Energy Savings Performance Contracting (ESPCs) enables public and institutional buildings, such as those owned by state and local agencies, municipalities, universities, schools, hospitals, wastewater treatment plants, and others, to finance the cost of energy and water improvements through the energy cost savings they achieve. To execute an ESPC, an agency contracts with an Energy Services Company (ESCO), which performs audits of the building in question, identifies potential areas for energy savings and, with the building owner’s agreement, makes the upgrades needed to achieve the level of energy savings specified in the contract. The savings on the building’s utility bills are then used to pay back the ESCO. Because the ESCO guarantees a certain level of savings, if the building does not achieve those savings, the ESCO makes up the difference in payment to the building.

In many states’ enabling legislation, the legal authority for ESPC – along with the ability to access low-cost capital for ESPC-financed projects – relies on the energy savings guarantee. The guarantee is a key component of the contract, as it provides a way for facilities to make energy improvements without having to utilize their existing budgets. However, to prove that ESPC upgrades are delivering guaranteed savings, measurement and verification (M&V) of those savings is an essential element of strong ESPC program design. Properly verifying that the agreed-upon savings are being achieved by the building owner is as important to the contact as the promise of the guarantee itself.

State Energy Offices play a critical role in the development and design of ESPC programs. Many State Energy Offices help design and run ESPC programs, prescreen ESCOs that other agencies can hire for performance contracts, provide input on the design of documentation, and help ensure that the savings guaranteed by the ESCOs are actually occurring through rigorous measurement & verification procedures. State Energy Offices also provide outreach, education, and support to local governments and other public building owners considering ESPC upgrades.

Resources

  • Energy Savings Performance Contracting – DOE’s State and Local Solutions Center 
    A website run by U.S. Department of Energy that contains a number of reports and resources on developing strong ESPC programs.
  • ESPC Toolkit 
    A collection of resources gathered through DOE’s ESPC Accelerator. The toolkit provides information about each step of the ESPC decision-making process so interested building owners can stay informed about best practices to utilize to successfully complete projects.