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Success factors of energy performance contracting (EPC) for sustainable

building energy efficiency retrofit (BEER) of hotel buildings in China

Article in Energy Policy · November 2011

DOI: 10.1016/j.enpol.2011.09.001

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 Energy Policy 39 (2011) 7389–7398

Contents lists available at SciVerse ScienceDirect

Energy Policy
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 n, Edwin Hon-Wan Chan, Queena Kun Qian
Department of Building and Real Estate, The Hong Kong Polytechnic University, Hong Kong SAR, PR China

a r t i c l e i n f o 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
n
Corresponding author. Tel.: þ852 6157946; fax: þ 852 27645131. staff credentials with new knowledge. Sustainable development
E-mail address: [email protected] (P. Xu). as a concept has been gaining increasing popularity across various

0301-4215/$ - see front matter & 2011 Elsevier Ltd. All rights reserved.
doi:10.1016/j.enpol.2011.09.001
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)

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 Fig. 1. Basic concept of energy performance contract.
 P. Xu et al. / Energy Policy 39 (2011) 7389–7398 7391

ESCO. They altogether have established clientprovider 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 III 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 II refers to the period of the following seven steps: identify project, planning assessment,
2003–2008. The objective of Stage II 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 II 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

Fig. 2. EPC process.

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
Building age
which alone can affect success of a project. Besides, partnership
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 Clients’ 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
strategy
(M&V) is concerned with quantifying the result of retrofit project.
The purpose of M&V is to verify that the predicted and contrac- Financing factors Available financing market
Awareness of financing institute to EPC
tually specified energy savings are being achieved and to account
Credit of ESCOs and clients
for any changes to the energy retrofit (Guide to EPC, 2000). In Project financial 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

Effective coordination
3. Research methodology
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
 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 (N¼ 91) ESCO (N¼ 39) Hotel (N¼ 22) Professionals (N¼ 30)

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
7394 P. Xu et al. / Energy Policy 39 (2011) 7389–7398

order of these factors is different. However, for other profes-

CSF21

1.000
sionals, apart from effective coordination and trust, those factors
including organizing skill of leader, project objectives control
mechanism, and policy support were given much higher priorities

CSF20

0.479
1.000
than other factors. This is probably because people of the other
professionals from governments, academics, consultancies, etc.,
paid more attention on the macro-factors, rather than micro-

CSF19

0.292
0.054
1.000
factors preferred by experts from industry.

CSF18

0.461
0.208
1.000

0.060
4.2. Factor analysis

A long list of 21 CSFs is not very helpful to succinctly explain

CSF17

0.557
0.522

0.167
1.000

0.300
the success of a project. Factor analysis was used to explore and
detect the underlying relationships among the identified CSFs.
This statistical technique can recognize a relatively small number

CSF16

0.331
0.391
0.245
0.528
0.185
1.000
of factors that can be used to represent relationships among sets
of many interrelated variables. The appropriateness of the factor
analysis for the factor extraction needs to be tested in various

 0.106
 0.095
 0.006
CSF15

0.137

0.191
0.363
1.000
ways. Factor analysis can be used either in hypothesis testing or
in searching for constructs within a group of variables
(Bartholomew and Knott, 1999). Factor analysis is a series of

CSF14

Kaiser  Meyer  Olkin measure of sampling adequacy ¼ 0.752; Bartlett’s test of sphericity ¼807.409; degree of freedom ¼210; significance ¼ 0.00.
0.148
0.468
0.272
0.252
0.267
0.346
0.135
1.000
methods for finding clusters of related variables and hence an
ideal technique for reducing a large number of items into a more
easily understood framework. It focuses on a data matrix pro-

 0.073
duced from the collection of a number of individual cases or

CSF13

0.122

0.181

0.376
0.082
0.059
0.104

0.073
1.000
respondents. In this paper, factor analysis is applied to explore the
underlying constructs of the identified CSFs of EPC for sustainable

 0.020
BEER in hotel buildings. CSF12

0.264

0.147
0.419
0.207
0.077
0.087
0.032

0.370
1.000
In this research, 21 CSFs were subjected to factor analysis
using principal components analysis and varimax rotation. Prin-
ciple components analysis is a common method in factor analysis,
CSF11

0.198
0.111

0.169
0.263
0.356
0.593
0.266
0.145
0.180

0.054
1.000
and involves the generation of linear combinations of variables in
the way of factor analysis so that they account for as many of the
variances present in the collected data as possible. Such an

 0.046
CSF10

0.264

0.185

0.186
0.158
0.294
0.210

0.240
0.024
0.025
0.075
1.000
analysis summarizes the variability in the observed data by
means of a series of linear combination of ‘‘factors’’. Each factor
can, therefore, be viewed as a ‘‘super-variable’’ comprising a

0.291
0.283
0.256

0.255
0.387
0.564
0.359
0.305
0.405
0.609
0.109

0.270
1.000
CSF9

specific combination of the actual variables examined in the

survey. The advantage of this method over other factor analytical
approaches is that the mathematical representation of the derived
0.667
0.363

0.289

0.286
0.242
0.213
0.254
0.286
0.449
0.333
0.430
0.430

0.230
1.000
CSF8

linear combinations avoids the need for the use of questionable

causal models (Johnson, 1998).
 0.035

 0.076
 0.077
The first stage of the factor analysis is to determine the
0.298
0.197
0.432
0.142
0.239
0.139

0.126

0.041
0.110
0.202
1.000

0.020
CSF7

strength of the relationship among the variables, namely, the 21

Correlation matrix of CSFs for EPC in sustainable BEER in hotel buildings.a

identified CSFs, measured by the correlation coefficients of each

pairs of the variables. Table 3 gives the matrix of the correlation
0.282
0.232
0.184

0.349

0.291
0.454
0.427
0.266
0.233
0.239
0.045

0.086
0.056

0.180
1.000

0.200
CSF6

coefficients among the CSFs. The correlation coefficients show

that the CSFs share common factors. The Bartlett test of sphericity
0.291

0.271

0.282
0.344

0.155
0.461
0.456
0.678
0.159
0.182
0.240

0.094
0.340

0.038
1.000

0.040

0.090

is 807.409 and the associated significance level is 0.000, suggest-

CSF5

ing that the population correlation matrix is not an identity

matrix. The value of the Kaiser  Meyer Olkin measure of sam-
0.311

0.159
0.318
0.253
0.354
0.172
0.128

0.189

0.221
0.322
0.345
0.174
0.161
0.450

0.062
0.309

0.320
1.000
CSF4

pling accuracy is 0.752, which is higher than 0.5 and hence is

considered acceptable. The results of these tests show that the
sample data is appropriate for factor analysis.
 0.026

In order to avoid confusion between the extracted factors and

0.417
0.458
0.624

0.357
0.321
0.188
0.357
0.156
0.246
0.225

0.241
0.292
0.425

0.257
0.151
0.083

0.480
1.000
CSF3

the CSFs, it is necessary to rename the extracted factor as a

‘‘cluster’’ in the interpretation of the results of the analysis.
0.413

0.554

0.184
0.333
0.355
0.189
0.356

0.229
0.332
0.222
0.424

0.437

0.268
0.409

0.303

0.620

0.130
1.000

0.200

0.400
CSF2

Six clusters with eigenvalues greater than 1 are extracted. Table 4

lists the cluster matrix after varimax rotation. Table 5 shows the
final statistics of the principal component analysis, and the clusters
0.212
0.124

0.119
0.181
0.126

0.269

0.172
0.267

0.413
0.153
0.198
0.138
0.288
0.220
 0.019
0.083

0.110

0.109

0.102
 0.005
1.000

extracted account for 66.618% of the variance.

CSF1

4.2.1. Discussion and interpretation of clusters

CSF11
CSF12
CSF13
CSF14
CSF15
CSF16
CSF17
CSF18
CSF19

CSF21
CSF10

CSF20
Table 3

CSF1
CSF2
CSF3
CSF4
CSF5
CSF6
CSF7
CSF8
CSF9

For further discussion, it is necessary to rename each of the

a

groupings. Based on an examination of the inherent relationships

 P. Xu et al. / Energy Policy 39 (2011) 7389–7398 7395

Table 4 Table 6
Cluster matrix after varimax rotation. Six clusters extracted based on factor analysis.

Component Clusters CSFs

1 2 3 4 5 6 Cluster1 project organization  CSF19 appropriate organization structure

process  CSF5 effective coordination
CSF19 0.848  CSF18 technical background of
CSF5 0.771 project team
CSF18 0.687  CSF17 organizing skill of leader
CSF17 0.652  CSF2 trust
CSF2 0.612  CSF11 project objectives control
CSF11 0.599 mechanism
CSF9 0.819
CSF12 0.766 Cluster2 EPC project financing  CSF9 credit of ESCOs and clients
CSF20 0.700 for hotel retrofit  CSF12 hotel operation status
CSF8 0.612  CSF20 financing institutes’ awareness to
CSF16 0.771 EPC
CSF1 0.770  CSF8 project financial status
CSF14 0.587
CSF6 0.775
Cluster3 knowledge and  CSF16 clients’ awareness of to EPC
CSF4 0.641
innovation of EPC, SD, and M&V  CSF1 accurate M&V
CSF3 0.548
 CSF14 clients’ and ESCOs’ awareness to
CSF15 0.450
SD theory
CSF7 0.755
CSF10 0.746
CSF13 0.862 Cluster4 implementation  CSF6 sustainable development strategy
CSF21 0.532 0.539 of SD strategy planning
 CSF4 available technology
 CSF3 control mechanism of sustainable
development strategy
Table 5  CSF15 policy support
Final statistic of principle component analysis.
Cluster5 contracting  CSF7 savings share
Clusters Eigenvalues Percentage Cumulative percentage  CSF10 task and risk allocation
of variance of variance
Cluster6 external economic  CSF13 economic environment
1 3.794 18.065 18.065
environment  CSF21 availability of financing market
2 2.788 13.276 31.341
3 2.117 10.082 41.424
4 2.071 9.860 51.283
5 1.789 8.520 59.804
6 1.431 6.814 66.618
EPC model is meant to create a win win situation in energy
efficiency projects. Collaboration and partnership are crucial for
among the CSFs under each of the clusters, the six extracted project success organization, which need trust and effective
clusters can be reasonably interpreted as follows: project organi- coordination. Trust can be defined as the belief that a party
zation process, EPC project financing for hotel retrofit, knowledge can reliably fulfill its obligations in an exchange relationship
and innovation of EPC, SD, and M&V, implementation of SD (Chen and Chen, 2007). One reason for partnering failure is poor
strategy, contracting, and external economic environment. The coordination of activities. In order to achieve project objective,
six clusters and their respective constituents are presented in effective coordination is necessary, which is also a requirement to
Table 6. The associated explanations regarding these clusters in project manager’s organizing skill. In questionnaire survey, both
order of importance are as follows. these two factors were considered in high level significance.
Good planning and objective control are obviously important
4.2.2. Cluster 1: project organization for project organization. Chua et al. (1999) indicated ‘‘interactive
The six extracted CSFs significant for cluster 1 are all related to process’’ as one of the project success factors and refers to
the requirement of project organization including, appropriate planning, communication, monitoring and control, and project
organization structure, effective coordination, team members’ organization throughout the project life. Identifying project orga-
technical background, organizing skill of leader, trust, and project nization structure and project objectives control mechanism is
objectives control mechanism. These ingredients required for EPC the key mission of project organization, which directly affects
project success are similar to those required for most construction project success performance.
projects. The first step to organize a project is to establish a team.
A team leader, here project manager, is the person who provides
guidance, instruction, direction, leadership to a group of other 4.2.3. Cluster 2: EPC project financing for hotel retrofit
individuals for the purpose of achieving a key result or group of The four CSFs in this cluster indicate financing package for EPC
aligned results. Effective project managers are essential for project in hotel retrofit, including credit of ESCO and client, hotel
project success (Belassi and Tukel, 1996; Chua et al., 1999; Chan operation status, awareness of financing institute to EPC, and
et al., 2004). The project manager is in charge of the project and project financial status. According to the concept of EPC mechan-
has sufficient authority, personality, and reputation to ensure ism, EPC is a financing mechanism. A number of financial instru-
that everything that need to be done for the benefit of the ments may be used in project financing, such as debt, equity,
project are done (Chua et al., 1999). Besides, technical background mezzanine finance, contractor and clients credit, or sureties.
and skill of team members is stressed by researchers as one of Revenue stream of the project is the basis of project finance; so
the key reasons for project success (Belassi and Tukel, 1996; financial status of project is important for project financing from
Chan et al., 2004). financing institute.
7396 P. Xu et al. / Energy Policy 39 (2011) 7389–7398

The development of EPC industry is relatively late in China. performance contracting. The identification and the allocation of
Financing institutes are not familiar with this mechanism. Finan- risks are an important issue in contractual arrangement (Gordon,
cing for EPC project often is impeded because of the lack of 1994; Chan and Yu, 2005), which include both the type and the
awareness for financing institute to EPC mechanism and lack of content of the contract. There are several contracting models for
credit history of clients and ESCOs. Another CSF, hotel operation EPC mechanism as mentioned above, equitable risk allocation and
status, is a long term financial situation and operation status. saving share is required for delivering sustainable and successful
Although project capital is recovered by energy and cost saving projects.
after building retrofit, the long-term operation situation of the
hotel itself is an important economic factor for success of these 4.2.7. Cluster 6: external economic environment
long-term performance contracts. This factor is proposed by Cluster 6 is an external economic environment, which contains
several interviewed experts, which is related to investment risk economic environment and available financing market. Strictly
and project financing. speaking, available financing market belongs to economic envir-
onment. This factor is related to project financing. Table 4 lists the
4.2.4. Cluster 3: knowledge and innovation of EPC, SD, and M&V max loadings of each CSF on each cluster. According to the factor
This cluster consists of the awareness of clients to EPC, analysis result, the loading of this factor on cluster 6 is 0.539, and
accurate M&V, and awareness of clients and ESCOs to sustainable on cluster 2 is 0.532. Hence, this factor could also be clustered
development theory. This cluster is named as knowledge and into cluster 2. Belassi and Tukel (1996) suggested that some
innovation of EPC, SD, and M&V. Measurement and Verification factors are external to the organization but they still have an
(M&V) is one of the most important parts of EPC procedure, which impact on project success or failure. Various researchers support
is to identify the project result and energy savings. The reliable ‘‘economic environment’’ as a factor affecting project success
and undisputable M&V is one of the very key success factors of (Belassi and Tukel, 1996; Chua et al., 1999; Chan et al., 2004;
EPC, which was selected as the most important success factor in Zhang et al., 2008). Economic environment factors have their
the questionnaire survey. impact on the working and decisions of business or projects are
In China, customers, suppliers, engineering companies, banks, known as economic environment. It includes inflation, interest
finance sector, and industry are all lacking awareness and informa- rates, economic policy, level of income, unemployment, energy
tion of EPC (Wang, 2008; Fu, 1999; Yang et al., 2004; Xie, 2008). price, etc. Economic environment is very dynamic and complex in
According to the collected information from interviews, most nature. It keeps on changing from time to time.
leaders of hotel have willingness to reduce energy consumption.
However, only few of them have heard about EPC. Lack of under-
standing of EPC on the part of hotel managers impedes implement- 5. Conclusions
ing EPC in hotel retrofit or contributes to their failure.
This research is about delivering sustainable BEER in hotel The aim of this study is to develop a set of CSFs of energy
buildings. Highlighting and promoting awareness of clients and performance contracting (EPC) for sustainable Building Energy
ESCOs to the concept of sustainability could make project a Efficiency Retrofit (BEER) in hotel buildings in China. Firstly, 28
success with sustainable development principles in planning, nominated factors were selected based on literature review and
designing, and building retrofit. experts in-depth interviews. Then 21 Critical Success Factors
(CSFs) were indentified based on questionnaire survey. According
to the data collected in a questionnaire survey, importance of the
4.2.5. Cluster 4: implementation of SD strategy ranking of CSFs was presented. It was found that the most
This cluster contains sustainable development strategy planning, important five factors are accurate measurement and verification
available technology, control mechanism of sustainable development (M&V), trust, control mechanism of sustainable development
strategy, policy support. In order to achieve sustainable development strategy, available technology, and effective coordination. After
of EPC projects, sustainable development principle should be taken that, using the factor analysis technique the 21 identified CSFs in
as a strategy to organize these projects. Business strategy manage- this study were grouped into six clusters. These are project
ment consists of strategic planning and control mechanism of organization process, EPC project financing for hotel retrofit,
strategy plans. Strategy management for sustainable project is a tool knowledge and innovation of EPC, sustainable development
to guarantee sustainable objectives of project through sustainable (SD), and M&V, implementation of SD strategy, contractual
development strategic planning and control mechanism. arrangement, and external economic environment.
Retrofit technologies reflect new equipment, new energy The results indicate that EPC team, client, ESCO, and other
resources, new energy audit technologies, and new technologies of related departments who are directly or indirectly involved in this
improvement measures. Affordable and appropriate technologies in work all can significantly influence the success of delivering a
BEER decide the feasibility of these projects and the energy savings sustainable BEER project. In order to achieve EPC success for
potential. Lack of policy incentive is a main barrier confronted by sustainable BEER projects in hotel building, joint efforts should be
energy efficiency improvement of existing buildings (Zhong et al., made by all the involved participants in the following items:
2009; Chan et al., 2009). Although some incentive policies to EPC (1) Demonstration programs, education programs, and training.
projects have been issued in some areas of China, none of them are The implementation of EPC mechanism is not mature in energy
suitable for such small-scale project in hotel buildings. More policy efficiency projects, especially in building sector. Demonstration
supports should be promulgated to clear such institute barriers as projects publicize successful examples of hotel building retrofit,
law, tax, and financial institutes. These are requirements for which could provide refereed case of EPC project organization and
delivering sustainable BEER in hotel smoothly. delivery. Education programs should be provided by government,
ESCO association, and hotel association, which could provide the
4.2.6. Cluster 5: contractual arrangement knowledge of these projects and improve the awareness among
The two extracted CSFs, savings share and task and risk participants. Training of energy efficiency technologies could
allocation, in cluster 5 are related to contractual arrangement. improve the skill of team members. (2) Economic incentives.
These two CSFs are also selected into one category (see Table 1). Some economic incentive or policy support, such as special
The contractual arrangement is the key mission of energy funding support, tax preferences, and loan warrant, etc., could
 P. Xu et al. / Energy Policy 39 (2011) 7389–7398 7397

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