Innovative Procurement Frameworks for Energy Performance Contracting in the UK Public Sector

Abstract

Procurement Frameworks for Energy Performance Contracting (PFEPCs) simplify the process of negotiating, developing and implementing Energy Performance Contracts (EPCs) with Energy Service Companies (ESCOs). This paper analyses their role in promoting the implementation of cost-effective energy efficiency measures in the UK public sector. Compared to conventional approaches to procuring goods and services involving detailed specifications, PFEPCs translate the challenge of upgrading, retrofitting and replacing energy related equipment and infrastructures into required outputs through functional specifications. The innovativeness of specific PFEPCs often lies less in the diffusion of ‘developmental’ innovative energy efficient solutions, although partner bidding approaches create favourable conditions for innovation. However increasing standardisation and bundling prove successful at lowering transaction cost, which enables ESCOs to address projects which would not be considered in the absence of PFEPCs due to high transaction costs. This particular organisational innovation opens the market up to new approaches to implementing cost- effective energy efficiency measures.

Keywords: Energy efficiency, energy performance contracting (EPC), energy service companies (ESCOs), public procurement of innovation, public sector

JEL Classification: O33, O38, Q41, Q48