What is an Energy Saving Performance Contract (ESPC)?

An Energy Saving Performance Contract (ESPC) is a third-party financing mechanism that can enable building owners to fund energy-saving upgrades by leveraging utility (gas, electric, oil, water, etc.) savings from future utility bills and avoided operational expenses created by those same energy-saving upgrades.  The entity that typically carries out ESPCs is called an Energy Service Company (ESCO).  This type of company is responsible for guaranteeing that the overall project cost avoidance (utility & operations expenses) will meet or exceed the project’s annual payments which will cover all of the project costs over an agreed period or the ESCO will be responsible for paying any shortfalls or differences out of their own pocket.

ECM Examples

An example of a typical Energy Conservation Measure (ECM) that an ESCO may recommend in an ESPC project is to retrofit various types of lighting fixtures.  Some examples of lighting retrofits in a typical office space may involve going from T12 to T8 lamps or replacing incandescent bulbs with compact fluorescent ones.  Implementations of lighting retrofits have the potential to save up to 20% or more on typical electrical consumption for lighting.  Since the technology is well established in the marketplace and the savings are well documented, the ESCO may recommend to the owner that these savings be stipulated rather than measured and verified.  By stipulating certain savings, the cost of Measurement and Verification (M&V) may be reduced with benefit to both the owner and the ESCO.  More complex ECMs may require rigid M&V protocols to be performed to ensure that the savings are being realized as proposed.

This funding mechanism allows federal, state, and local agencies as well as the private sector to obtain energy-efficient technologies without having to commit their own capital funds.  Often times, ECMs can be pulled out of a capital project, freeing up those funds for non-energy related upgrades. The ESCO funds, installs, operated, and maintains the energy-efficient upgrade projects. 

How does an ESPC work?

The process begins with a Preliminary Energy Analysis (PEA) in which there is an evaluation of a facility’s potential for efficiency improvements as well as the current utility usage.  If the potential seems promising, SmartEdge can assist the facility staff in developing a Request for Qualifications (RFQ) or a Request for Proposal (RFP) packet.  The facility staff then releases RFQ or RFP announcement to the marketplace and awaits responses from interested ESCOs.  This packet typically outlines the facility focus areas and all engineering, construction, and maintenance services needed to complete the project.  The responses are reviewed and an ESCO is selected based on best qualifications and overall technical approach.

Once a selection is made, the ESCO performs a Comprehensive Energy Assessment (CEA) of potential Energy Conservation Measures (ECMs) at the facility.  The facility staff reviews this study and approves a final list of ECMs.  Some examples of possible ECMs are new lighting technologies, boilers and chillers, energy management controls, swimming pool covers, etc.  The ESCO then prepares plan and specifications that the facility staff reviews and approves.  A final contract is then signed by the owner and ESCO.  The ESCO then furnishes, installs, and commissions the ECMs after which ongoing performance verification continues for the negotiated term of the contract. 


EPC Process

Some benefits of an ESPC:

  • Eliminates the need for the owner to provide up-front capital for improvements
  • Funds project entirely from project savings
  • Has potential to reduce facility utility demand requirements
  • Modernizes facility infrastructure and increases asset value at facility
  • Reduces greenhouse gas emissions at the site or the overall carbon footprint
  • Allows owner to work with one single point of contact/responsibility

Consider the benefits and take advantage of an ESPC to fund your next energy-savings project.

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