Saving Money, Gaining Energy Independence: ESPCs with the U.S. Government

The U.S. 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 organization incurred approximately $20 billion in energy costs in FY 2010 alone. Of that, $7 billion was for energy consumption in federal buildings.

The government is under a mandate to lead by example by “employing strategies to improve energy management,” consistent with Executive Order 13514, which was issued on Oct 9, 2009.  The executive order stated, “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 U.S. government has been awarding Energy Savings Performance Contracts (ESPCs) to applicable projects. ESPCs are a proven way to pay for efficiency upgrades to existing federal buildings where the government receives a 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 commitment to the federal use of Energy Savings Performance Contracting.

According to the U.S. 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 the facility 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 government.

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 convert 325,000 tons wood waste per year, including local forest residue and wood chips, into 20 MW of clean power.

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

According to Karen Guevara a representative for the U.S. DOE Savannah River Site, the project “represented an opportunity for the Department of Energy to invest in a renewable energy source to replace an aging 50 year old coal-fired power plant.”

She explained that ESPCs enable the government to “be able to make infrastructure investments without seeking appropriations from Congress.”  Adding 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.”

Ameresco’s Nicole Bulgarino explained that this contract meant that there was “no upfront capital cost by the government because we are financing it similar to a mortgage,” she said.

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.”

The project is the federal government’s largest single source of performance-based renewable energy savings and it is expected to save $34 million in utility costs in the first year alone. 

The complete project cost was $795 million and the 20-year agreement could save the government $944 million in energy, water, operations and maintenance costs over its lifespan. 

In addition, since 2009 the project is estimated to have sustained and/or created approximately 800 jobs spanning the mechanical, construction, engineering and supplier sectors over the 30-month construction period. The plant will sustain 25 full-time jobs on-site. RenewableEnergyWorld.com awarded the Savannah River Biomass Facility an Excellence in Renewable Energy Award earlier this year.

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 awards 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 U.S. government-owned building worldwide.

According to the DOE, ESPCs 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 start. American taxpayers benefit from ESPCs through increased jobs, improved energy savings, less emissions, and a reduction in government expenses.

Solar at Camp Pendelton

Another good use of an ESPC took place at the Marine Corps Base Camp Pendleton, which achieved a 44 percent reduction in energy consumption, reaching the energy goal mandated by the U.S. government six years early. Camp Pendleton realized these accomplishments despite a 2 million-square-foot increase in facility space. The Marine Corps cut the base’s energy use through implementation of ESPCs and utility energy services contracts, combined with energy education and awareness programs.

Camp Pendleton 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.

Just last month the base announced that it was planning to install a 345-kW PV system on two of the base’s shared dining facilities. This rooftop solar project comes in additional to the 1.4-MW ground mounted system it installed last year. (See image.)

“The savings from this project will be extremely beneficial, both environmentally and monetarily,” said Daniel Sullivan, founder and President of Sullivan Solar Power, the company installing the rooftop system. “This solar installation displays the military’s commitment to declaring energy independence.”

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Jennifer Runyon has been studying and reporting about the world's transition to clean energy since 2007. As editor of the world's largest renewable energy publication, Renewable Energy World, she observed, interviewed experts about, and reported on major clean energy milestones including Germany's explosive growth of solar PV, the formation and development of the U.S. onshore wind industry, the U.K. offshore wind boom, China's solar manufacturing dominance, the rise of energy storage, the changing landscape for utilities and grid operators and much, much, more. Today, in addition to managing content on Renewable Energy World and POWERGRID International, she also serves as the conference advisory committee chair for DISTRIBUTECH, a globally recognized conference for the transmission and distribution industry. You can reach her at Jennifer.Runyon@ClarionEvents.com

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