NASEO Taxonomy on MUSH Market Financing Options
The purpose of this taxonomy is to advance State Energy Office staff knowledge about the various energy-related financing products available to serve the municipal and state governments, universities and colleges, K-12 schools, and hospitals (MUSH) market, and to provide State Energy Offices with additional technical assistance and support to help them educate building owners in those markets.
MUSH market building owners have access to several different financing mechanisms to complete energy efficiency and other energy and water-saving improvements, including Energy Savings Performance Contacts (ESPCs), Energy-as-a-Service (EaaS), and Public-Private Partnerships (P3s). ESPCs are a go-to financing mechanism because they always include performance guarantees that protect the interests of MUSH market customers. ESPCs have helped MUSH market building owners in 45 states finance over $30 billion in cost-effective upgrades. Other financing alternatives such as EaaS and P3s may be suitable for the MUSH market, depending on the type of project and customer priorities. However, EaaS and P3s are newer and less proven than ESPCs, so MUSH market building owners may have questions around which financing mechanism or combination of mechanisms may be the most appropriate. State Energy Offices are well-suited to deliver information to the MUSH market and address potential confusion around different financing mechanisms.
To inform State Energy Offices on ESPCs and various ESPC-adjacent financing mechanisms, NASEO developed a taxonomy to help illuminate the similarities and differences between these models. This taxonomy provides information on financing mechanisms that MUSH market building owners can leverage when seeking to finance energy retrofits. It offers an overview of three financing products (ESPCs, EaaS, and P3s) in the MUSH market, along with information about the types of projects each model finances, accounting treatment, treatment of assets, and levels of risk taken on by each party in the contract.
Questions? Please contact Sam Cramer, NASEO Senior Program Director, at firstname.lastname@example.org.
Energy Savings Performance Contracts (ESPCs)
Energy Savings Performance Contracts (ESPCs) enable 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 contract 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.
- eProjecteXpress - A free, secure, online database developed by DOE and Lawrence Berkeley National Laboratory to document and track project data, perform measurement and verification, and demonstrate the ongoing value of ESPC projects in the municipal and state government, university/college, school, and hospital market.
- NASEO-Energy Services Coalition Training on Energy Savings Performance Contracting - please click here to register and view the recording, and please click here to view the slide deck. This foundational training course covered the basics of ESPC financing for energy efficiency. Focus was given to how state and local governments can facilitate these investments, and how facility managers can begin the process of enhancing their facility’s energy performance through ESPC.
- NASEO-ESC-NAESCO State ESPC Principles
NASEO, Energy Services Coalition (ESC), and National Association of Energy Service Companies (NAESCO) joined forces in establishing principles for strengthening and expanding the use of Energy Savings Performance Contracts (ESPCs) to cost-effectively upgrade the performance and energy efficiency of state, local, and institutional buildings and facilities.
- Understanding Your ESPC Savings Guarantee
This guide summarizes some of the important aspects of savings guarantees in energy savings performance contracts (ESPCs) and includes links to reference documents for readers who want more detail.
- The Business Case for Conducting Measurement and Verification in State and Local Government Energy Savings Performance Contract Projects
When effectively implemented, measurement and verification enables ESPCs to succeed by documenting the quantity of energy savings (and sometimes demand, water, O&M, and other savings) over an extended period of time. Measurement and verification tracks whether guaranteed savings have been achieved, and can identify opportunities to optimize energy savings performance, improve financial outcomes, and document other benefits.
- Energy Performance Contracting for State and Local Governments: Strategies for Successful Measurement and Verification
Energy savings performance contracts (ESPCs) enable public agencies to implement facility improvements with little or no upfront capital costs by leveraging a guaranteed multi-year stream of avoided utility and other costs. The process of measuring actual energy (and sometimes water and other non-energy) savings after project installation, known as measurement and verification (M&V), is an essential component of ESPCs.
- Performance Contracting National Resource Center (PCNRC)
A hub for all U.S. Department of Energy best practice resources and solutions for ESPCs.
- 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.