Energy efficiency is often described as the “first fuel” of the clean energy transition — offering some of the quickest and most cost-effective ways to cut CO₂ emissions. Yet while the logic is simple, the financing rarely is. Whether improving a school, an office building, or a city’s street lighting system, the same challenge appears: investment costs are immediate, while the benefits unfold gradually over many years.
Energy Performance Contracting (EPC) was developed to bridge that gap. Instead of paying in advance for renovation or modernisation, a client partners with an Energy Service Company (e.g. ESCO) — the provider responsible for designing, implementing, and guaranteeing energy-saving measures. The client then repays the investment over time, linked to the verified reduction in energy consumption and operational costs.
While projects today may not always be fully repaid from energy savings alone — given rising construction costs and relatively low energy prices — the EPC model still provides a structured, performance-based approach that makes investment predictable, transparent, and results-driven. It links payments to measurable improvements rather than assumptions, aligning incentives between the client, the contractor, and potential financiers.
How EPCs work in practice
In an EPC, the energy service provider begins with a detailed energy audit to identify where savings can be achieved cost-effectively. This might include insulation, ventilation upgrades, replacement of boilers, integration of smart control systems, or switching to LED streetlights. The audit defines a baseline of current consumption and the likely reduction which can be achieved through the project.
After signing, the energy service provider implements the measures and monitors performance — typically for 5 to 20 years, or up to 30 for complex portfolios. During this time, the provider may also maintain and operate the systems to ensure sustained results.
The repayment structure is what makes EPCs unique. The client’s payments to the energy service provider are based on verified performance. If savings fall short of the guaranteed level, the provider compensates the difference. If savings exceed expectations, the parties may share the additional benefit. This ensures that everyone is focused on outcomes, not simply on the volume of work delivered.
The energy service provider assumes performance and technical risk, allowing clients to be confident that promised results will be achieved. EPCs therefore serve as a bridge between technical implementation and finance — translating technical efficiency into predictable economic value.
Beyond buildings: EPCs for modern infrastructure
While EPCs are often associated with building renovation, their potential extends much further. The same principle can be applied to any project wherein energy is consumed and savings can be verified.
Street lighting is one of the most common applications. Cities across Europe have replaced thousands of outdated fixtures with smart, efficient LED systems using EPC. The savings on electricity and maintenance cover the investment, and citizens benefit immediately from higher quality lighting and feeling safer.
Similarly, EPCs can support the optimisation of district heating systems, the electrification of industrial processes, and the integration of renewable energy technologies.1 In each case, performance-based contracting ensures that improvements are technically sound, financially transparent, and accountable over time.
This flexibility is key to the EPC’s appeal. Rather than being a one-size-fits-all financing instrument, it is a service model that can be adapted to different sectors, ownership structures, and risk appetites. The success any EPC project depends on good project preparation, transparent and international measurement and verification (M&V) protocols, and trust between partners.
EPCs beyond energy efficiency measures (EPC+)
While traditional EPCs focus mainly on direct energy-saving measures — such as insulation, heating system upgrades, or lighting replacement — in many cases, these measures alone are not enough to meet modern building standards. Much of Europe’s building stock is outdated and requires deep renovation, which also involves improvements to ventilation, moisture protection, structural integrity, accessibility, and overall living quality.
To address this reality, the Latvian Building Energy Efficiency Facility (LABEEF) has developed the EPC+ concept — an enhanced form of Energy Performance Contracting designed to make comprehensive renovation feasible. EPC+ extends the conventional EPC framework to include a broader range of works and longer contract durations, typically up to 30 years, allowing both energy-related and non-energy improvements to be bundled within a single, performance-based agreement.
A defining feature of EPC+ is the use of on-bill repayment mechanisms. Instead of making separate financing payments, building occupants or owners continue to pay their regular energy or service bills, which now include a portion that covers the renovation cost. Because these payments are channelled through existing billing systems, administrative costs remain low and the risk of default is reduced. The total bill usually stays predictable and affordable, as repayments are linked to verified reductions in energy consumption and improved comfort levels.
This approach not only responds to the physical condition of Europe’s ageing buildings but also reflects the direction set in the EED-recast and recommendation on transposing Article 302 which urges Member States to combine public and private finance and to establish or use financing facilities that can support complex renovation projects. EPC+ embodies this principle in practice: it mobilises private capital through long-term, performance-based contracts that align technical upgrades, social value, and financial viability.
By combining energy savings with other performance criteria such as comfort, safety, and durability — and by embedding repayment within familiar utility billing systems — EPC+ transforms deep renovation from a one-off construction exercise into a structured, service-based investment. It provides a replicable model for how Europe’s national and regional energy-efficiency funds, as envisaged in the EED and its Recommendation, can work hand-in-hand with private facilities to deliver measurable, long-term improvements to the continent’s ageing building stock.
From contractual innovation to financial scalability
While EPCs unlock the technical and organisational side of energy efficiency projects their expansion also depends on financial innovation. Once an energy service provider completes several projects, its financial capacity can become tied up in long-term receivables — payments spread across many years. This slows growth and limits how many projects can be financed simultaneously.
To address this, many energy service providers and investors use a complementary instrument: the sale of receivables, or forfaiting. Once performance is verified, the energy service provider can sell its right to future payments to an investor, a specialised fund, or a commercial bank. The investor pays the provider the discounted present value upfront and then collects payments from the client over the contract term.
This structure unlocks liquidity for the provider, enabling reinvestment in new projects, while providing investors with a stable, low-risk income stream tied to real assets and measurable performance. The model does not change the EPC structure; rather, it enhances its scalability by connecting it with long-term capital markets.
As more investors look for verifiable, ESG-aligned assets, the combination of EPCs and receivables sales creates a bridge between technical energy savings and financial products familiar to banks and infrastructure funds. In effect, energy efficiency becomes a new investable asset class — structured, monitored, and performance-based.
Why EPCs matter now
The relevance of EPCs has only increased as Europe moves toward more ambitious decarbonisation targets. The revised Energy Efficiency Directive (EED 2023/1791) and the Energy Performance of Buildings Directive (EPBD) both emphasise measurable performance improvements and the mobilisation of private capital.
In this context, EPCs play a dual role. Technically, they ensure that efficiency gains are delivered and maintained. Financially, they provide a framework through which private investment can flow into projects that might otherwise remain unfunded. For governments and organisations facing budget constraints, EPCs represent a way to act now without waiting for new subsidy cycles or debt approvals.
Furthermore, EPCs encourage a culture of long-term performance management. Instead of one-off construction projects, they create ongoing partnerships that monitor efficiency, comfort, and operational reliability. This long-term accountability supports not just carbon reduction, but also better asset management and resilience.
Together, these factors make EPCs a cornerstone of Europe’s efforts to turn climate objectives into tangible, financeable projects.
A path to be tested through the LEVERAGE Accelerator
The LEVERAGE Accelerator builds on these principles. It explores how EPCs and related financing models can be scaled up to accelerate capital-intensive decarbonisation across Europe. By bringing together public authorities, financial institutions, and technical partners. The LEVERAGE Accelerator aims to demonstrate that efficiency-based contracting can attract private capital while maintaining transparency and measurable outcomes.
Through practical testing and knowledge exchange, the project seeks to turn what is still a niche market into a mainstream tool for climate investment — one that works equally well for buildings, infrastructure, and energy systems.
In this sense, EPCs are more than a contract type; they are a blueprint for how Europe can deliver on its climate goals — connecting performance with finance, engineering with accountability, and local action with long-term investment.