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 relation￾ships 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 conser￾vation 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 measure￾ment 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 deter￾mined 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, leader￾ship and team factors, contracting factors, and project manage￾ment 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