Energy Policy 39(2011)7389-7398 Contents lists available at SciVerse ScienceDirect Energy Policy ELSEVIER journal homepage:www.elsevier.com/locate/enpol Success factors of energy performance contracting(EPC)for sustainable building energy efficiency retrofit(BEER)of hotel buildings in China Pengpeng Xu*,Edwin Hon-Wan Chan,Queena Kun Qian Department of Building and Real Estate,The Hong Kong Polytechnic University.Hong Kong SAR,PR China ARTICLE INFO ABSTRACT Article history: Hotel building is a type of high-energy-consuming building and most existing hotel buildings need Received 25 March 2011 energy efficiency improvement in China.Energy performance contracting (EPC)is considered a Accepted 1 September 2011 win-win mechanism to organize building energy efficiency retrofit (BEER)project.However,EPC Available online 16 September 2011 mechanism has been introduced into China relatively recently and many EPCs have not been successful Keywords: in building energy efficiency retrofit projects.This research aims to develop a set of critical success Energy performance contracting (EPC) factors(CSFs)of EPC for sustainable energy efficiency retrofit(BEER)of hotel buildings in China.Semi- Critical success factor(CSF) structured interviews and a questionnaire survey with practitioners and other professionals were Building energy efficiency retrofit conducted.The findings reveal the relative importance of the 21 number of identified success factors.In order to explore the underlying relationship among the identified critical success factors(CSFs),factor analysis method was adopted for further investigation,which leads to grouping the 21 identified CSFs into six clusters.These are (1)project organization process,(2)EPC project financing for hotel retrofit. (3)knowledge and innovation of EPC,sustainable development(SD),and M&V,(4)implementation of sustainable development strategy.(5)contractual arrangement,and (6)external economic environ- ment.Finally,several relevant policies were proposed to implement EPC successfully in sustainable BEER in hotel buildings. 2011 Elsevier Ltd.All rights reserved. 1.Introduction (Deng and Burnett,2000).Surveys in 2006 shows that hotels in Beijing have electric consumption of 100-200 kWh/(m2a)(Xue, For the past decades,building energy consumption in China 2007).whilst the range is 55-144.3 kWh/(m2a)for Chongqing has been increasing at more than 10%each year.In 2004,building (Zhou et al,2008).Nine starred hotels in Shanghai show an average energy consumption alone constituted 20.7%national energy energy consumption of 750 kWh/(m2a)(Xue,2007).Hotel buildings consumption and this will be increased to 33%by 2010 (Jiang in general with high energy consumption have a large potential for and Yang.2006;Liang et al.,2007:Chan et al.,2009).Building energy efficiency improvement. energy consumption in large-scale public buildings and commer- Building Energy Efficiency Retrofit(BEER)provides excellent cial buildings,such as offices,hotels,retails,hospitals,and opportunities to reduce energy consumption in buildings as well schools,is up to 70-300 kWh/m2,which is 3-8 times of common as encouraging implementations of other sustainability such as public buildings and 5-15 times of that in urban residential environment protection,rational resources use,and occupants' buildings (THUBERC,2007).Hotel building is one type of large- healthcare.Building Energy Efficiency Retrofit (BEER)is a process scale public/commercial building and its main energy consuming to reduce building operation energy use by certain approaches of systems are heating.ventilation and air conditioning (HVAC). building envelope and mechanical systems improvement,whilst lighting,hot water provision,electricity (lifts,etc.).and cooking. keeping building indoor environment and comfort (Shanghai There is a lack of statistical data about detail energy consumption in Construction and Transportation Commission,2008).BEER has China and hotel energy consumption varies in from one building to significant benefits to society,owners and occupants of buildings. another.Varying occupancy rates throughout the year and varied They include (i)improving environment by reduction of CO2 personal preferences of guests for indoor environment will lead to emission;(ii)saving money on utility bills and reducing main- different operating schedules of building services systems and tenance cost;(iii)creating jobs and career opportunities;and therefore different energy consumption situations in hotel buildings (iv)enhancing comfort,safety and productivity in workplace and community spaces.The process also modernizes buildings and brings operations in line with best practices,which will upgrade *Corresponding author.Tel:+852 6157946;fax:+852 27645131. staff credentials with new knowledge.Sustainable development E-mail address:xupp.cn@gmail.com (P.Xu). as a concept has been gaining increasing popularity across various 0301-4215/S-see front matter 2011 Elsevier Ltd.All rights reserved. doi:10.1016j.enpol..2011.09.001
Success factors of energy performance contracting (EPC) for sustainable building energy efficiency retrofit (BEER) of hotel buildings in China Pengpeng Xu n , Edwin Hon-Wan Chan, Queena Kun Qian Department of Building and Real Estate, The Hong Kong Polytechnic University, Hong Kong SAR, PR China article info Article history: Received 25 March 2011 Accepted 1 September 2011 Available online 16 September 2011 Keywords: Energy performance contracting (EPC) Critical success factor (CSF) Building energy efficiency retrofit abstract Hotel building is a type of high-energy-consuming building and most existing hotel buildings need energy efficiency improvement in China. Energy performance contracting (EPC) is considered a winwin mechanism to organize building energy efficiency retrofit (BEER) project. However, EPC mechanism has been introduced into China relatively recently and many EPCs have not been successful in building energy efficiency retrofit projects. This research aims to develop a set of critical success factors (CSFs) of EPC for sustainable energy efficiency retrofit (BEER) of hotel buildings in China. Semistructured interviews and a questionnaire survey with practitioners and other professionals were conducted. The findings reveal the relative importance of the 21 number of identified success factors. In order to explore the underlying relationship among the identified critical success factors (CSFs), factor analysis method was adopted for further investigation, which leads to grouping the 21 identified CSFs into six clusters. These are (1) project organization process, (2) EPC project financing for hotel retrofit, (3) knowledge and innovation of EPC, sustainable development (SD), and M&V, (4) implementation of sustainable development strategy, (5) contractual arrangement, and (6) external economic environment. Finally, several relevant policies were proposed to implement EPC successfully in sustainable BEER in hotel buildings. & 2011 Elsevier Ltd. All rights reserved. 1. Introduction For the past decades, building energy consumption in China has been increasing at more than 10% each year. In 2004, building energy consumption alone constituted 20.7% national energy consumption and this will be increased to 33% by 2010 (Jiang and Yang, 2006; Liang et al., 2007; Chan et al., 2009). Building energy consumption in large-scale public buildings and commercial buildings, such as offices, hotels, retails, hospitals, and schools, is up to 70–300 kWh/m2 , which is 3–8 times of common public buildings and 515 times of that in urban residential buildings (THUBERC, 2007). Hotel building is one type of largescale public/commercial building and its main energy consuming systems are heating, ventilation and air conditioning (HVAC), lighting, hot water provision, electricity (lifts, etc.), and cooking. There is a lack of statistical data about detail energy consumption in China and hotel energy consumption varies in from one building to another. Varying occupancy rates throughout the year and varied personal preferences of guests for indoor environment will lead to different operating schedules of building services systems and therefore different energy consumption situations in hotel buildings (Deng and Burnett, 2000). Surveys in 2006 shows that hotels in Beijing have electric consumption of 100–200 kWh/(m2 a) (Xue, 2007), whilst the range is 55144.3 kWh/(m2 a) for Chongqing (Zhou et al., 2008). Nine starred hotels in Shanghai show an average energy consumption of 750 kWh/(m2 a) (Xue, 2007). Hotel buildings in general with high energy consumption have a large potential for energy efficiency improvement. Building Energy Efficiency Retrofit (BEER) provides excellent opportunities to reduce energy consumption in buildings as well as encouraging implementations of other sustainability such as environment protection, rational resources use, and occupants’ healthcare. Building Energy Efficiency Retrofit (BEER) is a process to reduce building operation energy use by certain approaches of building envelope and mechanical systems improvement, whilst keeping building indoor environment and comfort (Shanghai Construction and Transportation Commission, 2008). BEER has significant benefits to society, owners and occupants of buildings. They include (i) improving environment by reduction of CO2 emission; (ii) saving money on utility bills and reducing maintenance cost; (iii) creating jobs and career opportunities; and (iv) enhancing comfort, safety and productivity in workplace and community spaces. The process also modernizes buildings and brings operations in line with best practices, which will upgrade staff credentials with new knowledge. Sustainable development as a concept has been gaining increasing popularity across various Contents lists available at SciVerse ScienceDirect journal homepage: www.elsevier.com/locate/enpol Energy Policy 0301-4215/$ - see front matter & 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2011.09.001 n Corresponding author. Tel.: þ852 6157946; fax: þ852 27645131. E-mail address: xupp.cn@gmail.com (P. Xu). Energy Policy 39 (2011) 7389–7398
7390 P.Xu et al.Energy Policy 39(2011)7389-7398 sectors including the construction industry.since the Bruntland contracting is a mechanism for procuring and implementing Commission Report in 1987(WCED,1987).As mentioned above, capital improvements today that are self-funded over time BEER can improve energy efficiency,indoor environment quality through guaranteed operational savings.Performance contracting to help existing buildings becoming green buildings and thus uses operational savings and avoided capital expenditures to fund contribute towards sustainability (Papadopoulos et al.,2002; repayment of capital for building/infrastructure improvements. Gorgolewski,1995:Hong et al.,2006).Sustainability consists of However,EPC principle is not only a financing tool but also a many levels of analysis and it is necessary to integrate the market mechanism for conducting energy efficiency projects. sustainable approach into BEER project level.A real sustainable Energy Performance Contract in the ESCO business may be broadly BEER project should consider economic vitality,environmental defined as a contract between an ESCO and its client,involving an quality,and social equity at project level.Although there are energy efficiency investment in the client's facilities,the perfor- potential energy-saving programs for existing hotel buildings. mance of which is somehow guaranteed by the ESCO,with many of these energy efficiency projects are still not implemen- financial consequences for the ESCO (Taylor et al.,2007).Under ted.The reasons for the hindrance vary and most energy effi- an energy performance contract,the ESCO will provide financing ciency projects stall due to one or a combination of the following for a specified set of measures for energy efficiency retrofit,along perceived barriers(Zobler and Hatcher,2003):lack of(i)money, with associated design,engineering.and installation services. (ii)time or personnel to design and plan the projects because of Through such contracting.the owner or user can achieve high- other higher priorities,(iii)internal expertise to implement the energy efficient facilities and get potential savings with little or projects,and (iv)policy support within the decision making even no front investment.The basic concept of energy perfor- process of the corporation. mance contracting is shown in Fig.1.The first bar represents the Energy performance contracting (EPC)has been introduced as total utility costs of one facility before performance contract.In a market mechanism to deliver energy efficiency projects.EPC is a the second bar,after retrofitting the energy savings are shared by financing package provided by Energy Service Companies(ESCOs) client and ESCO during performance contract period.After perfor- that include energy savings guarantees and associated design and mance contract,all the cost savings belong to client after the installation services for energy efficiency projects.EPC mechan- performance contract period,which is shown in the third bar. ism provides great advantages for building clients to conduct According to the concept of EPC mechanism,EPC mechanism building energy efficiency retrofit projects.However,both build- has lots of advantages for delivering energy efficiency project ing clients and ESCO are profit-oriented.In BEER project,their comparing with other traditional procurement systems.Energy main concern is about their profit from economic aspect and it is performance contracting offers a streamlined approach to making difficult to achieve sustainability of these BEER projects.There are facility improvements because,with a single contract,clients can also some problems leading to failure in implementing these tackle multiple energy-efficient projects throughout the contract- projects with EPC mechanism.The problems include the broad ing period for their facilities,rather than doing one project at a range of risks and uncertainties involved in long-term perfor- time.ESCO can provide a full range of services and continue mance of contracting.the multiple participants involved,and the working with clients once the projects are completed to ensure lack of EPC experience and expertise in China.Therefore,there is that clients get optimal long-term energy performance.EPC as a an urgent need to develop a workable and efficient procurement financing mechanism can provide financing,which transfers non- protocol for improving the implementation of future EPC projects core staff from a client's organization,and can free up a client's of retrofitting existing buildings. capital,allowing a client to focus on its primary business function This research aims to develop a set of critical success factors (Zhao,2007).EPC also provides technology and expertise supports. (CSFs)of EPC projects for implementing Building Energy Effi- Today ESCOs use industry-standard practices and proven energy- ciency Retrofit (BEER)in hotel buildings with emphasis on saving technologies and have excellent track records for satisfying sustainability.In this research,a systematic approach is adopted their customers.ESCOs can specialize in finding the best oppor- to combine several research exercises to analyze the CSFs.First, tunities for improving energy efficiency(Alliance to Save Energy. carry out critical literature review to understand EPC,success 2006).The other advantage in an EPC is that ESCO companies factors for construction project and those factors relevant to BEER. undertake almost all the investment risks,technical risks,market Second,interviews are conducted with some EPC practitioners risks,and performance risks,leaving "zero risk"to customer. and professionals with experience in retrofit projects of hotel EPC was introduced to China in 1996 in partnership with World building,through which a list of nominated factors is identified. Bank and Global Environment Fund.The program aims to intro- Then,a questionnaire survey is carried out with experts with duce EPC,improve energy efficiency,reduce greenhouse gas emis- adequate experience of EPC to solicit opinions regarding each of sions,and to protect global environment in China(Shen,2007).The the nominated factors.Based on the data gathered from the program is divided into two stages.During Stage I(from 1998 to survey,a scaled rating is employed to establish the importance June 2003).three pilot energy service companies (ESCOs,also ranking of these factors.Then,factor analysis method is used to called energy management companies in China-EMCs or EMCOs) investigate the underlying relationship among the identified CSFs were created.They are Beijing ESCO,Liaoning ESCO,and Shandong to find out the clusters that can better represent all the CSFs. 2.Literature review 2.1.Energy performance contracting (EPC) ontract Payments Energy performance contracting (EPC).also known as energy Utilitv Costs service performance contracting.is a financing package from Energy Service Companies (ESCOs)that include energy savings Betore During After guarantees and associated design and installation services for Performance Performance Performance energy efficiency projects,which was emerged in North America Contract Contract Contract in the 1970s after the first oil crisis.Energy performance Fig.1.Basic concept of energy performance contract
sectors including the construction industry, since the Bruntland Commission Report in 1987 (WCED, 1987). As mentioned above, BEER can improve energy efficiency, indoor environment quality to help existing buildings becoming green buildings and thus contribute towards sustainability (Papadopoulos et al., 2002; Gorgolewski, 1995; Hong et al., 2006). Sustainability consists of many levels of analysis and it is necessary to integrate the sustainable approach into BEER project level. A real sustainable BEER project should consider economic vitality, environmental quality, and social equity at project level. Although there are potential energy-saving programs for existing hotel buildings, many of these energy efficiency projects are still not implemented. The reasons for the hindrance vary and most energy effi- ciency projects stall due to one or a combination of the following perceived barriers (Zobler and Hatcher, 2003): lack of (i) money, (ii) time or personnel to design and plan the projects because of other higher priorities, (iii) internal expertise to implement the projects, and (iv) policy support within the decision making process of the corporation. Energy performance contracting (EPC) has been introduced as a market mechanism to deliver energy efficiency projects. EPC is a financing package provided by Energy Service Companies (ESCOs) that include energy savings guarantees and associated design and installation services for energy efficiency projects. EPC mechanism provides great advantages for building clients to conduct building energy efficiency retrofit projects. However, both building clients and ESCO are profit-oriented. In BEER project, their main concern is about their profit from economic aspect and it is difficult to achieve sustainability of these BEER projects. There are also some problems leading to failure in implementing these projects with EPC mechanism. The problems include the broad range of risks and uncertainties involved in long-term performance of contracting, the multiple participants involved, and the lack of EPC experience and expertise in China. Therefore, there is an urgent need to develop a workable and efficient procurement protocol for improving the implementation of future EPC projects of retrofitting existing buildings. This research aims to develop a set of critical success factors (CSFs) of EPC projects for implementing Building Energy Effi- ciency Retrofit (BEER) in hotel buildings with emphasis on sustainability. In this research, a systematic approach is adopted to combine several research exercises to analyze the CSFs. First, carry out critical literature review to understand EPC, success factors for construction project and those factors relevant to BEER. Second, interviews are conducted with some EPC practitioners and professionals with experience in retrofit projects of hotel building, through which a list of nominated factors is identified. Then, a questionnaire survey is carried out with experts with adequate experience of EPC to solicit opinions regarding each of the nominated factors. Based on the data gathered from the survey, a scaled rating is employed to establish the importance ranking of these factors. Then, factor analysis method is used to investigate the underlying relationship among the identified CSFs to find out the clusters that can better represent all the CSFs. 2. Literature review 2.1. Energy performance contracting (EPC) Energy performance contracting (EPC), also known as energy service performance contracting, is a financing package from Energy Service Companies (ESCOs) that include energy savings guarantees and associated design and installation services for energy efficiency projects, which was emerged in North America in the 1970s after the first oil crisis. Energy performance contracting is a mechanism for procuring and implementing capital improvements today that are self-funded over time through guaranteed operational savings. Performance contracting uses operational savings and avoided capital expenditures to fund repayment of capital for building/infrastructure improvements. However, EPC principle is not only a financing tool but also a market mechanism for conducting energy efficiency projects. Energy Performance Contract in the ESCO business may be broadly defined as a contract between an ESCO and its client, involving an energy efficiency investment in the client’s facilities, the performance of which is somehow guaranteed by the ESCO, with financial consequences for the ESCO (Taylor et al., 2007). Under an energy performance contract, the ESCO will provide financing for a specified set of measures for energy efficiency retrofit, along with associated design, engineering, and installation services. Through such contracting, the owner or user can achieve highenergy efficient facilities and get potential savings with little or even no front investment. The basic concept of energy performance contracting is shown in Fig. 1. The first bar represents the total utility costs of one facility before performance contract. In the second bar, after retrofitting the energy savings are shared by client and ESCO during performance contract period. After performance contract, all the cost savings belong to client after the performance contract period, which is shown in the third bar. According to the concept of EPC mechanism, EPC mechanism has lots of advantages for delivering energy efficiency project comparing with other traditional procurement systems. Energy performance contracting offers a streamlined approach to making facility improvements because, with a single contract, clients can tackle multiple energy-efficient projects throughout the contracting period for their facilities, rather than doing one project at a time. ESCO can provide a full range of services and continue working with clients once the projects are completed to ensure that clients get optimal long-term energy performance. EPC as a financing mechanism can provide financing, which transfers noncore staff from a client’s organization, and can free up a client’s capital, allowing a client to focus on its primary business function (Zhao, 2007). EPC also provides technology and expertise supports. Today ESCOs use industry-standard practices and proven energysaving technologies and have excellent track records for satisfying their customers. ESCOs can specialize in finding the best opportunities for improving energy efficiency (Alliance to Save Energy, 2006). The other advantage in an EPC is that ESCO companies undertake almost all the investment risks, technical risks, market risks, and performance risks, leaving ‘‘zero risk’’ to customer. EPC was introduced to China in 1996 in partnership with World Bank and Global Environment Fund. The program aims to introduce EPC, improve energy efficiency, reduce greenhouse gas emissions, and to protect global environment in China (Shen, 2007). The program is divided into two stages. During Stage I (from 1998 to June 2003), three pilot energy service companies (ESCOs, also called energy management companies in China—EMCs or EMCOs) were created. They are Beijing ESCO, Liaoning ESCO, and Shandong Fig. 1. Basic concept of energy performance contract. 7390 P. Xu et al. / Energy Policy 39 (2011) 7389–7398
P.Xu et aL Energy Policy 39 (2011)7389-7398 7391 ESCO.They altogether have established client-provider relation- according to the needs of energy efficiency projects in different ships with 405 users,implemented 475 projects,and invested 1.33 areas.The general process of EPC mechanism may be similar, billion RMB.The projects have brought in both energy conservation which is comprised of three phases:Phase I Selecting contractor; and environmental benefits:capacity of an annual energy saving Phase II Making an EPC agreement;and Phase Ill Implementing of 1.49 million tce plus capacity of an annual carbon dioxide EPC agreement.The common process can further be divided into reduction of 1.45 million ton-c.Stage ll refers to the period of the following seven steps:identify project,planning assessment, 2003-2008.The objective of Stage ll is to promote the adoption of select a contractor,project design,arrange financing.negotiate EPC energy saving mechanism,foster and develop energy conser- EPC contract,construction and implementation,and measure- vation service industry,expand investment in energy efficiency ment and verification of savings (see Fig.2). projects,and reduce carbon dioxide emissions and other pollution Stage ll includes two subprojects:(1)A Loan Guarantee Special 2.2.Success factors for EPC Fund was established to help EMCos secure loans from commercial banks to implement energy efficiency projects.(2)The Energy There has been no systemic research to investigate the critical Management Company Association (EMCA)was created in April success factors (CSFs)of EPC in delivering sustainable BEER 2004 to facilitate the operation of EPC and development of energy projects.However,there are many lists of critical success factors conservation industry in China.Investment in energy conservation for construction project introduced by various researchers in the projects using energy performance contracting in 2007 up to over previous decades.Contractual arrangement,which defines the USD 1 billion was four times the 2005 level.Meanwhile,EMCA contracting parties'obligations and rights in various ways,has members increased from 59 to 308 (including 185 ESCOs)in the been identified as one major factor for the success of construction end of 2007 and they implemented many energy conservation projects (Chan and Yu,2005;Chan and Suen,2005).Chua et al. projects in the nation's industrial,construction,and transportation (1999)maintain that success of a construction project is deter- sectors (Taylor,2009). mined by four aspects,namely.project characteristics,contractual There are many ways to structure an EPC model.The two arrangements.project participants,and interactive processes. common EPC models are shared savings contract and guaranteed Belassi and Tukel (1996)classified the factors into 5 distinct savings contract (Han,et al.2006;Bertoldi and Rezessi,2005; groups according to which element they relate to the project Hui,2002:Hansen 2003,Poole and Stoner 2003).The shared manager,the project team,the project itself,the organization,and savings contract means that the ESCO designs,finances,and the external environment.Chan et al.(2004)identified 5 groups implements the project,verifies energy savings,and shares an of factors,namely.project-related factors,procurement-related agreed percentage of the actual energy savings over a fixed period factors,project management factors,project participants-related with the customer.This is also referred as the "Full-Service ESCO". factors,and external factors.All the above classification methods In guaranteed savings contract,the ESCO designs and implements have some similarity.The critical success factors can be divided the project but does not finance it,although it may arrange for or into 5 categories:external factors,project related factors,leader- facilitate financing.The ESCO guarantees that the energy savings ship and team factors,contracting factors,and project manage- will be sufficient to cover debt service payments (Bertoldi and ment factors.External environment can include the political. Rezessi,2005:Hui,2002:Hansen 2003).Besides the two main economic,socio-culture,and technological (PEST)context in models,various models of EPC process have been implemented which the project is executed.Factors like the weather,work Not Ildentify potential project feasibility End PI Selecting contractor Select a contractor Detail audit/Project design Arrange financing Pll Make an EPC agreement No Select next Negotiate EPC Contract ESCO Project implementation PIll Implementing EPC agreement Measurement and Verification End Fig.2.EPC process
ESCO. They altogether have established clientprovider relationships with 405 users, implemented 475 projects, and invested 1.33 billion RMB. The projects have brought in both energy conservation and environmental benefits: capacity of an annual energy saving of 1.49 million tce plus capacity of an annual carbon dioxide reduction of 1.45 million ton-c. Stage II refers to the period of 2003–2008. The objective of Stage II is to promote the adoption of EPC energy saving mechanism, foster and develop energy conservation service industry, expand investment in energy efficiency projects, and reduce carbon dioxide emissions and other pollution. Stage II includes two subprojects: (1) A Loan Guarantee Special Fund was established to help EMCos secure loans from commercial banks to implement energy efficiency projects. (2) The Energy Management Company Association (EMCA) was created in April 2004 to facilitate the operation of EPC and development of energy conservation industry in China. Investment in energy conservation projects using energy performance contracting in 2007 up to over USD 1 billion was four times the 2005 level. Meanwhile, EMCA members increased from 59 to 308 (including 185 ESCOs) in the end of 2007 and they implemented many energy conservation projects in the nation’s industrial, construction, and transportation sectors (Taylor, 2009). There are many ways to structure an EPC model. The two common EPC models are shared savings contract and guaranteed savings contract (Han, et al. 2006; Bertoldi and Rezessi, 2005; Hui, 2002; Hansen 2003, Poole and Stoner 2003). The shared savings contract means that the ESCO designs, finances, and implements the project, verifies energy savings, and shares an agreed percentage of the actual energy savings over a fixed period with the customer. This is also referred as the ‘‘Full-Service ESCO’’. In guaranteed savings contract, the ESCO designs and implements the project but does not finance it, although it may arrange for or facilitate financing. The ESCO guarantees that the energy savings will be sufficient to cover debt service payments (Bertoldi and Rezessi, 2005; Hui, 2002; Hansen 2003). Besides the two main models, various models of EPC process have been implemented according to the needs of energy efficiency projects in different areas. The general process of EPC mechanism may be similar, which is comprised of three phases: Phase I Selecting contractor; Phase II Making an EPC agreement; and Phase III Implementing EPC agreement. The common process can further be divided into the following seven steps: identify project, planning assessment, select a contractor, project design, arrange financing, negotiate EPC contract, construction and implementation, and measurement and verification of savings (see Fig. 2). 2.2. Success factors for EPC There has been no systemic research to investigate the critical success factors (CSFs) of EPC in delivering sustainable BEER projects. However, there are many lists of critical success factors for construction project introduced by various researchers in the previous decades. Contractual arrangement, which defines the contracting parties’ obligations and rights in various ways, has been identified as one major factor for the success of construction projects (Chan and Yu, 2005; Chan and Suen, 2005). Chua et al. (1999) maintain that success of a construction project is determined by four aspects, namely, project characteristics, contractual arrangements, project participants, and interactive processes. Belassi and Tukel (1996) classified the factors into 5 distinct groups according to which element they relate to the project manager, the project team, the project itself, the organization, and the external environment. Chan et al. (2004) identified 5 groups of factors, namely, project-related factors, procurement-related factors, project management factors, project participants-related factors, and external factors. All the above classification methods have some similarity. The critical success factors can be divided into 5 categories: external factors, project related factors, leadership and team factors, contracting factors, and project management factors. External environment can include the political, economic, socio-culture, and technological (PEST) context in which the project is executed. Factors like the weather, work Fig. 2. EPC process. P. Xu et al. / Energy Policy 39 (2011) 7389–7398 7391
7392 P.Xu et al.Energy Policy 39(2011)7389-7398 accidents or the government's favorable or unfavorable legislation and academic researchers are carried out,which identifies the can affect the project in all phases of a project (Dimitrios,2009). nominated success factors of EPC for sustainable BEER in hotel Project type and size underline some factors that are important to buildings.Secondly,questionnaire survey is conducted to collect success.Capability of project manager and team members influ- data from various groups of experts for analyzing the significance ences project success.The contracting factors contain contract of the nominated success factors using the five-point Likert scale. type,contract award method,and tasks and risk allocation. Finally,CSFs are extracted according to the importance of each Equitable risk allocation dictates both the content and the type factor and are analyzed using SPSS to find out the underlining of the contract(Gordon,1994:Diekmann and Girard,1995;Chan relationships of the CSFs. and Yu,2005).Project management factors are related to the communication,planning,monitoring and control,and project organization to facilitate effective coordination throughout the 3.1.In-depth interview project life(Chua et al.,1999). Kellen(2003)and Flanagan (2005)argue that critical success In order to identify success factors of EPC for sustainable BEER factors need to be identified in order to provide focus for in hotel buildings,a series of semi-structured interviews with performance management and measurement.Haktanir and 17 professionals was conducted.Nine of the professionals were Harris (2005)support their views and have highlighted the engineering managers from hotels,five were project managers from discernible link between critical success factors,industry context contractor organizations,and three were academic researchers. and performance measurement.Critical success factors (CSFs) As the interviewees were senior personnel who could provide should be discussed in the context of performance measurement. diverse and rich information on EPC,the interviews were purpose- This research focus on the sustainability of BEER projects and fully not structured to encourage free flow of ideas.The interviews sustainable development strategy should be considered when were focused on 4 issues:(1)feature of good retrofit projects organizing the EPC mechanism.Although,most categories of (projects process and output).(2)understanding sustainable devel- critical success factors for general construction projects may suit opment theory,(3)problems in EPC process,and(4)EPC projects the EPC projects,some specific success factors and their impor- organization.Questions were open-ended and interviewees were tance under each category will be changed.For example,because encouraged to add any details that they considered relevant. more organizations are involved with an existing building and The interviews were conducted between April and July 2010. new technologies are introduced,external environment and Each interview lasted from 1 to 2 h and the interviews were tape project characteristics have greater influence to the success and recorded and fully transcribed.After using the Qualitative Data performance of energy efficiency projects.The most critical Analysis (QDA)method to analyze the collected information element for success in an EPC project is developing a mutually and previous literature review,28 performance indicators were beneficial contract for both the owner and the ESCO.Human identified,which is presented in Table 1. related factors and organizational factors indeed have impact on the project result.Besides these factors,some special issues require more effort to consider the characteristics of EPC project. Table 1 There is not much research studying the CSF for EPC or retrofit Selected success factors of EPC for sustainable BEER in hotel buildings projects.Sanvido and Riggs(1991)concluded 10 success factors for retrofit project management:project team characteristics, Groups Factors team member characteristics,contracting.information manage External factors Economic environment ment,planning,communications,time management,space man- Social environment agement,management of working environment,and resources/ Policy support support.Zhang et al.(2008)identified four categories of CSF for Nature environment EPC in China:external factors,internal technology factors,inter- Available technology nal management factors,and internal financing factors.The Project-self factors Hotel operation status financing package and arrangement is a key task in EPC project, Project complexity which alone can affect success of a project.Besides,partnership Building age Site and location limitation between client and ESCO will be a fundamental ingredient for Tourism season and operating time limitation project success as good partnership help create a situation Leadership and team Cients'awareness of to ePC conducive to the success of performance contracting (Yik and factors Organizing skill of leader Lee,2004).Davies and Chan(2001)also indicate that partnership Team members'technical background is one of the key ingredients for performance contracting success. Communication skill In China,statistical data about energy consumption is lacking and Sustainable Clients'and ESCOs'awareness of to Sustainable hotel energy consumption varies from one building to another development factors Development (SD)theory and thus reference standards for measuring energy performance Sustainable development strategy planning could be problematic.After retrofit,measurement and verification Control mechanism of sustainable development (M&V)is concerned with quantifying the result of retrofit project. strategy The purpose of M&V is to verify that the predicted and contrac- Financing factors Available financing market tually specified energy savings are being achieved and to account Awareness of financing institute to EPC Credit of ESCOs and clients for any changes to the energy retrofit (Guide to EPC,2000).In Project nnancial status summary,this part of review provides an outline for selecting Contracting factors Savings share nominated success factors of EPC for sustainable BEER projects. Task and risk allocation Partnership factors Trust 3.Research methodology Effective coordination Project process factors Develop appropriate organization structure Project objectives control mechanism In order to achieve the objectives of this study,firstly. Accurate M&V literature review and in-depth interview with industry experts
accidents or the government’s favorable or unfavorable legislation can affect the project in all phases of a project (Dimitrios, 2009). Project type and size underline some factors that are important to success. Capability of project manager and team members influences project success. The contracting factors contain contract type, contract award method, and tasks and risk allocation. Equitable risk allocation dictates both the content and the type of the contract (Gordon, 1994; Diekmann and Girard, 1995; Chan and Yu, 2005). Project management factors are related to the communication, planning, monitoring and control, and project organization to facilitate effective coordination throughout the project life (Chua et al., 1999). Kellen (2003) and Flanagan (2005) argue that critical success factors need to be identified in order to provide focus for performance management and measurement. Haktanir and Harris (2005) support their views and have highlighted the discernible link between critical success factors, industry context and performance measurement. Critical success factors (CSFs) should be discussed in the context of performance measurement. This research focus on the sustainability of BEER projects and sustainable development strategy should be considered when organizing the EPC mechanism. Although, most categories of critical success factors for general construction projects may suit the EPC projects, some specific success factors and their importance under each category will be changed. For example, because more organizations are involved with an existing building and new technologies are introduced, external environment and project characteristics have greater influence to the success and performance of energy efficiency projects. The most critical element for success in an EPC project is developing a mutually beneficial contract for both the owner and the ESCO. Human related factors and organizational factors indeed have impact on the project result. Besides these factors, some special issues require more effort to consider the characteristics of EPC project. There is not much research studying the CSF for EPC or retrofit projects. Sanvido and Riggs (1991) concluded 10 success factors for retrofit project management: project team characteristics, team member characteristics, contracting, information management, planning, communications, time management, space management, management of working environment, and resources/ support. Zhang et al. (2008) identified four categories of CSF for EPC in China: external factors, internal technology factors, internal management factors, and internal financing factors. The financing package and arrangement is a key task in EPC project, which alone can affect success of a project. Besides, partnership between client and ESCO will be a fundamental ingredient for project success as good partnership help create a situation conducive to the success of performance contracting (Yik and Lee, 2004). Davies and Chan (2001) also indicate that partnership is one of the key ingredients for performance contracting success. In China, statistical data about energy consumption is lacking and hotel energy consumption varies from one building to another and thus reference standards for measuring energy performance could be problematic. After retrofit, measurement and verification (M&V) is concerned with quantifying the result of retrofit project. The purpose of M&V is to verify that the predicted and contractually specified energy savings are being achieved and to account for any changes to the energy retrofit (Guide to EPC, 2000). In summary, this part of review provides an outline for selecting nominated success factors of EPC for sustainable BEER projects. 3. Research methodology In order to achieve the objectives of this study, firstly, literature review and in-depth interview with industry experts and academic researchers are carried out, which identifies the nominated success factors of EPC for sustainable BEER in hotel buildings. Secondly, questionnaire survey is conducted to collect data from various groups of experts for analyzing the significance of the nominated success factors using the five-point Likert scale. Finally, CSFs are extracted according to the importance of each factor and are analyzed using SPSS to find out the underlining relationships of the CSFs. 3.1. In-depth interview In order to identify success factors of EPC for sustainable BEER in hotel buildings, a series of semi-structured interviews with 17 professionals was conducted. Nine of the professionals were engineering managers from hotels, five were project managers from contractor organizations, and three were academic researchers. As the interviewees were senior personnel who could provide diverse and rich information on EPC, the interviews were purposefully not structured to encourage free flow of ideas. The interviews were focused on 4 issues: (1) feature of good retrofit projects (projects process and output), (2) understanding sustainable development theory, (3) problems in EPC process, and (4) EPC projects organization. Questions were open-ended and interviewees were encouraged to add any details that they considered relevant. The interviews were conducted between April and July 2010. Each interview lasted from 1 to 2 h and the interviews were tape recorded and fully transcribed. After using the Qualitative Data Analysis (QDA) method to analyze the collected information and previous literature review, 28 performance indicators were identified, which is presented in Table 1. Table 1 Selected success factors of EPC for sustainable BEER in hotel buildings. Groups Factors External factors Economic environment Social environment Policy support Nature environment Available technology Project-self factors Hotel operation status Project complexity Building age Site and location limitation Tourism season and operating time limitation Leadership and team factors Clients’ awareness of to EPC Organizing skill of leader Team members’ technical background Communication skill Sustainable development factors Clients’ and ESCOs’ awareness of to Sustainable Development (SD) theory Sustainable development strategy planning Control mechanism of sustainable development strategy Financing factors Available financing market Awareness of financing institute to EPC Credit of ESCOs and clients Project financial status Contracting factors Savings share Task and risk allocation Partnership factors Trust Effective coordination Project process factors Develop appropriate organization structure Project objectives control mechanism Accurate M&V 7392 P. 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P.Xu et aL Energy Policy 39(2011)7389-7398 7393 3.2.Questionnaire survey equal to 4 were recognized as CSFs based on the consensus of the respondents.Twenty-one factors were recognized as CSFs that Further data were collected through questionnaire survey data significantly influenced the success of EPC for sustainable BEER. for analyzing the significance of the list of selected factors in Table 2 shows the ranking of these factors based on mean values Table 1.In responding to the questionnaire,respondents were From Table 2 it was found that the most important five factors invited to indicate the level of significance of each of the factors. are accurate M&V,trust,control mechanism of sustainable devel- The level of importance is measured on a 5-point Likert scale, opment strategy,available technology,and effective coordination. where 5 denoted extremely important,4 important,3 neutral. Measurement and Verification(M&V)is to identify the project 2 unimportant,and 1 extremely unimportant.At the beginning of result and energy savings.The reliable and undisputable M&V is the questionnaire,basic information of respondents was also very important for EPC projects success(Xu and Chan,2010). collected,such as their position,experience,type of enterprise During the interview,nearly all the interviewees mentioned this etc.The survey was conducted during Oct.-Nov.2010.The ques issue and believed it is one of the most important factors.Trust is tionnaires were distributed via e-mail,MSN,and personal deliv- an important success factor for partnering (Cheng and Li,2002: ery to increase the rate of response and sample representation Chan et al.,2008).EPC mechanism is one type of partnering A total of 400 questionnaires were delivered to the respondents,91 between clients and ESCOs in nature.Both experts from hotels valid copies were retrieved(22.75%return rate).among which 22 and ESCOs worried about their partners'credit.There is still a lack respondents (24.2%)were from hotels (project owner),39 (42.8%) of credit history for ESCOs and customers in China.This will from energy service companies (ESCOs)(project contractors). impact project financing from the third party institute.Lacking of 30 (33.0%)respondents were professionals from governments, credit and trust during project organization also causes project academics,consultancies,etc. failure.As there is no reliable standard for M&V,it is also difficult to agree with each other about the result of energy saving.if they do not trust each other (Xu and Chan,2011).All the respondents 4.Data analysis and findings from the three categories gave a high priority to this factor.The goal of sustainable BEER is to achieve sustainability in project The data were analyzed using the Statistical Package for the level.Control mechanism of sustainable development strategy as Social Sciences (SPSS).The reliability of the five-point scale used a success factor was proposed by an expert in academics during in the survey was determined using Cronbach's coefficient alpha. interview.However,it was only given higher priorities by experts which measures the internal consistency among the factors.The from ESCOs and hotels than other professionals.Retrofit technol- value of the test was 0.879,which was greater than 0.7,indicating ogies reflect new equipment,new energy resources,new energy that the five-point scale measurement was reliable.Two statis- audit technologies,and new technologies of improvement mea- tical analyses,namely,scale ranking and factor analysis,were sures.Affordable and appropriate technologies in BEER decide the undertaken on the data.The procedure,findings.and relevant feasibility of these projects and the energy savings potential. discussion of the analyses are detailed in the following sections. which is indeed a key factor for EPC project success.Effective coordination is another import success factor for achieving 4.1.Ranking of CSFs sustainable BEER under EPC mechanism.Coordination is a tool to eliminate gaps and duplication in service,which determines an The first analysis ranked the nominated factors according to appropriate division of responsibility and establishes a framework their mean values of the responses.If two or more factors for information sharing,policy agreements,program collabora- happened to have the same mean value,the one with the lowest tion,and joint planning (IFRC,2000).The study also found that standard deviation would be assigned the highest importance the Top 5 success factors in ESCO category and hotel category ranking among these factors.The factors with means exceeding or were the same as the final general Top 5 success factors.Only the Table 2 Ranking of CSFs for EPC in sustainable BEER in hotel buildings Success factors Total (N=91) ESC0(N=39) Hotel (N=22) Professionals(N=30) Mean SD Rank Mean SD Rank Mean SD Rank Mean SD Rank CSF1 Accurate M&V 4.45 0.68 4.37 0.86 4.67 0.52 4.09 0.79 CSF2 Trust 4.32 0.75 4.24 0.90 441 0.78 4.36 0.64 CSF3 Control mechanism of sustainable development strategy 4.27 0.74 4.20 0.88 3 436 0.73 409 0.79 9 CSF4 Available technology 4.27 0.79 4 4.20 0.93 4.44 0.67 2 4.14 0.69 CSF5 Effective coordination 4.26 0.69 4.19 0.86 5 438 0.66 CSF6 Sustainable development strategy planning 4.25 0.70 6 4.18 0.86 6 433 0.65 46 4.41 0.58 4.05 0.64 11 CSE7 Savings share 4.25 0.76 4.18 0.90 4.26 081 4.09 0.73 CSF8 Project financial status 4.23 0.76 4.16 0.89 4.33 0.76 0.82 9 4.14 0.87 12 397 0.79 6 CSF9 Credit of ESCOs and clients 4.21 0.93 4.26 4.00 0.85 4 CSF10 Task and Risk allocation 4.20 0.71 10 4.12 0.86 4.26 0.67 3.86 0.87 CSF11 Project objectives control mechanism 4.19 0.68 11 411 0.83 11 428 0.68 9 423 0.73 CSF12 Hotel operation status 4.18 0.72 4.10 0.86 4.31 0.65 3.95 0.82 CSF13 Economic environment 4.18 13 4.10 0.94 13 4.21 0.94 4.05 0.71 12 CSF14 Clients'and ESCOs'awareness to SD theory 4.05 4.13 0.76 5F15 Policy support 8 4.05 886 45 4.13 0.91 89 835 59 CSF16 Clients'awareness of to EPC 4.09 16 4.02 1.00 16 4.15 0.77 16 3.91 0.95 17 5F17 Organizing skill of leader 4.04 8 1 3.98 0.88 4.10 0.67 4.27 0.75 CSF18 Technical background of project team 4.03 18 3.96 0.84 19 4.15 0.70 4.00 0.74 13 CSF19 Appropriate organization structure 4.03 3.97 0.89 4.15 0.66 4.18 0.89 5P20 Financing institutes'awareness to EPC 4.03 3 3.96 0.93 4.08 0.69 21 3.73 0.75 0 CSF21 Availability of financing market 4.00 0.78 21 202 0.90 21 412 0.69 3.59 0.72 21
3.2. Questionnaire survey Further data were collected through questionnaire survey data for analyzing the significance of the list of selected factors in Table 1. In responding to the questionnaire, respondents were invited to indicate the level of significance of each of the factors. The level of importance is measured on a 5-point Likert scale, where 5 denoted extremely important, 4 important, 3 neutral, 2 unimportant, and 1 extremely unimportant. At the beginning of the questionnaire, basic information of respondents was also collected, such as their position, experience, type of enterprise, etc. The survey was conducted during Oct.-Nov. 2010. The questionnaires were distributed via e-mail, MSN, and personal delivery to increase the rate of response and sample representation. A total of 400 questionnaires were delivered to the respondents, 91 valid copies were retrieved (22.75% return rate), among which 22 respondents (24.2%) were from hotels (project owner), 39 (42.8%) from energy service companies (ESCOs) (project contractors), 30 (33.0%) respondents were professionals from governments, academics, consultancies, etc. 4. Data analysis and findings The data were analyzed using the Statistical Package for the Social Sciences (SPSS). The reliability of the five-point scale used in the survey was determined using Cronbach’s coefficient alpha, which measures the internal consistency among the factors. The value of the test was 0.879, which was greater than 0.7, indicating that the five-point scale measurement was reliable. Two statistical analyses, namely, scale ranking and factor analysis, were undertaken on the data. The procedure, findings, and relevant discussion of the analyses are detailed in the following sections. 4.1. Ranking of CSFs The first analysis ranked the nominated factors according to their mean values of the responses. If two or more factors happened to have the same mean value, the one with the lowest standard deviation would be assigned the highest importance ranking among these factors. The factors with means exceeding or equal to 4 were recognized as CSFs based on the consensus of the respondents. Twenty-one factors were recognized as CSFs that significantly influenced the success of EPC for sustainable BEER. Table 2 shows the ranking of these factors based on mean values. From Table 2 it was found that the most important five factors are accurate M&V, trust, control mechanism of sustainable development strategy, available technology, and effective coordination. Measurement and Verification (M&V) is to identify the project result and energy savings. The reliable and undisputable M&V is very important for EPC projects success (Xu and Chan, 2010). During the interview, nearly all the interviewees mentioned this issue and believed it is one of the most important factors. Trust is an important success factor for partnering (Cheng and Li, 2002; Chan et al., 2008). EPC mechanism is one type of partnering between clients and ESCOs in nature. Both experts from hotels and ESCOs worried about their partners’ credit. There is still a lack of credit history for ESCOs and customers in China. This will impact project financing from the third party institute. Lacking of credit and trust during project organization also causes project failure. As there is no reliable standard for M&V, it is also difficult to agree with each other about the result of energy saving, if they do not trust each other (Xu and Chan, 2011). All the respondents from the three categories gave a high priority to this factor. The goal of sustainable BEER is to achieve sustainability in project level. Control mechanism of sustainable development strategy as a success factor was proposed by an expert in academics during interview. However, it was only given higher priorities by experts from ESCOs and hotels than other professionals. Retrofit technologies reflect new equipment, new energy resources, new energy audit technologies, and new technologies of improvement measures. Affordable and appropriate technologies in BEER decide the feasibility of these projects and the energy savings potential, which is indeed a key factor for EPC project success. Effective coordination is another import success factor for achieving sustainable BEER under EPC mechanism. Coordination is a tool to eliminate gaps and duplication in service, which determines an appropriate division of responsibility and establishes a framework for information sharing, policy agreements, program collaboration, and joint planning (IFRC, 2000). The study also found that the Top 5 success factors in ESCO category and hotel category were the same as the final general Top 5 success factors. Only the Table 2 Ranking of CSFs for EPC in sustainable BEER in hotel buildings. Success factors Total (N¼91) ESCO (N¼39) Hotel (N¼22) Professionals (N¼30) Mean SD Rank Mean SD Rank Mean SD Rank Mean SD Rank CSF1 Accurate M&V 4.45 0.68 1 4.37 0.86 1 4.67 0.52 1 4.09 0.79 9 CSF2 Trust 4.32 0.75 2 4.24 0.90 2 4.41 0.78 3 4.36 0.64 2 CSF3 Control mechanism of sustainable development strategy 4.27 0.74 3 4.20 0.88 3 4.36 0.73 5 4.09 0.79 9 CSF4 Available technology 4.27 0.79 4 4.20 0.93 4 4.44 0.67 2 4.14 0.69 7 CSF5 Effective coordination 4.26 0.69 5 4.19 0.86 5 4.38 0.66 4 4.41 0.58 1 CSF6 Sustainable development strategy planning 4.25 0.70 6 4.18 0.86 6 4.33 0.65 6 4.05 0.64 11 CSF7 Savings share 4.25 0.76 7 4.18 0.90 7 4.26 0.81 11 4.09 0.73 8 CSF8 Project financial status 4.23 0.76 8 4.16 0.89 8 4.33 0.76 7 3.91 0.79 16 CSF9 Credit of ESCOs and clients 4.21 0.82 9 4.14 0.93 9 4.26 0.87 12 4.00 0.85 14 CSF10 Task and Risk allocation 4.20 0.71 10 4.12 0.86 10 4.26 0.67 10 3.86 0.87 18 CSF11 Project objectives control mechanism 4.19 0.68 11 4.11 0.83 11 4.28 0.68 9 4.23 0.73 4 CSF12 Hotel operation status 4.18 0.72 12 4.10 0.86 12 4.31 0.65 8 3.95 0.82 15 CSF13 Economic environment 4.18 0.82 13 4.10 0.94 13 4.21 0.94 13 4.05 0.71 12 CSF14 Clients’ and ESCOs’ awareness to SD theory 4.12 0.72 14 4.05 0.86 14 4.13 0.76 18 4.18 0.72 5 CSF15 Policy support 4.12 0.89 15 4.05 0.99 15 4.13 0.91 19 3.77 0.85 19 CSF16 Clients’ awareness of to EPC 4.09 0.91 16 4.02 1.00 16 4.15 0.77 16 3.91 0.95 17 CSF17 Organizing skill of leader 4.04 0.75 17 3.98 0.88 17 4.10 0.67 20 4.27 0.75 3 CSF18 Technical background of project team 4.03 0.70 18 3.96 0.84 19 4.15 0.70 15 4.00 0.74 13 CSF19 Appropriate organization structure 4.03 0.78 19 3.97 0.89 18 4.15 0.66 14 4.18 0.89 6 CSF20 Financing institutes’ awareness to EPC 4.03 0.82 20 3.96 0.93 20 4.08 0.69 21 3.73 0.75 20 CSF21 Availability of financing market 4.00 0.78 21 3.93 0.90 21 4.13 0.69 17 3.59 0.72 21 P. 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