Implementing an energy performance contract: Learning from the City of Cape Town

Submitted by: Jonathan Ramayia, Monday, January 21, 2013

“Implementing an energy performance contract is suitable for large organisations such as municipalities, who consume a lot of electricity and a good way of ensuring savings when investing in expensive energy efficiency interventions”, says Wouter Roggen from the City of Cape Town (CCT). The City’s Energy and Climate Change Unit of the Environmental Resource Management Department successfully implemented an energy performance contract (EPC), which was drawn up for energy efficient interventions in four public administration buildings, namely Durbanville, Fezeka, Plumstead and Ottery. An EPC provides clients, such as municipalities, with a comprehensive set of energy efficiency and/or renewable energy and distributed generation measures and is accompanied with guarantees that the savings produced by a set of energy efficient interventions will be sufficient to finance the full cost of the project.

Appointing an ESCo, drawing up the EPC

The first step to implementing an EPC is the appointment of an approved Energy Services Company (ESCo). The ESCo is responsible for conducting audits and is the organisation who will sign to ensure that agreed energy savings will be achieved after a specified period. In 2009/2010, the City of Cape Town contracted an ESCo to embark on the process to implement the EPC. Four buildings were selected for the EPC and energy audits were conducted by the ESCo.  The audits aimed to understand the energy consumption in these four buildings and looked at lighting, space heating and cooling, water heating, computer usage and staff behaviour and working habits. After a detailed audit was finalised and energy data collected, the ESCo sent the city a proposal or implementation plan for each of the buildings, “once the audits were reviewed, we sat down and reviewed the implementation plan submitted by the ESCo and agreed on which would be the most beneficial interventions in terms of our goals as a Municipality. This decision was driven by the pay-back period, that is how quick the energy savings would pay off the costs of intervention, but also by the high public interface in some cases e.g. the choice to install solar water heaters was as much about their visibility to the staff and the public going in and out of the building as about energy saving”, said Roggen.

The implementation included a number of interventions and estimated the electricity savings that would be achieved per year as a result of those interventions. The table below shows the estimated savings that would be generated from the interventions implemented on the project as projected by the ESCo. The various technical interventions proposed included solar water heaters; intelligent thermostat control; daylight control for outside lights; installation of timers on air-conditioning units and; installation of power factor correction units.

After the interventions were agreed on, the ESCo was required to guarantee annual savings which was done through the submission of a bank guarantee to the City of Cape Town. This guarantee is based on the energy consumption and energy demand reductions outlined in the implementation plan, and is converted into a financial amount based on the relevant City electricity tariff amount (such as the Small Power User High Consumer or the Large Power User Low Voltage tariffs).


Daylight control for outside lights

Efficient lighting & control gear

HVAC - operating hours optimisation

Intelligent thermostat control on HVAC

Solar Water Heating

Total annual savings




118 830

10 260

18 500

8 310

155 900



56 900



20 030

76 930


5 550

25 540

3 570


5 150

39 810



61 400



4 230

65 630


5 550

262 670

13 830

18 500

37 720

338 270

The EPC works such that if the savings in electricity be less than that stipulated in the contract, the ESCo would be required to supplement the realised savings with their own funding to reach the guaranteed amount.  If the savings are higher than guaranteed, the guarantee period is shortened, and the ESCo released of the commitment earlier.

It is important to both the City and the ESCo to ensure that the actual savings are properly monitored, “since it is the ESCo’s bread and butter, they have to ensure that the actual savings were being monitored properly”, said Roggen. In certain instances, the baseline had to be adjusted, but this was done in consultation with the city.

Only one performance contract was drawn up for all four buildings, “this removes the administrative burden of drawing up a contract for each of the buildings and if one building over delivers on savings and the other under delivers, the total savings is calculated and the ESCo is bound by this total”, says Roggen. This means that only one guarantee is submitted each year, which is less of an administrative burden, while still ensuring that the overall performance of the project is in line with what was promised.

Holistic approach – behavioural interventions

Apart from the technical interventions that were undertaken, the City saw an opportunity to influence the behavioural habits of the building users given the fact that building users control much of the energy use within the buildings, including computers, lighting and air-conditioning. As part of the campaign, building users were informed of the various interventions that were taking place in the buildings and were influenced to make their own effort to save electricity even further than what was being achieved through the technical interventions. Posters were put up in each building to encourage further energy saving and staff were kept informed of monthly savings as a result of the interventions. Staff engagement workshops were also held to build capacity with staff members and key staff participants such as building managers.   

Savings and building performance

In the first year, the savings achieved exceeded the savings guaranteed by the ESCo. The savings achieved is attributed primarily to the implementation of the EPC which holds the ESCo to the savings promised. Although not as easily quantifiable, another important factor influencing the success of the project was the behaviour change interventions and the successful engagement with building managers and tenants. The savings in each building varied, with Plumstead achieving the highest savings and was one of only two buildings to achieve the targeted savings in the first year, the other one being Fezeka. In spite of this, the overall target was achieved and the savings were higher than predicted. In the case of Plumstead, the high savings were due to the implementation of air-conditioning set point controllers which none of the other buildings had received.

The savings are expected to be approximately 520MWh each year from lighting retrofits alone.

Challenges faced when implementing EPCs

Procurement and contracting

“Due to municipal processes, implementing an EPC can be very tricky given the fact that all municipalities, including CCT are governed by the Municipal Financial Management Act (MFMA), upon which its Supply Chain Management Policy (SCMP) is based”, say Roggen. The EPC was the first for the City and the challenge was to explain how this would work to the SCM department, which required careful explanation.

Payback/guarantee period

It is important to align the broader EPC with the overall payback period. In the CCT example, the overall payback period for the project is an estimated 7 years (depending on the tariff). In particular, the solar water heaters had a longer payback period and future projects may omit the installation of solar water heaters where they are not deemed necessary.

Maintenance requirements

Although general maintenance costs have decreased due to the fact that light bulbs have longer life spans and need to be changed less regularly, the maintenance required to maintain the guaranteed savings, through counting and checking lights and maintaining the technologies implemented, has a cost associated with it. The City is having to account for this by including a maintenance contract – which has an impact on the efficiency of the technologies, and in turn the savings that can be guaranteed by the project. It is important that a skills transfer takes place so that maintenance can be carried out internally.

Setting the guaranteed saving amount

Reaching an agreement on the guaranteed saving amount can be a challenge. The guarantor will more likely want to underestimate savings (or set the level as low as possible) and the project manager will want to maximise the savings.  In the end, the agreed actual savings guaranteed would be a compromise between the two parties’ goals.

The success of this project has helped to motivate for further energy efficiency building retrofits.  Funding received from the Department of Energy has been used to implement energy saving measures in fourteen other City buildings, including libraries, clinics, workshops and administrative buildings.

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Jonathan Ramayia