Energy Savings Performance Contracts
At a Glance
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.
The Statement of Work is available; click here.
The project team consisted of staff from:
- EPA's National Vehicle and Fuel Emissions Laboratory
- EPA's Facilities Management and Services Division
- Department of Energy (DOE)/Federal Energy Management Program (FEMP)
Environmental Information Sources:
- Energy Policy Act
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.
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 mechanismenergy 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:
Exceed Federal Energy Reduction Mandates as prescribed by the Energy Policy Act of 1992 and Executive Order 12902, which require federal facilities to reduce their energy use 30 percent or more by 2005, relative to a 1985 baseline.
Reduce power plant source emissions.
Optimize energy cost savings.
Restore aging and obsolete infrastructure.
Minimize wasted energy.
Maximize use of waste energy streams.
Use renewable energy technologies.
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.
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.
EPA learned the following lessons from the Ann Arbor project about the process of soliciting and issuing an ESPC:
An ESPC is a new and innovative contracting method with rules different than the normal federal procurement process. For the Ann Arbor ESPC, it took a lot of time to thoroughly educate all the procurement players about this new process and 2 years to award the contract. This lengthy award time was necessary, in large part, because the procurement process required greater scrutiny in soliciting and checking the qualifications of all the potential contractors. Now, with the Super ESPC program, DOE has already chosen four to five contractors for each region of the United States. Agencies engaging in an ESPC through the Super ESPC program now have a more streamlined selection and award process.
There must be an ESPC champion within the organization to make it work. Initiating and implementing an ESPC takes a lot of time and commitment. Facility managers already have a full time job of running the building, so other people need to be involved in the process. Ann Arbor had champions both at EPA Headquarters and onsite who were able to take the time to explain the process to upper management and other procurement officials. Also, facility managers at Ann Arbor were willing to devote extra time to ensure the project did not falter.
Be wary of contractors that offer a lot of energy upgrades with short term gains. A good ESPC will have a solid mix of energy-efficiency measures with both long- and short-term payback times. It should capitalize on the diversity of fuels available such as gas, electric, renewable, and thermal waste energy streams. In addition, system components should interact and be synergistic. This generally means large parts of the energy infrastructure have to be replaced. EPA found that some contractors offered building modifications that produced significant initial monetary savings, but did not actually save energy at all or were less efficient and reliable over the long term.
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.