Ask The Expert: Correcting Misconceptions Surrounding Energy Performance Contracting
Kevin Wagner, an Account Executive at SmartWatt, hosted one of the break-out sessions at the 2019 SPEER Clean Energy Exchange. We thought this presented a great opportunity to get some insights into the challenges that can keep organizations from achieving their energy goals.
Kevin, what questions surprised you most during your breakout session?
“It was very surprising to see just how many municipalities, counties, and utility companies have misperceptions of what an ESPC really is.
OK, so what is an ESPC, really?
“An “ESPC”— or Energy Savings Performance Contract — is a turnkey, budget-neutral, solution that allows the public sector to make building improvements that reduce energy and water use while increasing operational efficiency. By partnering with a DOE-approved energy service company (ESCO) like SmartWatt, organizations can use an ESPC to pay for today’s facility upgrades with tomorrow’s energy savings — without tapping into capital budgets. The ESCO functions more like a design-builder or developer than a traditional prime contractor — designing and constructing the efficiency upgrades customers need and assisting in finding the financing to pay for it. All while the ESCO is guaranteeing the energy savings!”
What were some of the other misperceptions surrounding an ESPC?
1. “We just don’t have the budget”
“There was a lot of confusion, and many questions, about the financing structure of an ESPC. For example, several participants assumed that they must supply up-front capital in order to launch an ESPC. I explained that while there are many ways to fund an ESPC, using upfront capital being one, most ESPCs are completed without any capital investment by the customer. The cost for the efficiency upgrades is simply paid back through the guaranteed energy savings.”
2. “Waiting till we have the capital will save us money”
“It can be easy to overlook the high cost of utilities as simply the cost of doing business. As such, many within the public sector assume that postponing energy efficiency programs until they have the budget dollars available, is the wisest financial decision.
Not so. The reality is that delaying energy efficiency upgrades – even for just one year – is often a costly course of action. Here’s why:
- The organization’s energy savings pay for the energy upgrade. No capital is required.
- The U.S. Environmental Protection Agency estimates that as much as 30% of the energy consumed in buildings is wasted. Delaying energy upgrades siphons off revenue to the utility companies every single day.
- The money lost due to inefficiencies in just one year frequently totals more than the finance costs for the entire program term.
- Waiting to implement energy efficiency projects delays the point at which energy savings begin to accrue. The more organizations save, the more they can do – in terms of energy efficiency upgrades.
3. “An ESPC is too good to be true!”
“A couple of people in the audience suggested that an ESPC all sounded ‘too good to be true!’ — one even asked if it was legal! I explained that most states have some form of ESPC legislation — in Texas, it’s HB 1571/CH 302.
4. “Our equipment’s old, but our facilities/Maintenance Department can handle it.”
“First, as I mentioned earlier, keeping inefficient equipment on life-support has a lot of hidden costs. In addition to reducing utility costs, efficiency retrofits reduce the operational costs. A planned replacement of old equipment saves money, avoids disruptions to an organization’s core business, and ensures successful system integration. Nevertheless, without the help of a qualified ESCO, optimizing energy systems can be a daunting task. Sourcing funds, selecting the right technology, vetting contractors, managing implementation and verifying energy savings is complicated and risky. With all the fires that Facility and Maintenance have to deal with on a daily basis, it’s unlikely they’ll have the time and focus required to implement an effective system upgrade in a timely manner. It’s really about making the changes needed so you can start saving sooner rather than later. Keep in mind that immediate cost savings aren’t the only benefit from upgrading facilities. Increasing energy efficiency means that each building will be less costly to operate, will increase in value, last longer, and contribute to a better, healthier, more comfortable and productive environment for people in which to live and work. Improving indoor air quality, decreasing moisture penetration, and reducing mold will result in improved occupant health and reduce absenteeism.
5. “We just want to address one building now and we’ll get to the others over subsequent budget years…”
“The ESPC allows for larger projects to be completed immediately. By doing so, organizations avoid costly equipment breakdowns and uncomfortable interruptions in the daily work environment. It also relieves the financial burden of accessing deferred maintenance and general funds – which no one likes.”
Is there anything else you’d like to share?
There so many more questions and misguided perceptions to tell you about, but these were definitely the highlights. In order for ESPC’s to solution-driven results, it will take more education in the public space, along with more consumer advocates. I truly believe that the ESPC route is something that can save the public sector a great deal of money while becoming energy efficient at the same time.