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 implemen￾ted. 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 mechan￾ism provides great advantages for building clients to conduct building energy efficiency retrofit projects. However, both build￾ing 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 perfor￾mance 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 perfor￾mance 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 high￾energy efficient facilities and get potential savings with little or even no front investment. The basic concept of energy perfor￾mance 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 perfor￾mance 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 contract￾ing 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 non￾core 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 energy￾saving technologies and have excellent track records for satisfying their customers. ESCOs can specialize in finding the best oppor￾tunities 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 intro￾duce EPC, improve energy efficiency, reduce greenhouse gas emis￾sions, 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