Contracting is an energy service in which an external service provider – known as the contractor – takes on tasks relating to a building’s energy supply or energy efficiency. The contractor plans the measures, usually makes the necessary investments, operates the technical systems and assumes part of the financial and technical risk. This means the building owner does not have to finance the measures themselves and, at the same time, benefits from the service provider’s expertise.
What is contracting?
In contracting, a building owner transfers certain tasks relating to energy supply or efficiency improvements to a specialised service provider. The service provider develops a concept tailored to the building, implements it, finances the technology and takes care of operation and maintenance. They are remunerated based on the energy supplied or the savings achieved. Contracting is therefore both a financing and a service model, and an alternative to carrying out the work in-house. A key feature is the transfer of tasks and risks: the contractor bears the financial and technical responsibility for the system for the duration of the contract, whilst the client receives a predictable service under fixed terms and conditions.
What types of contracting models are there?
A distinction is usually made between four basic models, which differ in terms of who invests, who operates the system and what the remuneration is based on:
- Energy supply contracting, also known as system contracting or useful energy supply: The contractor plans, finances, constructs and operates the system and supplies useful energy such as heating or cooling under fixed terms. This is the most widespread form in Germany.
- Energy-saving contracting, also known as savings contracting or energy performance contracting: The contractor implements efficiency measures and contractually guarantees a specific level of savings. Their remuneration is derived from the energy costs saved.
- Operational management contracting, also known as technical plant management: The plant belongs to the owner; the contractor takes over its operation and optimisation and ensures it is run as economically as possible.
- Financing contracting, also known as plant construction leasing or third-party financing: The contractor finances and constructs the plant, but the operational risk remains with the owner. In practice, this model plays a lesser role.
For the energy optimisation of non-residential buildings, energy supply contracting and energy-saving contracting are particularly relevant.
How does energy-saving contracting work?
Energy-saving contracting, known internationally as energy performance contracting, is directly aimed at reducing energy consumption. Following an analysis – which is usually provided free of charge – the contractor presents a package of measures and guarantees a defined level of energy savings. If the contract is concluded, the contractor plans, finances and implements the measures, and verifies the savings achieved through ongoing monitoring. Their remuneration is funded from the energy cost savings until the investment and profit have been recouped over the term of the contract. If the guaranteed savings are not achieved, the contractor usually bears the shortfall, thereby clearly allocating the financial risk. Several properties can be grouped into a pool to ensure that even smaller properties are economically viable.
Who owns the system and how long does a contract run for?
During the contract term, the system usually remains the property of the contractor. Alternatively, it may remain the property of the building owner and be leased to the contractor; the exact arrangement depends on the contract. Contracting agreements are long-term in nature, often spanning ten to twenty years, as the investment only pays for itself over this period. It is often stipulated that ownership of the system is transferred to the building owner at the end of the contract. This long-term commitment is also an important consideration, as it affects issues such as price indexation clauses, the scope of maintenance and exit conditions.
Who benefits from contracting?
Contracting is particularly suitable for owners and operators who wish to implement efficiency or refurbishment measures without having to make an investment themselves or bear the technical risk. The model is particularly widespread in the public sector and for large properties, as it allows outdated plant technology to be modernised without placing an immediate strain on one’s own budget. The benefits include pooled expertise, risk transfer and contractually guaranteed performance. The drawbacks, however, are the long-term contractual commitment and reduced flexibility on the part of the client. A reliable data set on actual consumption – for example, from an energy monitoring system – is essential for a viable model.
Related terms
Sources and further information
- Betterspace: Regulatorik, ESG und Resilienz für Betreiber
- Betterspace: better.energy radiator control
- Bundesstelle für Energieeffizienz (BfEE): Contracting und Energiedienstleistungen
- Deutsche Energie-Agentur (dena), Kompetenzzentrum Contracting: Energiespar-Contracting
- Gebäudeforum klimaneutral: Contracting als Energiedienstleistung