Energy performance contracts

Last updated: 5 November 2017
The Federal Law No. 261-FZ "On Energy Conservation and Increase of Energy Efficiency € introduces a new type of civil-law agreement - the energy performance contract (EPC). The contractor under this kind of arrangement undertakes to take steps aimed at energy savings by the customer and increasing efficiency of energy resource consumption. The Civil Code of the Russian Federation (the "Civil Code €) provides no regulation for such contracts, while the Law itself offers special regulation for only some of their aspects, so that in the remainder the parties to an energy performance contract are free to agree upon its terms and conditions subject to the Civil Code general provisions on contracts.
The Law defines the following terms and conditions of an energy service contract as material:
(a) the extent of energy savings to be achieved by the contractor;
(b) the term of the contract, which may not be shorter than the period necessary to achieve such savings; and
(c) such other obligatory conditions as are required for energy performance contracts by the applicable legislation of the Russian Federation.
A contract price does not constitute a material condition of an energy performance contract.
EPC, as a new type of contract, should be particularly attractive to the public sector, as it allows public entities and state-owned companies to invest in energy efficient technologies and/or renewables at limited cost. Indeed, no or little upfront investment is usually required from the customer, as the investor takes upon itself some of the key project risks and gets paid from the energy savings made by the customer.
The energy performance contract, as a new type of contract, should be particularly attractive to the public sector, as it allows public entities and state-owned companies to invest in energy efficient technologies and/or renewables at limited cost. Indeed, no or little upfront investment is usually required from the customer, as the investor takes upon itself some of the key project risks and gets paid from the energy savings made by the customer.
The key role in every EPC mechanism play energy service companies (ESCOs). ESCO might be a commercial or non-profit business providing a broad range of comprehensive energy solutions for energy end-users. The main aim of ESCO projects is to enhance energy efficiency and savings and, consequently, to reduce greenhouse gas (GHG) emissions. An ESCO may provide further value-added services, such as energy auditing, energy management, comprehensive engineering, project design, and specifications and implementation, but also procurement and installation of equipment, facility and equipment operation and maintenance (O&M) for the contract period, monitoring and verification (M&V) of the savings results etc. In Russia, ESCOs can take a significant role to promote energy efficiency and savings, as well as to address environmental issues of the country.
In line with the Federal Law No. 261-FZ "On Energy Conservation and Increase of Energy Efficiency € the Federal State Unitary Enterprise "Federal Energy Service Company € (FESCO) was established in July 2011 under the supervision of the Ministry of Energy of the Russian Federation (in accordance with Decree No. 274). The main goals of FESCO are the development of the energy services market in Russia by expert and informational support through technical solutions for ESCOs; technical expertise and monitoring of energy efficiency project implementation; unification and type-design of engineering solutions; establishing centres of competence; activity-planning at regional and municipal levels; bringing energy service activities to international standards; integration of energy service agreements into the federal budget system; advancement of international cooperation; promotion of domestic production of energy efficiency- and energy saving technologies and technological development in the fiel

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