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Energy performance contracts are generally financing or operating
leases provided by an Energy Service Company (ESCo) or equipment
manufacturer. What distinguishes these contracts is that they provide
a guarantee on energy savings from the installed retrofit measures,
and they usually also offer a range of associated design, installation,
and maintenance services. The contract period can range from 5 to
10 years, and the customer is required to have a certain minimum
level of capital investment (generally $200,000 or more) before
a contract will be considered.
Under an energy performance contract, the ESCo provides a service
package that typically includes the design and engineering, financing,
installation, and maintenance of retrofit measures to improve energy
efficiency. The scope of the improvements can range from work that
affects a single part of a building's energy-using infrastructure
(such as lighting) to a complete package of improvements for multiple
buildings and facilities. Generally, the service provider will guarantee
savings as a result of improvements in both energy and maintenance
efficiencies. Flat-fee payments tend to be structured to maintain
a positive cash flow to the customer with whom the agreement is
made. With the increasing deregulation of conventional energy utilities,
several larger utilities have formed unregulated subsidiaries that
offer a full range of energy efficiency services under performance
agreements.
An energy performance contract must define the methodology for
establishing the baseline costs and cost savings and for the distribution
of the savings to the parties. The contract must also specify how
the savings will be determined and address contingencies such as
utility rate changes and variations in the use and occupancy of
a building. While several excellent guides exist for selecting and
negotiating energy performance contracts, large or complicated contracts
should be negotiated with the assistance of experienced legal counsel.
| Some guidelines for a successful ESCo project include: |
- Look for more than the low bid. Select an energy service
company (ESCo) with a good track record that can provide
other necessary services such as project design, installation
and maintenance. Get references.
- Negotiate a contract that reasonably limits ESCo profit-making
and establishes a win-win arrangement. Carefully weigh the
pros and cons of shared savings versus fees for services
and other contractual arrangements.
- Require the ESCo to take a "comprehensive approach" to
energy conservation—bundling measures with rapid paybacks
and measures with longer paybacks—rather than a "cream-skimming
approach" (the practice of doing only easy, quick payback
measures).
- Ensure the agreement does not allow the ESCo to sacrifice
quality for energy savings.
- Ask your ESCo to incorporate extended product warranties
and personnel training into the bid specifications.
- Organize an in-house project team to work with the ESCo
to choose appropriate energy measures, prepare bid specs,
prequalify prospective bidders, and perform other tasks
when the contract is signed.
- Work with the ESCo to test new technologies in order to
determine their performance and applicability.
- Design the project and coordinate construction in a way
that minimizes disruption of the building's functions.
- Document both energy and non-energy benefits of your project
and publicize its success to the community.
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