Understanding Energy Performance Contracting

Understanding Energy Performance Contracting

An investment in sustainability can take many shapes, but one unavoidable fact about today’s high-performance technologies is that they usually cost money to implementand most of the time, it’s all up front. But if you’ve been ruling out a sustainable solution for purely financial reasons, we’d like to introduce you to a concept you really ought to know about: Energy Performance Contracting.

It might just change your mind about sustainability. And it might just save you a whole lot of money, too.

Energy Performance Contracting, to borrow the Energy.gov’s phrasing, is a “budget-neutral” method for reducing energy and water consumption while increasing efficiency in your building. In other words, Energy Performance Contracting helps your building use less energy while creating zero negative effects on your bottom line.Understanding Energy Performance Contracting

“Normally offered by Energy Service Companies (ESCOs), this innovative financing technique allows building users to achieve energy savings without up front capital expenses,” notes HUD.gov. “The costs of the energy improvements are borne by the performance contractor and paid back out of the energy savings.”

You get the benefits, while somebody else shoulders the financial burden. Not bad, huh?

“Energy performance contracting isn’t the best choice for everyone. But it can be a major tool for many budget constricted companies or governments,” says Daniel Tait, CEO of Energy Alabama. “At the end of the day, don’t let upfront cost stop a project when you have a tool like energy performance contracting.”

 

So, Where To Start?

The process is surprisingly simple, as outlined here at EnergyStar.gov. First, you competitively select an Energy Service Company (ESCO). This part is completely up to you. Of course, we’re happy to help!

Once you’ve selected your contractor, the ESCO will develop and then execute an all-inclusive energy-saving plan for your facility. The project should include an introductory energy audit as well as some kind of Monitoring and Verification (M&V) process that ensures continued savings. Besides energy efficiency, the ESCO might also focus on water conservation and distributed generation, among other components.

With the plan in place, you’ll work with the ESCO to set up long-term financing through a third party. This could be an operating lease, municipal lease or something else entirely. The idea is that the improvements cost you nothing in capital expenditures up front.

(Lease-purchase agreements are probably the most common method for financing an Energy Performance Contracting project. If you want to know more, that link has plenty more information.)

 

Reaping the Rewards

Finally, the ESCO should offer you a guarantee that your project will pay for itself through the savings generated by that all-inclusive energy-saving plan we mentioned above.

It’s as easy as that. Boost efficiency. Save money. Reap the rewards.

So, what kinds of buildings are ideal for Energy Performance Contracting? Government facilities ara a good choice, since governments generally own their buildings long-term. This makes a 10- to 20-year financing term attractive. But really, any large building could be a good candidate. Hospitals, schools, corporate headquartersthese are just a few of the facilities that could benefit from Energy Performance Contracting.

For more information, or to learn how to get started, contact Energy Alabama CEO Daniel Tait by email at dtait@alcse.org.

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