Concepts & Fundamentals of ESPC

Definitions

ESPC is a version of design-build contracting, with a focus on guaranteed energy savings. Over $30 billion in cost-effective upgrades have been financed through ESPCs across 45 states. 

ESPC is a financial mechanism used to pay for today’s facility upgrades with tomorrow's energy and operational savings – without tapping your organization’s capital budget. Done properly, it has the performance of a hedge fund, with the risk of a T-bill. -Chris Halpin

ESPC is the use of guaranteed savings from the maintenance and operations budget (utilities) as capital to make needed upgrades and modernizations to your building environmental systems, financed over a specified period of time. -United States Department of Energy – 1999

 

Benefits

History of ESPC

ESPC projects emerged in the late 1970s–1980s in response to energy crises and aging public infrastructure to help overcome barriers for Public Agencies:

  • Long procurement cycles

  • Strict budgets

  • Conservative fiscal cultures

  • Risk Aversion

ESPC has proven resilient across: 

  • Fluctuating federal/state funding 

  • Political transitions 

  • Economic downturns 

It has Bipartisan Appeal:

  • Privately financed (does not require taxpayer dollars)

  • Adopted in both red and blue states

  • Supports local economies by engaging contractors and suppliers. 

  • Ensures transparency through rigorous Measurement & Verification (M&V)

  • Reduces operating costs for public sector organizations with over-burdened budget

How it Works

You enter into an agreement with a private energy service company (ESCO). The ESCO will identify and evaluate energy-saving opportunities and then recommend a package of improvements to be paid for through savings. The ESCO will guarantee that savings meet or exceed annual payments to cover all project costs - usually over a contract term of seven to 10 years. If savings don't materialize, the ESCO pays the difference, not you. To ensure savings, the ESCO offers staff training and long-term maintenance services.

Many types of building improvements can be funded through your existing budgets - new lighting technologies, boilers and chillers, energy management controls and swimming pool covers, to name a few.

A qualified ESCO can help you put the pieces together:

 Identify and evaluate energy-saving opportunities;

 Develop engineering designs and specifications;

 Manage the project from design to installation to monitoring;

 Arrange for financing;

 Train your staff and provide ongoing maintenance services; and

 Guarantee that savings will cover all project costs.