Billions Available in ESPCs for Gov’t Energy Efficiency Projects

March 5, 2013
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Rep. Peter Welch, (D-Vt) speaks about ESPCs and other energy efficiency initiatives during last week's hearing. Click  the pic to go to the video.

Rep. Peter Welch, (D-Vt) speaks about ESPCs and other energy efficiency initiatives during last week’s hearing. Click the pic to go to the video.

Perhaps energy efficiency should be made a big part of the perpetual budget talks in Washington.

Billions of dollars worth of energy efficiency improvements—and savings—are available to federal government agencies, according to testimony at last week’s Congressional hearing by House Energy and Power Subcommittee of the Energy & Commerce Committee on “American Energy Security and Innovation: An Assessment of Private-Sector Successes and Opportunities in Energy Efficient Technologies,” which discussed possible legislation, financing programs and ways to encourage energy efficiency in buildings and homes.

The funds are in the form of Energy Savings Performance Contracts (ESPCs), which use private sector financing from Energy Service Companies (ESCOs) to install new energy-efficient equipment at no upfront cost to the federal government, then convert the money a federal facility currently spends on wasted energy into a payment stream that finances the energy-saving capital improvements in the facility.

According to testimony by Britta MacIntosh, vice president of Business Development for energy services company NORESCO, about $78 billion is still available in ESPC funding to federal agencies, and if all $80 billion of the funding were used the government could save an additional $20 billion.

MacIntosh’s statement reads:

According to DOE’s Federal Energy Management Program there have been 570 performance contract projects worth $3.9 billion awarded to 25 federal agencies. These projects reduced annual energy consumption by 32.8 trillion Btu, and resulted in energy savings valued at $13.1 billion, of which approximately $10.1 billion went to finance project investments, leaving a net saving of $3 billion to the government.

In 2009, the Department of Energy prequalified 16 Energy Service Companies for Super ESPC IDIQ [Indefinite Delivery/Indefinite Quantity] contracts of $5 billion each. This represents a total potential of $80 billion in private sector financing available to the Federal government to implement ESPC projects. Today, over $78 billion remains available to Federal agencies. A study by Oak Ridge National Laboratory identified that if the entire $80 billion authority under the DOE contract were utilized the government would save an additional $20 billion. In addition, this would result in the Federal government acquiring $30 billion of new energy equipment at no up-front cost.

The federal government is the largest single user of energy in the United States, spending nearly $7 billion annually on its facility costs.

In December 2011, President Obama released a Presidential Memorandum directing federal agencies to enter into $2 billion worth of performance-based contracting for energy savings over a two-year period. MacIntosh’s statement says that so far nearly 60 projects have been awarded representing approximately $500 million, with $1.5 billion expected to be selected by the conclusion of the performance period.

That’s a nice start, but clearly ESPC’s are being underutilized by the federal government. MacIntosh says this is due to their unorthodox financing and lack of education among the agencies, which the DOE’s Federal Energy Management Program assists with.

MacIntosh added that ESPCs have delivered more than $7 billion in energy related savings to the Federal government alone.

Because of their no-upfront costs, ESPCs are extremely appealing to the federal government, which can enter into long-term contracts guaranteed not to exceed their current utility costs. The contracts can also include a variety of efficiency improvements.

From MacIntosh’s testimony:

Most Federal ESPC contracts range from 15 to 18 years and cannot exceed 25 years. This allows for the bundling of multiple energy conservation measures; that is, the ability to pull a comprehensive package of energy saving measures together that maximizes energy and cost savings opportunities for the customer. Individual energy conservation measures (ECMs) which can make up a bundled ESPC project may include lighting, building controls, HVAC, boiler or chiller plant improvements, building envelop modifications, water savings, refrigeration, renewable energy systems, load shifting and others. The ESCO guarantees that savings accrue and is reimbursed for their investment over this period.

MacIntosh was also speaking on behalf of the Federal Performance Contracting Coalition (FPCC), a national industry coalition of energy service companies advocating for increased federal use of ESPCs. The coalition  includes companies such as Ameresco, Chevron Energy Solutions, Constellation Energy, Honeywell, Johnson Controls, Lockheed Martin, NextEra Energy Solutions, NORESCO, Schneider Electric, Siemens Government Technologies, and Trane/Ingersoll Rand.

Also from MacIntosh’s testimony:

In the past twenty years, the US ESCOs delivered about:

  • $45B in projects paid from savings
  • $50B in energy and maintenance savings – guaranteed and verified
  • 400,000 person-years of direct employment
  • $30 billion of infrastructure improvements in public facilities
  • 450 million tons of CO2 savings at no additional cost

Over 30 states have authorized state ESPC programs and the Energy Service Company (ESCO) market is estimated to exceed over $5 billion annually.

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