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Energy-Saving Performance Contracts with the US Government

The US federal government uses a lot of energy. In fact, it is the world's largest single consumer of energy. According to a recent government memo, the organisation incurred about US$20 billion in energy costs in fiscal year 2010 alone. Of that, $7 billion was for energy consumption in federal buildings.

The US government is under a mandate to lead by example. They are doing this by ‘employing strategies to improve energy management’, consistent with Executive Order 13514, which was issued in 2009. The executive order stated that ‘upgrading the energy performance of federal buildings can be one of the fastest and most cost-effective ways to reduce energy costs, combat pollution, and create local jobs’.

Since 1998, the government has been awarding Energy Savings Performance Contracts (ESPCs) to applicable projects. ESPCs are an innovative way to pay for efficiency upgrades to existing federal buildings where the government receives substantial energy and cost savings on the facility. Qualified Energy Savings Companies (ESCOs) perform the upgrades and do all of the project development and management work involved. Last summer, the Obama administration reconfirmed the White House’s ongoing commitment to the federal use of Energy Savings Performance Contracting.

According to the US Department of Energy (DOE), an ESPC is a partnership between a federal agency and an ESCO. First, the DOE hires an ESCO to conduct a complete energy audit for the facility and identify improvements that will save energy. The ESCO then designs and constructs a project that meets the agency’s needs and arranges the necessary funding, after guaranteeing that the improvements will generate energy cost savings that will be sufficient to pay for the project over the term of the contract. Contracts can be as long as 25 years and, once the contract is over, all cost savings belong to the agency.

The Case of the Savannah River Biomass Facility

Take, for example, the Savannah River Biomass Facility, which last year replaced a coal- and oil-fired power generation station with a biomass-fueled steam cogeneration plant and two smaller biomass-fueled plants. The facilities are expected to have the capacity to convert 295,000 tonnes of fuel per year, including local forest residue and wood chips, into 20 MW of clean power. The project is the federal government’s largest single source of performance-based renewable energy savings, which is expected to save $34 million in utility costs in the first year alone.

Financing for the project was conducted with an ESPC, Ameresco, which allowed the federal government to pay for the entire project cost only after energy savings had been realised.

According to Karen Guevara, who is a representative for the US DOE Savannah River Site, the project ‘represented an opportunity for the Department of Energy to invest in a renewable energy source to replace an ageing 50-year-old coal-fired power plant’.

Guevara explained that ESPCs enable the government to ‘be able to make infrastructure investments without seeking appropriations from Congress’. She went on to add that ‘in declining federal budgets, the ability for us to have Ameresco secure private financing and for us to pay for the construction of this plant through the energy savings over these next 20 years proved the only way we were going to be able to get this type of investment made at the Savannah River Site.’

Nicole Bulgarino, a director at Ameresco, explained that this contract meant there was ‘no up-front capital cost by the government because we are financing it similar to a mortgage’.

Bulgarino said that ESPCs are a great tool because, as a performance contract, the government can rest assured that the project will perform as it was projected to perform or the loan will not be paid. ‘Because we have to do measurement verification throughout the contract - every year of the contract - it verifies that not only is the equipment performing the way that it was designed to perform but also that those savings are made each year, which is an important tool for an ESPC contract.’

Total project cost was $795 million and the 19-year agreement could save the government $944 million in energy, water, operations and maintenance costs over its lifespan.

Adding to its numerous benefits, since construction began in 2009, the project is estimated to have sustained and created about 800 jobs spanning the mechanical, construction, engineering and supplier sectors during the 30-month construction period. The plant will sustain 25 full-time jobs on-site.

A Solid Contract

DOE energy savings performance contracts are indefinite-delivery, indefinite-quantity (IDIQ) contracts that are, according to DOE, designed to make ESPCs as practical and cost-effective as possible. The DOE awarded these ‘umbrella’ contracts to ESCOs based on their ability to meet terms and conditions established in IDIQ contracts. DOE ESPCs can be used for any US government-owned building worldwide.

According to the DOE website, energy savings performance contracts can help federal agencies meet energy efficiency, renewable energy, water conservation, and emissions reduction goals by streamlining contract funding for energy-management projects. As long as a company has the ability - and the desire - to put up the entire cost of the project it is seeking to build, and can wait for many years to receive payment for it, ESPCs make a lot of sense for both parties.

The government gets access to what is deems ‘private-sector expertise in energy efficiency, renewable energy, water conservation, and reduced emissions’ technologies. Since the projects are built and operated by independent companies, there is a built-in incentive for ESCOs to provide high-quality equipment, timely services, and thorough project commissioning from the beginning. American taxpayers benefit from ESPCs through increased job opportunities, improved energy savings, less emissions, and a reduction in government expenses.

Another good use of an ESPC took place at the Marine Corps Base Camp Pendleton, which has achieved a 44% reduction in energy consumption, reaching the energy goal mandated by the US government six years early. Camp Pendleton realised these accomplishments despite a 186,000 m<sup>2</sup> increase in facility space. The Marine Corps cut the base’s energy use through the implementation of ESPCs and utility energy services contracts, combined with energy education and awareness programmes.

Projects included decommissioning a large central steam plant and incorporating Leadership in Energy and Environmental Design (LEED) standards into all construction projects. Camp Pendleton’s energy-reduction plan also included a roof-mounted PV system.

Much of Camp Pendleton’s electrical load reduction was due to 42 buildings being outfitted with daylighting technology. Additionally, 51 buildings were retrofitted from high-intensity-discharge fixtures to high-output T-5 HO (fluorescent) fixtures.

Solar street lights, warning signs, and anti-terrorism lighting enhance driver safety, reduce grid-connected energy costs, and improve base security. Camp Pendleton saved more than $3 million in energy costs and almost 280 billion BTU in fiscal year 2004 alone.

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