Energy Savings Performance Contracts & Energy Service Companies Federal Energy Management Program Energy Savings Performance Contracts & Energy Service Companies Doug Dahle, PE douglas.dahle@nrel.gov office: 303-384-7513 cell: 303-918-3309

Overview Energy Savings Performance Contracting Principles Energy Savings Performance Contracts & Energy Service Companies Overview Energy Savings Performance Contracting Principles Understanding the Money Trail Energy Service Companies Customer Services Risk Management Tools for ESPC Customers ESPCs for Federal Sector – They work!!! Consider Master ESPC Contracts

ESPC Principles Long Term Partnerships (15-25 years) Persistent Performance is Success Factor Customer Champions & Commitment “Reallocating Excess Energy Expense into Infrastructure”* No Capital Cost – Contractor Revenues from $ Savings* Determine Energy and $ Savings* Risks & Responsibility – Key focus for both parties Measurement & Verification – Verify Savings * Figures in following slides * Figures in followin slides

ESPC Principles “Reallocating Excess Energy Expense into Infrastructure” Pay a lower utility bill Pay the contractor Achieve cost savings for the government

Agency Energy and O&M Bills Customer Funds for Energy and Related O&M Where the Money Comes From and Where It Goes Agency Energy and O&M Bills Savings repay ESCO Cost Savings ESCO pays for project Improvements create savings Customer Funds for Energy and Related O&M

Percent of Agency Payments Over Contract Term The Project Cost Stack 110% 100% 28% Performance Period Services 90% 80% 70% 28% Interest 31% Finance-related costs Percent of Agency Payments Over Contract Term 60% 4% Financing Procurement Price (FPP) 50% 69% Debt Service 40% 30% 42% Amount Financed (Principal) 41% Project investment 20% 10% 3% Up-front payments 0% *Data from Super ESPC projects awarded from 2005 to May 2008. Figures may not add to exactly 100% due to rounding.

Energy Service Companies A long term energy management partner Customer focused Service & Communications Listen to understand customer needs Offer solutions to best address customer needs Propose and Document potential ESPC project Good faith negotiations to meet mutual needs Motivated – Financial return from long term revenues

Energy Service Companies Expertise in Energy Efficiency & Supply Solutions ESCO delivers in ESPC Audits and Baseline Energy Status & Data Design & Installation of Energy Measures Arrange Financing Commissioning & Post-Installation measurement Customer training on installed measures Operations & Maintenance Responsibility for O&M negotiable Continuous verification of savings

Customer Services Companies 1) Facility Requirements Commissioning of Installed Projects 2) Energy/water use reduction & Related Cost Savings Measurement & Verification (M&V) of Savings

Facility Requirements Customer sets standards for building operations Lighting Levels, Indoor Comfort (HVAC) Energy System Controls Shut down HVAC during unoccupied hours Commissioning (Cx) Customer/ESCO develop design intent ESCO prepares Cx Plan after project design Tests to ensure Facility Requirements are met Cx equipment tests & Report

Energy/Water Savings M&V Goal – Verify Annual Energy & $ Savings M&V Plan (set at contract award) Develop Pre Installation Energy Baseline Measure Post Installation Performance How Energy Savings calculated: Pre-Post Installation Energy Use $ Savings = Energy Savings x Energy Rates Post Installation M&V Report Demonstrates potential guaranteed saving/year Periodic M&V Report (typically annual) Verifies annual guaranteed saving achieved

Determine Energy & $ Savings Energy Efficiency Post-retrofit Energy Use Baseline Energy Use Rate, kW Increased Performance Reduced Operating Hours Hours per year 12

Determine Energy & $ Savings Renewables Reduced Utility Purchase Baseline Energy Requirements Renewable Energy Supply Cost $/kWh Hours per year 13

Risk Management Goal - Persistent Savings over long term Example: Building Owner assumes O & M Risk Resources for building owner O & M to deliver savings If performance degrades, ESCO expects full payment Benefit Building owner job opportunity to manage project Increased infrastructure investment Risk & Responsibility Matrix - assess other risks http://www1.eere.energy.gov/femp/financing/espcs_resources.html See 2.3 (MS Word doc) Financial, Operational, Performance issues

Tools for ESPCs M&V Document Templates M&V Plan Post Installation M&V Report Periodic M&V Report Renewable Energy RE Screening Pre Project analysis of cost effective RE opportunities Solar Wind Biomass Combined Heat & Power Geothermal Heat Pumps

Master ESPC Contract Includes common ESPC terms and conditions Modify Scope of Work for specific sites 16 ESCOs awarded Master Contract Designed for public facilities Ameresco; Chevron Energy Solutions; Clark Energy Group Consolidated Energy Solutions; Constellation Energy Projects &; Services Group; FPL Energy Services; Honeywell Intl.; Johnson Controls Government Systems; Lockheed Martin Services; McKinstry Essention; NORESCO; Pepco Energy Services; Schneider Electric Systems; Siemens Government Systems; The Benham Companies; Trane

Argentina ESPCs ESCO Project Investment Thresholds Transaction Costs vs. Rate of Return Common target ≥ $1 M investment Economy of scale Consider: Bundling energy efficiency & renewable projects

Private Sector ESPCs ESCO marketing of ESPC services Conducts at risk, Facility Survey to identify energy projects IF not economically viable, no cost to customer IF economically viable , proposes Energy Savings Project IF customer rejects, customer reimburses ESCO costs IF customer accepts, ESCO effort part of project cost ESPC project developed and negotiated Customer acquires infrastructure improvements and facility energy efficiency at no capital cost

DOE ESPC Contacts & Information Bill Raup DOE Federal Energy Management Program ESPC Program Manager (202) 586-2214 William.Raup@ee.doe.gov Doug Dahle National Renewable Energy Laboratory 303-384-7513 douglas.dahle@nrel.gov Expertise: Program policy and project facilitation, Solar/Wind DOE ESPC Web Site: http://www1.eere.energy.gov/femp/financing/espcs.html