Energy Savings Performance Contracting

Frequently Asked Questions

Frequently Asked Questions

What is Energy Savings Performance Contracting (ESPC)?

Energy Savings Performance Contracting (ESPC) is a budget-neutral procurement method that enables organizations—such as public agencies, schools, and hospitals—to fund major energy-efficient infrastructure upgrades without upfront capital costs. Improvements are instead paid for through guaranteed future energy savings.

How does an ESPC differ from traditional construction?

Traditional construction separates design, bidding, and implementation. ESPC uses a “turnkey” approach where a single Energy Services Company (ESCO) designs, constructs, and manages the project. Crucially, the ESCO guarantees the long-term energy savings and assumes the performance risk.

What happens if the guaranteed savings are not met?

Under an ESPC, the ESCO guarantees that the energy and operational savings will cover the project costs over the life of the contract. If the project fails to generate the projected savings, the ESCO is typically contractually obligated to pay the difference.