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Energy Performance Contracts in the Slovenian Public Sector

Energy Performance Contracts in the Slovenian Public Sector

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The first recorded energy performance contracting project in Slovenia was carried out in 2002, and was soon followed by a number of other similar projects, notably in the public sector. Thus, energy performance contracts are not a new concept in the Slovenian business sphere, although it was not until 2014 that the country’s newly adopted Energy Act transposed Directive 2012/27/EC on energy efficiency and introduced a comprehensive definition of an energy performance contract. 

The Energy Act defines a guaranteed energy performance savings contract as a contractual arrangement between a user and the provider of a measure for an improvement in energy efficiency that is reviewed and monitored for the entire effective period of the contract and in the framework of which investments (labor, supply, or service) in the measure are paid proportionally with the level of improved energy efficiency agreed under the contract, or with another agreed measure of energy efficiency, such as financial savings. The Energy Act does not provide any other provisions regarding this legal construct. Generally, as in other forms of third-party financing arrangements, the beneficiary of the energy service avoids investment costs by using part of the financial value of energy savings to repay the investment fully or partially carried out by the energy service provider.

During the past few years, the Slovenian government has increased its focus on saving energy within government-owned buildings to address environmental concerns and to implement the obligations and objectives of sustainable growth by 2020, set out in numerous documents at the EU level. Notably, Directive 2010/31/EU on the energy performance of buildings establishes measures with the public sector playing a leading role. After 2018, public entities will be allowed to purchase only nearly zero-energy buildings when purchasing new buildings. In this regard, buildings owned by public authorities represent around 10% of the total building stock in Slovenia. Pursuant to Slovenia’s National Energy Efficiency Action Plan 2014-2020, which represents another important energy efficiency policy, the Slovenian government expects that as much as 80% of all energy renovation funding of public buildings will be provided through energy performance contracts by 2020.

Energy performance projects in the Slovenian public sector are performed as public-private partnerships. Thus, under the Public-Private Partnership Act, the most appropriate legal form for an energy performance contract in a public-private partnership would be a concession (where most of the business risk is assumed by the private partner). However, should the public partner receive non-returnable subsidies for investing in the project, then most of the business risk would be borne by the public partner. Therefore, the project cannot be done by awarding a concession, but instead through public procurement or a so-called “two-tier model,” under which the public partner conducts a public procurement for the implementation of the energy efficiency improvement measures and awards the concession for their management.

The procedure for the energy performance public tender is initiated by publishing the invitation to tender that is followed by the public opening of the tender applications, subject to review and assessment by an expert committee appointed by the public partner. The expert committee determines which applications fulfill the tender conditions and classifies them in a way that specifies which of the applications are most successful in meeting the criteria set and what subsequent ranking they achieve in terms of meeting the criteria. The contract on public-private partnership concludes following the selection of the private partner by a final decision. Therefore, the provisions of the Public-Private Partnership Act and Directive 2012/27/EC, notably with respect to the efficiency measures, savings, duration, and other provisions, should be considered when drafting public-private partnership energy performance contracts.

It stems from this that energy performance contracts in the public sector carry a number of inconveniences, the first being the non-comprehensive and scattered regulation of the subject matter. Furthermore, from a procedural point of view, the Public-Private Partnership Act does not constitute the most appropriate regulation to achieve the ambitious objectives of the Slovenian government with respect to ensuring the energy efficiency of public buildings. Hence, the relevant legislation should be amended by determining exemptions from the public tender procedure for energy performance contracts.

By Jan Sibincic, Managing Partner, Law Firm Sibincic Krizanec 

This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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