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Energy performance contract

The energy performance contract is for energy efficiency in government buildings. It aims to reduce operating costs and emissions.

Greener Government Buildings

Greener Government Buildings (GGB) is a program that improves the energy efficiency of existing government buildings to reduce operating costs and greenhouse gas (GHG) emissions. Energy is saved through a combination of:

  • lighting upgrades (e.g. LED)
  • heating, ventilation and cooling upgrades (HVAC)
  • solar panels
  • building automation and controls

GGB latest news

As part of the 2020-21 Budget, the Victorian Government announced it will invest an additional $60m to the GGB program to create a $200m pipeline of projects over the next 10 years. This investment will establish a revolving fund of approximately $20 million per year and is in addition to the $280 million that the Government has already funded since 2009.

The Government will use Energy Performance Contracts (EOP) or equivalent processes to ensure the best and most efficient solutions are identified, and savings are guaranteed, measured and verified. 

In addition to the above, Public Non-Financial Corporations (PNFCs) that have the power to borrow may access loans directly through the Treasury Corporation of Victoria (TCV) for GGB projects. These loans will be made available at the bond rate, excluding the Financial Accommodation Levy (FAL) that is typically applied to their borrowings.

What is an EPC?

An EPC is a process where a contractor is engaged to design, implement, verify and guarantee the savings from an energy efficiency project. This method of delivering energy efficiency upgrades to buildings is considered low risk and is widely accepted around the world.

Under the GGB program, the EPC aims to achieve a 5-year simple payback period for all projects, i.e. projects must pay for themselves with the savings achieved over 5 years. However, EPCs are not suitable for all facilities and are typically only used for large and/or complex buildings, e.g. hospitals, TAFEs, large office buildings, sporting complexes, etc. For smaller sites such as schools, alternative approaches may be preferable.

Alternatives to EPC

In instances where department or agency’s total energy consumption is too small to attract the market to deliver an EPC (usually less than 1 GWh annual electricity consumption), or the building services are relatively simple, an alternative project delivery method to EPC may be considered. In these instances, departments/agencies should contact DTF for further advice.

EPC process

The EPC process under EGB consists of 7 stages as outlined below.

  1. Departments and agencies should complete a project plan using the Project Plan Template and secure pre-approval from a financial delegate with capacity to approve the expected level of eventual project costs. The project plan should be completed in consultation with a member from the EGB team who can provide advice to the expected contract size, project scope and identify financing options. The project plan should include:

    • details of the buildings to be considered for energy/water saving opportunities
    • the process to engage with contractors and determine the project scope
    • the proposed governance structure, including details of the ‘Project Sponsor’ and ‘Project Manager’ within the department/agency
    • expected timelines
    • constraints and dependencies
    • risks
  2. At this stage, details of the scope and opportunities for the project are distributed to a panel of prequalified EPC providers. These contractors are Energy Service Companies (ESCOs) who have been pre-qualified by DTF and have demonstrated the required competencies in delivering energy performance contracting (EPC) projects. Information about the members of the panel can be found here.

  3. After receiving the EOIs, the department or agency will select the 3 contractors to take part in a competitive tender called a RFP.

    Tenderers will be provided with details of the buildings included in the project, including their annual historical energy consumption, and current utility rates.

    Request for Proposal template

    Further to a standard tender, the RFP involves competitively auditing the buildings to identify energy efficiency measures. Tenderers will typically have around 10 weeks to undertake audits, after which they will be required to submit a proposal including details of the recommended energy/water saving solutions, along with proposed costs and savings of each measure.  

    Consistent with a level 2 energy audit, project costs and savings included in the RFP submissions are expected to be accurate to within 20%.

  4. Once the RFP submissions have been reviewed, a preferred contractor is selected to proceed to the DFS stage. At this stage, the Detailed Facility Study Agreement is negotiated with the preferred contractor. 

    This contract sets out the terms and conditions under which the contractor will perform the DFS on the buildings. The DFS agreement also states that the contractor will be paid a DFS fee (typically in the order of 2 to 5% of the eventual contract sum) if the customer decides not to proceed with the proposed works. Once the terms are set, the contractor will commence the detailed study which, when complete, should outline the exact scope of works, including a fixed quotation for all implementation and ongoing costs, and the level of savings that the contractor will guarantee under an EPC.

    The DFS will also include a Measurement and Verification Plan (MVP) which describes the process by which the contractor will measure and verify the savings. A Detailed Facility Study & Measurement and Verification Plan Template is available.

  5. If the project outlined in the DFS is approved and funding for the project is confirmed, the Energy Performance Contracting. The EPC includes details of the exact scope of works (based on the detailed facility study), the commissioning procedure, maintenance schedules, project costs and the performance guarantee, which is supported by the measurement and verification plan.

  6. The first key deliverable after signing an EPC is the Works Specification. The Works Specification, which is described in Schedule 2 of the EPC, should contain any additional information the customer requires (over and above what was provided in the DFS) in order to give approval for the works to commence.

    The level of detail required in a works specification will vary from project to project, and is typically informed by processes and practices of the customer, and the specifics (e.g. level of perceived risk) of the proposed works.

    Typical inclusions within a works specification are design drawings of planned system modifications and installations, project plans, data sheets, details of contractors, and possibly samples of equipment (e.g. lighting).

    In instances where the DFS already includes this information, it may be decided between the customer and the contractor to bypass the works specification stage.

  7. During the installation stage, the ESCO may install, or engage subcontractors to install the contracted solutions. Once solutions are installed and confirmed by the customer, the ‘guarantee period’ begins. Consistent with the details of the agreed MVP, the contractor is required to to demonstrate the actual savings achieved over the guarantee period. If savings in any year fail to meet the guaranteed savings (as stated in the EPC), the contractor is required to reimburse the customer for the shortfall.

Current and past projects

Since its establishment in 2009, Greener Government Buildings has facilitated $280 million in energy efficiency and renewable energy projects across 38 projects. Combined, these projects are estimated to achieve annual savings of $39 million and abate over 173,000 tonnes of greenhouse gases per year.

Past and current projects include:

Project Contractor Status GHG Savings
Treasury Office Buildings Johnson Controls Guarantee Period 29%
State-wide LED Traffic Lighting Upgrade Various (not EPC) Complete 70%
Melbourne Sports and Aquatic Centre Total Energy Solutions Guarantee Period 29%
South West TAFE Institute Total Energy Solutions Guarantee Period 30%
Kangan TAFE Institute A.G. Coombs Guarantee Period 15%
Federation Square Siemens Guarantee Period 55%
Grampians Wimmera Mallee Water CarbonetiX Guarantee Period 9%
City of Yarra Ecosave Guarantee Period N/A
Melbourne Cricket Ground Siemens Guarantee Period 19%
Sunraysia TAFE Schneider Guarantee Period 23%
RMIT Bundoora & Brunswick Campuses Honeywell Guarantee Period 52%
RMIT City Campus Siemens Guarantee Period 34%
Museums Victoria Siemens Guarantee Period 66%
East Gippsland Water Ecosave Guarantee Period 41%
Public Housing (high-rise) Various (not EPC) Installing 58%
Metropolitan Fire Brigade Ecosave Guarantee Period 13%
Chisholm Institute Ecosave Guarantee Period 29%
West Gippsland Health Schneider Guarantee Period 59%
Holmesglen Institute Total Energy Solutions Guarantee Period 36%
Austin Health Honeywell Guarantee Period 2%
Melbourne Polytechnic A.G. Coombs Guarantee Period 40%
Central Gippsland Health Solar Various (not EPC) Complete
Peninsula Health FG Advisory Installing

21%

Gordon Institute FG Advisory Installing 34%
Freeway LED Lighting Renewal Various (not EPC) Installing

N/A

Gippsland Region Health Solar Various (EPC) Complete
Barwon-Southwestern Region Various (EPC) Complete
Health Solar
National Gallery Victoria Siemens Detailed Facility Study 16%
Northern Health FG Advisory Detailed Facility Study N/A
Primary and Secondary Schools Various Contractors Stage 1 Installations N/A
Boxhill Institute N/A Tendering N/A

Lead agency: Department of Treasury and Finance
Conditions of use: Non-mandatory
Reference number: GGB-01
Arrangement: Open panel
Start date: 01/09/2010
End date: 30/06/2021

Reviewed 17 March 2021

Buying for Victoria

Primary contact:

Peter Phan (Energy & Environmental Project Manager, Greener Government Buildings) Department of Treasury and Finance

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