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Getting the Most Out of an Energy Performance Contract – Part 2

Apr 15 2009
Submitted by Niles Barnes on April 15, 2009 - 11:17am

*This is a Guest Blog from Walter Simpson,CEM, LEED AP, retired 26-year University at Buffalo Energy Officer and Director of UB Green.Walter is working with AASHE and the American College & University Presidents Climate Commitment to provide guidance to assist signatories of the American College & University Presidents Climate Commitment. We encourage readers to post comments and questions for Walter.**Read Walter's past blogs here.*

 
Hello Campus Climateers!

Last week I began my discussion of energy performance contracts. In that column I gave the concept an enthusiastic “thumbs up” while providing a map you could use to walk through the minefield of possible mistakes ---|| so you can achieve the best possible outcome.  

Energy performance contract projects can be terrific if they are (a) structured correctly to provide a real win-win for your school and the energy service company or ESCO, (b) undertaken with a trustworthy, competent, customer-oriented ECSO that is 100% committed and capable of delivering a first class project, and (c) fully embraced by your facilities management unit. The latter point is important becausethe best projects typically involve substantial involvement by the owner. That may seem ironic because one of the selling points for working with an ESCO is that they bring the human and technical resources to the job, thus taking some of the burden off your facilities organization. That’s true but it is nonetheless important for the owner to stay involved in order to optimize the scope of work, the quality of design, and the project’s eventual implementation. 

Let me go back and further describe my favorite energy performance project, one I managed for the University at Buffalo in the mid 1990s. Then I will wrap up with some tips for selecting an ESCO.

 
The ESCO for this project was CES/Way International, a firm which no longer exists; it was purchased shortly after our project was completed by a much larger company. This company was relatively small and entrepreneurial (so “big” is not always better), had ties with a larger engineering firm whose resources it could draw upon as needed, and was staffed by capable individuals of high integrity who truly did want to deliver the best possible project – for UB and as a feather in their own cap. For some of the energy audit and design work, they worked with subcontractors – who we jointly selected. Construction was entirely conducted by subcontractors – who we jointly selected. All products used in the project were jointly selected. All bidding was also jointly conducted.  You get the picture. The best projects are real partnerships.
 
From the beginning, CES/Way International argued for as large and comprehensive a project as energy savings would justify. That was in their interest but also ours. It was also in the interest of our utility company, Niagara Mohawk, and its ratepayers – maximizing the benefit of the demand side management (DSM) incentive funds which were catalyzing or fueling this project. 
 
The comprehensive nature of this project can be seen by its measures, which included:
 
  • Interior and exterior lighting retrofits (50,000 fixtures)
  • Heat recovery in lab buildings and for our natatorium
  • Variable speed drives on all fans and pumps over 5 horsepower
  • High efficiency motor replacement
  • Lab building outside air reduction
  • Constant volume to variable air volume HVAC retrofits
  • Conversion of electrically heated buildings/hot water to natural gas
  • Energy management system (EMS) upgrades
  • Chiller optimization
  • Re-insulation of piping in our campus district heating system
  • Etc., etc., etc.
 
This $17 million project was incentivized with $4 million in DSM funds and had an overall 4 year payback. It paid for itself through energy dollar savings and was designed to also produce approximately $50 million in positive cash flow (savings in excess of debt service) over 15 years. It also reduced campus greenhouse gas emissions by 31,000 tons of CO2 or 20% of our overall CO2 emissions. The DSM funding was made available to us contingent upon our agreement that the conservation measures and thus the energy savings would persist for at least 15 years. While I would do a project like this a little differently now (extending the 4 year payback and eliminating the positive cash flow – both in order to maximize energy measures and savings), this was an incredible project. 
 
The CES/Way project, as we called it, made very efficient use of DSM funds. Over the course of its 15 years persistence requirement, this project will save 600,000,000 kilowatt hours of electricity – all the direct result of $4 million in incentive funding which made this project happen in the first place. That works out to less than a penny of incentive money spent for each kilowatt hour saved! . . . which is far less than the cost to generate power. Much cleaner as well! You can see why I love this project!
 
Of course, not all performance contracts turn out like that. I have seen far less successful projects – so it is important not to assume success but instead to do everything you can to make it more likely. 
 
Finally, here are some guidelines for hiring a good ESCO. Your ESCO should:
 
  • Have ample experience on college and university campuses and a long list of satisfied customers
  • Sell professional services and not represent a product manufacturer or at least not lock you into a specific product manufacturer
  • Have highly qualified, expert engineering staff who are easy to work with and obviously and honestly customer-oriented
  • Guarantee that the members of their team who you met during the selection process (and presumably liked) will actually be permanently assigned to your project -- and not be shifted to other projects, as often happens
  • Allow maximum flexibility in contract terms – so you can choose “cost plus” vs. “fixed cost” or “guaranteed savings” vs. no guarantee, etc.
  • Welcome and invite maximum campus participation in the initial audit and in project design and construction
  • Provide full transparency and open books for all decision-making, fees, and overhead & profit mark-ups
 
I hope this helps and good luck with your next performance contract!
 
Next week’s subject will be about buying green power... 
 
‘till then climateers!
 
Walter Simpson