stage 2: Preliminary energy services
• Stage 3: Develop detailed proposal
• Stage 4: Project implementation
• Stage 5: Performance assurance + M&V services
• Risks associated with EPC
• Technical knowledge & management culture
• Financing risks & guarantees
• Argument on savings & responsibilities

15. Key Issues
• Choosing a contractor
• Equipment suppliers
• Best if their technologies are the main measures
• Fee-based ESCO
• Best for a wide range of measures or long-term
facilities management
• Utility-based ESCO
• Best if focus on electricity or gas technologies
• International energy companies
• Best for international connection & overseas
technology transfer

16. Key Issues
• Project financing
• By the ESCO itself
• As a loan from financial institution
• By working together with the client
• Under adverse economy
• The client may not have the project capital
• ESCO need to negotiate with bankers to explore
creative financial tools
• Some clients may want to finance themselves

17. ESCO Capital Financier
(Project Developer) (Secured Party)
Fees
Payments
Energy services Finance contract
and savings (lease or loan)
gurantee
Customer
(Project Owner)
Financial structure used by ESCO

18. Key Issues
• Measurement & verification (M&V) methods
• Deemed or stipulated savings
• Payments based on savings estimates, using
measurements or audit + equipment characteristics
• Savings based on utility bills
• Past energy bills determine baseline consumption
• Measured savings
• Compare ‘before’ & ‘after’ measurements
• M&V options & techniques have matured
• Guidelines e.g. IPMVP and ASHRAE 14-P

19. M&V options and analysis techniques
M&V option Analysis techniques
Partially measured retrofit Engineering calculations using short term
isolation or continuous measurements
Retrofit isolation Engineering calculations using short term
or continuous measurements
Whole facility Analysis of whole facility utility meter or
sub-meter data using techniques from
simple comparison to regression analysis.
Calibrated simulation Energy use simulation, calibrated with
hourly or monthly utility billing data
and/or endues metering.

20. Conclusion
• EPC is a useful tool for promoting &
delivering energy efficiency projects
• HK & Mainland China have market potential
in existing & new buildings
• Some barriers need to be overcome & suitable
skills should be developed locally