Performance Contracting: Saving Green In More Ways Than One
By: Gina Bicknese
An Energy Saving Performance Contract (ESPC) is a financial mechanism that grants public entities the use of future energy and operational savings to finance current facility upgrades. In essence it’s a way to pay for today’s facility upgrades with tomorrow’s savings. An ESPC establishes a relationship between an Energy Service Company (ESCO) and a District that allows the collaboration of a project that will revitalize and extend the life of a facility for years to come—without depleting Capital Budgets.
Before the District selects an ESCO, energy-related data is examined to calculate savings and prioritize areas for improvement. Those estimated savings are guaranteed through the ESPC and are used to fund the upgrade process.
The Basic ESPC/EPC Process:
- The building/facility owner (in this case the District) competitively selects an ESCO, which completes an energy audit of the facilities.
- Once an ESPC is negotiated, the ESCO designs, installs, and commissions energy conservation measures selected by the owner.
- Energy savings are measured and verified, and the ESCO guarantees the savings.
The Advantages of an ESPC/EPC:
- Pay for facility upgrades now with future energy and operational savings freeing up existing capital for other needs.
- Low interest financing options often are available, including municipal lease-purchases, which are considered “non‐appropriated funds”.
- A comprehensive approach is utilized for identifying needed facility and system improvements for the project.
- The ESCO represents a single point of accountability, simplifying the upgrade process significantly.
- Select an ESCO based on the best solution and value, not necessarily just the lowest bid.
- The building owner participates in equipment and subcontractor selection.
- Annual energy savings are measured and verified according to the International Performance Measurement & Verification Protocol (IPMVP).
- Guaranteed project cost, energy and financial savings, and equipment performance.
- Risk of performance belongs to the ESCO.
Average Payback for Typical Improvements:
- 2-5 Years: LED lighting improvements, occupancy sensors, retro-commissioning, building envelope sealing
- 5-10 Years: Domestic hot water upgrades, drives on pumps, high efficiency motors, building controls
- 10-20 Years: Major HVAC system replacements; window and door replacements; electrical upgrades, roofing, kitchen equipment, laundry ozone systems, plumbing and water conservation, solar, wind
How an ESPC Works:
Reduce Carbon Footprint: More than half of the energy used by commercial buildings goes to lighting and heating, and the average building wastes 1/3 of all energy it uses. Energy-saving upgrades, realized through improved windows, HVAC upgrades, shell measures, lighting systems, and more, pay for themselves in 5-20 years while improving the comfort for all patrons.
Stimulate Local Economy: Local improvement projects also fuel the local economy. Money spent on an energy efficiency project returns money to the local community. Performance Contracting allows the Owner to choose their preferred contractors, and the implementation of energy-conservation technologies in the public sector saves money for taxpayers, helping families and businesses grow and remain strong.
Results: Performance contracting reduces costs, mitigates risk and improves the bottom line, all while reducing the carbon footprint—it’s a win/win!