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Energy Savings Performance Contracts

At a Glance

Environmental Attributes:
EPA provided its Ann Arbor testing facility with an energy-efficiency upgrade through a unique funding mechanism called an energy savings performance contract (ESPC). The capital costs were offset by savings from future utility bills.

Contract Language:
The Statement of Work is available; click here.

Key players:
The project team consisted of staff from:

Environmental Information Sources:

The project will reduce NVFEL's energy consumption by an anticipated 66 percent, lower energy costs by 74 percent, and decrease water consumption by 80 percent.

Contact Information:
Listed at the end of the case study.

Environmentally preferable decisions often are financially preferable as well. EPA and other federal agencies are using a funding mechanism—energy savings performance contracts (ESPCs)—to achieve environmentally preferable objectives at no additional cost. An ESPC is a form of third-party financing that funds energy-saving upgrades using the savings from future utility bills. This funding mechanism allows federal agencies to obtain energy-efficient technologies without having to commit capital funds. Contractors fund, install, operate, and maintain the energy-efficient upgrade projects. Based on the contractual agreement, the federal agency pays a portion of its annual energy cost savings to the contractor for the duration of the contract.

Use of Environmentally Preferable Products

In 1996, EPA initiated its first ESPC to provide the National Vehicle and Fuel Emissions Laboratory (NVFEL) in Ann Arbor, Michigan, with a much needed energy upgrade. EPA awarded the ESPC in August 1998. To reduce source emissions, energy consumption, and energy costs, EPA set the following goals for the ESPC and incorporated them into the solicitation:

The project employs a two-pronged approach: reducing the amount of energy consumed at NVFEL, a demand-side improvement; and including onsite power generation, a supply-side approach. To optimize energy cost savings, the team evaluated an extensive list of possible energy conservation measures (ECMs), weighed the merits of certain combinations of ECMs, calculated the effect of any relevant rebate programs or more favorable rate structures, and determined the optimal energy conservation system. Quick payback measures were used to offset the costs of longer payback measures, resulting in a comprehensive project that addresses both energy and water consumption for the entire facility. A new 1,000-point energy management system will ensure a high level of automated management by tracking the building's energy-consuming equipment, monitoring alarms, and interacting with the facility security and fire systems.

Project Successes

Once fully implemented, the project is guaranteed to reduce NVFEL's energy consumption by an anticipated 66 percent from 600,000 to 200,000 British thermal units (Btus) per square foot and lower energy costs by almost 75 percent from $1.1 million per year to $275,000. It also will reduce water consumption from 30 million to 6 million gallons, an 80 percent decrease. The building's complete heating and cooling system infrastructure will be replaced to improve energy efficiency, reduce pollution, and reduce maintenance costs. These improvements do not require additional capital funds.

Based on the success of the NVFEL project, EPA is using this same approach to upgrade other facilities through the ESPC and Super ESPC programs. The Super ESPC program is a U.S. Department of Energy program whereby five or six energy service companies in each of the four regions (Northeast, Southeast, Midwest, and West) win the right to bid for ESPC upgrades in federal facilities. EPA facilities slated for ESPC and Super ESPC projects include: Ada, Oklahoma; Gulf Breeze, Florida; Narragansett, Rhode Island; Manchester, Washington; Las Vegas, Nevada; and Richmond, California.

Lessons Learned

EPA learned the following lessons from the Ann Arbor project about the process of soliciting and issuing an ESPC:

For more information on EPA's use of and experience with ESPCs, call Phil Wirdzek in EPA's Facilities Management and Services Division at 202 260-2094.

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