Explaining the contract terms of energy performance contracting in China: The importance of effective financing

Yan Li, Yueming Qiu, Yi David Wang

Research output: Contribution to journalArticle

15 Scopus citations

Abstract

Energy service company ("ESCO") uses Energy Performance Contracting ("EPC") to provide energy-saving services to its clients. Under an EPC, both ESCO and the client invest in the energy efficiency measures, according to a negotiated share of investment. Within the length of the contract, the ESCO and its client divide up the saved energy bill according to a negotiated share. Once the contract expires, the client claims all of the saved energy bills if the energy efficiency measures still last. Different EPC projects have different contract terms, including total investment, share of investment and length of contract. These contract terms directly determine the resulted energy savings. Thus it is essential and important to look at how these contract terms are formed and what are the major influencing factors. This paper first builds a theoretical bargain model between ESCO and its client to find out the structural relationship among these contract terms. Then, using the information of about 140 EPC contracts in China in 2010 and 2011, the paper empirically estimates the impacts of various factors on the contract terms and the resulted energy savings. We find that cost of capitals for ESCOs and the clients, especially for ESCOs, is a major factor influencing contract terms and the resulted energy savings. Thus providing effective financing is critical for the development of EPC in China.

Original languageEnglish (US)
Pages (from-to)401-411
Number of pages11
JournalEnergy Economics
Volume45
DOIs
StatePublished - Sep 2014

Keywords

  • Contract terms
  • Energy performance contracting
  • Financing
  • Low-cost of capital

ASJC Scopus subject areas

  • Economics and Econometrics
  • Energy(all)

Fingerprint Dive into the research topics of 'Explaining the contract terms of energy performance contracting in China: The importance of effective financing'. Together they form a unique fingerprint.

  • Cite this