Achieving energy saving in the public sector through “Energy Performance Contracts”. Is it the right tool?

Panel: 5. Saving energy in buildings: The time to act is now

This is a peer-reviewed paper.

Authors:
Eshien Chong, ADIS, Faculté Jean Monnet, Université Paris Sud 11, France
Aude Le Lannie, Chaire EPPP, Institut d’Administration des Entreprises de Paris, Université Paris 1 Panthéon-Sorbonne, France
Carine Staropoli, Centre d’Economie de la Sorbonne (CES), France

Abstract

The European Commission has emphasized the role that the public sector should play in view of achieving energy efficiency and to reach the goal set in the EU Climate and Energy objectives. Tthe EU Directive 2006/32/EC provide a legal framework for a new contractual instrument called “Energy Performance Contracts” (EPC) as a means to encourage and promote innovative approaches to concretize energy efficiency in public buildings. Under EPCs, the private contractor's revenue depends at least partly on energy savings that have been achieved, in contrast with more traditional instruments where the public sector contracts on the means rather than end results. Consequently, EPCs are expected to provide better incentives for the private contractor involved, and allow the public sector to benefit from innovative solutions leading to energy savings.

In this paper, we intend to investigate whether, and under which circumstances, EPCs are able to deliver their promises in terms achieving energy efficiency in public buildings. Indeed, answers to this question would enhance our understanding of the role and the scope of this policy tool as a useful and efficient means to achieve the objective of energy reductions in the EU. We focus in this paper on a salient feature of EPCs: the reliance on performance measures. To the extent that the performances measures used in a contract are perfectly aligned with the goals pursued by the public sector, EPCs may be expected to deliver their promises. However, in reality, it is often difficult to find performance measures that perfectly reflect the goals pursued, and this may be particularly true when one contracts on ex post energy savings. How then will the efficiency of such contractual arrangements be affected? Will EPCs still be a useful tool when ex post energy savings are hard to measure? We will rely on recent developments in the field the economics of contracts to deals with these issues.