Energy performance contracts

Energy savings performance contracts (ESPC) can be an extremely effective incentive in reducing energy waste on projects with minimal risk to the contracting authority.

energy savings performance contracts, energy waste, energy costs The scheme, which has been ongoing for over a decade, seems to have really taken off recently, with a host of impressive projects adopting the financing mechanism. According to the US Department of Energy, over 500 projects with a combined value of $3.6 billion have been awarded since March last year.

ESPCs, which were created in order to encourage investment in federal buildings, can be implemented on projects ranging from social housing estates to large schools to prison buildings. The contracts allow federal contracting authorities to save money on the energy costs of projects without having to stump up capital beforehand. The projects can have contract lengths of up to 25 years. Furthermore, the projects using this financing structure are getting bigger.

Record project

Earlier this year the US Food and Drug Administration (FDA) signed an ESPC for its White Oak Federal Research Centre with private contractor Honeywell International. At a value of $213 million, it is the largest ESCP in the program’s history.

The energy savings ESPCs offer can be staggering. The FDA’s White Oak contract, which will run for 20 years, is expected to save over 5.5 trillion British Thermal Units (or BTUs, a standard unit of energy equal to just over a joule) during that time. To put that into perspective, it is the equivalent of powering 134,000 households for a year. In the first year alone, the use of an ESPC is set to save the contracting authority over $25 million in energy and avoided operations and maintenance costs.

Across the pond

Outside the US, similar energy performance contracts are gaining in popularity. US firm Johnson controls has recently received the European Energy Service Initiative’s award for the Best European Energy Service Project for its retrofit of the Jewish Museum in Berlin. The retrofit was performed under an energy performance contract.

Contractual wrangling

However, these contracts may contain hidden perils. Take Garden City (New York) School District’s ESPC with contractor ConEdison Solutions. The project was delayed earlier this year for several months over bureaucratic wrangling. An entire summer of potential work on the project was subsequently lost. The state education department, which is purportedly not a proponent of ESPCs, had made numerous comments on the contract. By the time the school district had waded through the comments, work was already delayed.

However, despite the delay, the savings should still remain. ConEdison Solutions representative John Cain said at the time: “The savings will be there, and we have no qualms about it going down at all.”

Enabling projects

Despite these pitfalls, the fact is many projects would simply not be feasible without ESCPs. The mechanism takes out the need for large amounts of capital prior to the start of the contract. Constellation Energy’s $11.5 million contract with the Trenton Housing Authority (New Jersey), which is set to save $31 million in energy costs over 15 years, is a prime example.

“These upgrades wouldn’t have been possible without an energy savings performance contract, which provided a budget-neutral way to fund projects without large, upfront capital expenses,” said Herbert Brown, executive director for Trenton Housing Authority.

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