Energy Performance Contracts (EPCs) for Illinois Businesses: What You Need to Know

Many Illinois business owners recognize the potential for energy efficiency improvements to reduce operating costs—but capital constraints, technical complexity, and performance uncertainty prevent them from moving forward. Energy Performance Contracts (EPCs) address all three barriers through a proven model that has delivered billions of dollars in guaranteed energy savings to commercial and institutional facilities nationwide.

An EPC shifts the financial and performance risk of energy upgrades from the building owner to an Energy Service Company (ESCO) that designs, finances, implements, and guarantees the improvements. The building owner gains improved facilities and reduced energy costs without upfront capital investment, while the ESCO assumes responsibility for delivering promised savings.

For Illinois businesses, EPCs are particularly attractive because the state's robust utility incentive programs enhance project economics significantly. This guide explores how EPCs work, when they make sense, and how Illinois businesses can maximize value from performance-contracted energy improvements.

Unlock Zero-Upfront-Cost Upgrades: An Illinois Business Owner's Guide to EPCs

How Energy Performance Contracts Work

The EPC model transforms energy efficiency from a capital investment decision into an operating cost management strategy:

Traditional Efficiency Project

1. Business identifies efficiency opportunities
2. Business secures capital for improvements
3. Business hires contractors for implementation
4. Business assumes all performance risk
5. Business captures savings (if achieved)

Energy Performance Contract

1. ESCO identifies and analyzes efficiency opportunities
2. ESCO arranges financing (often third-party)
3. ESCO implements improvements
4. ESCO guarantees specific savings levels
5. Savings cover project payments; excess savings benefit customer
6. ESCO pays shortfall if savings underperform

This structure eliminates the capital barrier (financing covers 100% of project costs), addresses technical complexity (ESCO provides expertise), and transfers performance risk (guarantee protects customer).

Key Parties and Relationships

The Building Owner (Customer) You agree to:

• Allow ESCO to audit and assess your facility
• Approve recommended improvements
• Execute performance contract with savings guarantee
• Make regular payments from realized savings
• Cooperate with measurement and verification

You receive:

• Upgraded facilities at no upfront cost
• Guaranteed energy savings
• Reduced energy costs and improved operations
• Performance risk transfer to ESCO

The Energy Service Company (ESCO) ESCO responsibilities include:

• Comprehensive energy audit and opportunity identification
• Engineering design of improvements
• Project financing arrangement
• Implementation oversight or direct installation
• Savings guarantee backed by financial commitment
• Ongoing measurement and verification

ESCOs serving Illinois commercial customers include both national firms (Trane, Johnson Controls, Honeywell, Schneider Electric) and regional specialists.

The Financing Provider Third-party financiers often fund EPC projects:

• Banks and commercial lenders
• Equipment financing companies
• Lease providers
• Municipal bond issuers (for public entities)

Financing is typically secured by the savings stream and equipment installed.

EPC Economics

The fundamental EPC equation:

Energy Savings ≥ Project Payments + M&V Costs

If this equation holds, the project is "cash-flow positive"—energy cost reductions cover all contract obligations with potential surplus savings for the customer.

Example Project Economics

Baseline Annual Energy Costs: $500,000

Project Improvements:

• LED lighting conversion: $200,000
• HVAC controls upgrade: $150,000
• Building automation system: $250,000
• Retro-commissioning: $50,000
• Illinois utility rebates: -$150,000
• Net project cost: $500,000

Financing Terms: 12 years at 5.5%

Annual Payment: $58,500

Guaranteed Annual Savings: $75,000 (15% of baseline)

Annual Cash Flow: $75,000 - $58,500 = $16,500 positive

Post-Contract Savings: After year 12, full $75,000+ annual savings accrue to customer

This example demonstrates how EPCs can deliver immediate positive cash flow while building long-term value.

When EPCs Make Sense

EPCs are most appropriate when:

Facility Characteristics

• Significant efficiency opportunity (typically 15%+ savings potential)
• Stable operations and occupancy
• Adequate building size (typically 50,000+ SF)
• Multiple improvement opportunities for bundling
• Reliable utility data for baseline establishment

Organizational Factors

• Limited capital budget for efficiency improvements
• Preference for predictable operating costs
• Desire to transfer performance risk
• Limited internal technical resources
• Long-term facility ownership or control

Financial Situation

• Ability to execute multi-year contract
• Creditworthiness sufficient for financing
• Budget for ongoing M&V costs
• Alignment with organizational planning cycles

From Audit to Guaranteed Savings: The Step-by-Step Energy Performance Contract Process

Phase 1: Preliminary Assessment (4-8 weeks)

Initial Engagement The process typically begins with ESCO outreach or customer inquiry. Initial discussions establish:

• Facility characteristics and energy profile
• Organizational goals and constraints
• Preliminary assessment of EPC fit
• ESCO qualifications and approach

Preliminary Audit The ESCO conducts initial assessment at minimal or no cost:

• Facility walkthrough and systems overview
• Utility data analysis (12-36 months historical)
• Preliminary savings opportunity identification
• Rough order-of-magnitude project scope

Decision Point Based on preliminary assessment, determine whether to proceed with detailed audit (typically requiring fee or commitment).

Phase 2: Investment Grade Audit (8-16 weeks)

Comprehensive Assessment The ESCO conducts detailed technical analysis:

• Systems inventory with conditions and specifications
• Energy flow analysis by end use
• Operational assessment and optimization opportunities
• Technology evaluation for improvements
• Interactive effects analysis between measures

Project Development Engineering and financial analysis:

• Improvement measure specification and design
• Implementation approach and timeline
• Savings calculations with methodology documentation
• Utility incentive identification and application preparation
• Financial modeling and cash flow projections

Proposal Development ESCO prepares comprehensive proposal including:

• Detailed scope of improvements
• Guaranteed savings levels and methodology
• Project costs and financing terms
• Implementation schedule
• M&V plan and ongoing responsibilities
• Contract terms and conditions

Deliverable: Investment Grade Audit report with detailed project proposal

Phase 3: Contract Negotiation (4-12 weeks)

Proposal Review Customer evaluation of ESCO proposal:

• Technical adequacy of proposed improvements
• Reasonableness of savings projections
• Appropriateness of M&V methodology
• Competitiveness of project costs and financing
• Acceptability of contract terms

Negotiation Points Common negotiation areas include:

• Savings guarantee levels and methodology
• Excess savings sharing provisions
• Performance period duration
• M&V protocol and cost allocation
• Change order procedures
• Termination provisions and costs
• Insurance and bonding requirements

Contract Execution Final agreements typically include:

• Energy Services Agreement (master contract)
• Project scope exhibits
• M&V protocol specification
• Financing documents (if third-party)
• Utility incentive assignments

Phase 4: Implementation (12-52 weeks)

Design and Engineering Detailed design for approved improvements:

• Final engineering specifications
• Permitting and code compliance
• Procurement planning
• Construction scheduling

Installation Physical implementation of improvements:

• Equipment procurement and delivery
• Demolition of replaced systems
• Installation and integration
• Systems startup and testing

Commissioning Performance verification before guarantee period:

• Functional testing of all systems
• Controls programming verification
• Baseline measurement establishment
• Operator training

Phase 5: Guarantee Period (Typically 10-20 years)

Ongoing Operations During the guarantee period:

• Customer operates and maintains improved systems
• ESCO provides specified M&V services
• Annual savings verification against guarantee
• Adjustments for non-routine events (weather, occupancy changes)

Annual Reconciliation Annual verification of savings achievement:

• M&V report documenting measured savings
• Comparison to guaranteed savings level
• Shortfall payment (if applicable) or excess savings allocation
• Contract payment continuation

Continuous Improvement Ongoing optimization opportunities:

• Identify and address operational drift
• Implement technology updates
• Capture additional savings opportunities
• Maintain performance through guarantee period

For comprehensive energy audit guidance, see our resource on energy auditor role in Illinois.

The Illinois Advantage: How State Incentives Maximize Your EPC's ROI

ComEd Business Energy Efficiency Program

Illinois's largest utility offers comprehensive incentives that significantly enhance EPC economics:

Prescriptive Incentives Fixed rebates for common efficiency measures:

• LED lighting: $0.50-2.00 per fixture depending on type
• Lighting controls: $15-50 per sensor/control
• VFDs: $50-100 per horsepower
• High-efficiency HVAC: $200-2,000 per unit
• Motors: $10-25 per horsepower

Custom Incentives Engineering-calculated incentives for complex measures:

• Calculated based on verified kWh savings
• Typically $0.08-0.15 per first-year kWh saved
• Supports building automation, retrocommissioning, process improvements
• Requires pre-approval and post-installation verification

EPC Integration Benefits ESCOs routinely maximize ComEd incentive capture:

• Pre-project coordination ensures measure qualification
• Application preparation included in project development
• Incentive reduction of project cost improves financing economics
• Some ESCOs have preferred relationships with ComEd program

Example Impact $500,000 efficiency project:

• Without incentives: 12-year financing = $58,500/year payment
• With $100,000 incentives: $400,000 financed = $46,800/year payment
• Annual cash flow improvement: $11,700
• Project ROI improvement: 20%+

Ameren Illinois Business Programs

Facilities in Ameren territory access similar benefits:

Business Custom Program

• Custom incentives based on calculated savings
• Pre-approval required for measure qualification
• Supports comprehensive improvement packages
• Integration with EPC project development

Prescriptive Offerings

• Standard rebates for common equipment
• Streamlined application process
• Combinable with custom incentives

Illinois State Programs

C-PACE Financing Commercial Property Assessed Clean Energy financing complements EPCs:

• 100% project financing available
• Long terms (15-25 years) aligned with equipment life
• Property-secured (survives ownership change)
• Potentially combinable with EPC structure

For C-PACE details, see our guide on C-PACE financing for energy projects in Illinois.

Section 179D Tax Deduction Federal tax deduction for efficient buildings:

• Up to $5.00 per square foot for qualifying improvements
• EPC improvements often qualify
• Deduction may be claimable by ESCO or building owner (allocation negotiable)
• Requires certification by qualified professional

Combining Incentives for Maximum Value

Strategic incentive stacking maximizes EPC value:

Sequencing Considerations

• Apply for utility incentives during project development
• Time applications to meet program deadlines
• Coordinate C-PACE financing with EPC structure
• Claim tax benefits in appropriate tax years

Optimization Strategies

• Design measures to maximize utility incentive qualification
• Ensure proper documentation for all incentive claims
• Consider incentive timing in project cash flow modeling
• Negotiate incentive benefit allocation in EPC contract

Is an EPC Right for Your Company? A 5-Point Checklist for Illinois Businesses

Checklist Item 1: Facility Characteristics

Ideal EPC Candidates ✓ Building size: 50,000+ SF (smaller facilities may not generate sufficient savings for EPC economics) ✓ Building age: 10+ years (newer buildings have less efficiency opportunity) ✓ Occupancy: Stable, long-term use planned ✓ Systems: Original or aging HVAC, lighting, controls ✓ Energy intensity: Above-average energy use for building type ✓ Data: Reliable 24+ months of utility history

Potential Challenges ○ Very small facilities: Savings insufficient to cover EPC transaction costs ○ Recent major renovations: Limited remaining efficiency opportunity ○ Short-term occupancy: Contract term exceeds planned use ○ Historic/restricted buildings: Improvement options limited ○ Complex operations: M&V methodology challenging

Assessment Actions

1. Gather 24-36 months utility bills
2. Calculate Energy Use Intensity (kBtu/SF/year)
3. Compare to benchmarks (ENERGY STAR Portfolio Manager)
4. Identify major systems and approximate ages
5. Document building constraints (historic, tenant, operational)

Checklist Item 2: Organizational Readiness

Ideal EPC Candidates ✓ Decision authority: Clear path to contract execution ✓ Timeline: Ability to commit to 10-15+ year agreement ✓ Resources: Staff capacity for project coordination ✓ Priorities: Energy efficiency aligned with organizational goals ✓ Stakeholder support: Buy-in from key decision makers

Potential Challenges ○ Decision complexity: Multiple approval layers delay execution ○ Ownership uncertainty: Potential sale or transition ○ Competing priorities: Other initiatives consuming bandwidth ○ Stakeholder skepticism: Resistance to long-term commitments ○ Limited engagement capacity: No staff for coordination

Assessment Actions

1. Identify required approvers and decision process
2. Confirm long-term facility ownership/control intentions
3. Assess internal resources for project coordination
4. Gauge stakeholder interest and support
5. Evaluate competing priorities and timing

Checklist Item 3: Financial Situation

Ideal EPC Candidates ✓ Credit quality: Sufficient creditworthiness for financing ✓ Budget constraints: Limited capital for efficiency investments ✓ Cost priorities: Operating cost reduction valued ✓ Payment capacity: Ability to sustain contract payments ✓ Risk preference: Willing to transfer risk for guarantee

Potential Challenges ○ Credit limitations: May restrict financing options ○ Available capital: Self-funding may be more economical ○ Budget flexibility: Cannot commit to multi-year payments ○ Risk tolerance: Prefer to retain savings upside ○ Procurement constraints: Contract structure may not fit requirements

Assessment Actions

1. Evaluate credit standing and financing access
2. Assess capital budget for alternative approaches
3. Model cash flow impact of EPC payments
4. Compare self-funding economics to EPC structure
5. Review procurement requirements and constraints

Checklist Item 4: Market Conditions

Ideal EPC Candidates ✓ ESCO availability: Multiple qualified ESCOs serving your market ✓ Incentive programs: Strong utility incentives enhance economics ✓ Financing environment: Favorable interest rates available ✓ Technology timing: Efficiency technologies mature and proven ✓ Regulatory stability: Policy environment supports long-term investment

Potential Challenges ○ Limited ESCO interest: Small or specialized facilities may not attract ESCOs ○ Incentive uncertainty: Program changes could affect economics ○ Financing costs: Rising rates reduce project economics ○ Technology changes: Rapid evolution may obsolete improvements ○ Regulatory risk: Policy changes could affect savings value

Assessment Actions

1. Solicit ESCO interest through preliminary discussions or RFQ
2. Verify current incentive program availability and terms
3. Evaluate financing market conditions
4. Assess technology maturity for proposed improvements
5. Consider regulatory trends affecting project value

Checklist Item 5: Alternative Assessment

Compare EPC to Alternatives

Self-Funded Implementation

• Higher upfront cost, lower ongoing cost
• Retain full savings (no ESCO share)
• Assume all performance risk
• Require internal technical resources
• Faster decision process

Traditional Financing + Contractors

• Separate financing and implementation decisions
• No performance guarantee
• More control over contractor selection
• Potentially lower total cost
• Higher coordination burden

Utility Programs Only

• No upfront cost for utility-funded measures
• Limited scope to utility program offerings
• Simpler process, smaller impact
• No guaranteed comprehensive solution
• Good starting point

Delay Investment

• Preserve capital and flexibility
• Forgo ongoing savings
• Risk equipment failure and emergency replacement
• Miss current incentive windows
• Potential competitive disadvantage

Decision Framework

EPC is likely the best choice when:

• Capital constraints prevent self-funding
• Internal technical resources are limited
• Performance certainty is highly valued
• Comprehensive improvements are needed
• Long-term facility commitment exists

Self-funding is likely better when:

• Capital is readily available
• Internal expertise exists
• Savings potential is very high (prefer to retain)
• Organizational flexibility is valued
• Simpler transactions preferred

Conclusion: Leveraging EPCs for Illinois Energy Efficiency

Energy Performance Contracts offer Illinois businesses a proven pathway to significant energy improvements without upfront capital investment. By transferring performance risk to specialized ESCOs and financing improvements through guaranteed savings, EPCs enable building owners to capture efficiency value that might otherwise remain unrealized.

The Illinois market is particularly favorable for EPCs. Robust utility incentive programs from ComEd and Ameren enhance project economics significantly, often improving cash flow from day one. The state's established ESCO community offers deep expertise in Illinois buildings and regulations. And the combination of aging building stock and ambitious clean energy goals under CEJA creates strong incentives for comprehensive efficiency improvements.

For businesses considering EPCs, the path forward involves:

1. Assess fit: Evaluate your facility, organization, and financial situation against EPC requirements
2. Engage ESCOs: Request preliminary assessments from 2-3 qualified ESCOs
3. Compare options: Evaluate EPC economics against self-funding and other alternatives
4. Negotiate carefully: Ensure contract terms protect your interests
5. Maximize incentives: Capture all available utility and tax benefits

The investment of time in EPC evaluation pays dividends over contract terms that often exceed a decade. Illinois businesses that approach EPCs thoughtfully can achieve significant energy cost reductions, improved facility performance, and enhanced environmental outcomes—all while maintaining capital for core business priorities.

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Sources:

• National Association of Energy Service Companies (NAESCO)
• U.S. Department of Energy Federal Energy Management Program
• Lawrence Berkeley National Laboratory ESCO Database
• ComEd Business Energy Efficiency Programs
• Efficiency Valuation Organization IPMVP Protocol