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How Do Energy Savings Performance Contracts Work

Energy savings performance contracts were enacted by Congress to encourage other federal agencies to lower their utility usage and become more energy-efficient. In turn, they have really opened the door for schools, healthcare facilities, state and local government buildings, manufacturing, public housing, and retail establishments to gain access to more efficient equipment. This may come in terms of high efficiency lighting, windows, appliances, insulation, machinery, and other items that can be made more efficiently. Energy savings performance contracts are also called ESPC, and they are an agreement between an Energy Services Company, (ESCO), and the facility.

The facility will contact an ESCO and they will conduct a survey of the property. With that information, the company will then devise a plan to make building utilities more efficient.  The ESCO will then purchase all the needed equipment to bring the building infrastructure up to date. That may include new windows, updated heating and air systems, programmable controls, and ventilation units. They will also be in charge of hiring subcontractors, and they will oversee the work on the project. The ESCO can also help the facility secure financial support for the project. The company that does the work is responsible for all maintenance of the equipment that was installed. They will also be responsible for monitoring the actual reduction in consumption rates and costs. However, once the equipment is installed, it is owned by the facility. This is not rented equipment that will have to be returned.  Additionally, the facility owner or manager can also require the ESCO to guarantee a savings amount and to observe a not-to-exceed amount for the total cost of the project.   

There are differences in some of the agreements, and these differences pertain to how the projects are funded. Some energy savings performance contracts are implemented at no cost to the customer. Other contracts have pay-back options with very low interest rates. The facility that has employed this utility-lowering option can choose to use their savings to pay back the ESCO or find other financing options.  A typical agreement between a facility and an ESCO is between five to seven years.

When a company starts looking at energy savings performance contracts, it is easy to see the many benefits that it offers. There is speed in getting approval for the project. The customer will work with one person during the entirety of the project, making the whole process much simpler. Since there is only one contractor working on the project, they are solely responsible for how well the project goes, including the savings that are actualized. Also, since there is one company working on the development, there is greater flexibility if plans need to change at any time during the project. Additionally, the company can see a reduction in emissions, water consumption, eliminate CFC’s, and minimize other utility waste.

States have qualified companies that can offer energy savings performance contracts. The requirements for qualified companies may change from state to state, but some of those requirements include the company’s specialization, profile, and relationship with ESPC’s. Checking with the customer’s state department of energy will provide businesses with information on qualified ESCO’s.




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