Upgrading facilities and making them energy efficient can be done without any out-of-pocket costs. Most managers understand that with the right amount of investment placed into a building they can update the facility and make it energy efficient and less expensive to operate. The problem: many managers do not have budget space to pay for the costs of the upgrades and they may never get done. Using an Energy Savings Performance Contract (ESPC) is a way to achieve the upgrades without having to pay any upfront costs.
ESPCs were first introduced in 1992 by the United States Department of Energy to assist federal agencies in meeting goals that were established by the Energy Policy Act passed that year. The Act, in part, required that agencies decrease the amount of energy they use, reduce harmful emissions, and increase their use of renewable energy sources. The federal agencies had the same problem that many managers of large facilities have; they didn’t have the money to pay for the improvements to their buildings. The Act allowed the development of ESPCs to create an alternative method to finance energy conservation and usage projects that is now available for use in the private sector.
The first step in creating an ESPC is to have the facility inspected by an energy service company (ESCO) that offers ESPCs to customers. The company will conduct a thorough energy study of the facility and create a list of energy efficiency projects that can be done. The ESCO will conduct the design work and oversee the project’s construction and implementation. In some cases, an ESCO will also guarantee that a minimum amount of money will be saved when everything is in full operation. The savings in operating costs is a key part of a successful ESPC. The savings are used to pay the ESCO back. The payback period generally lasts from five to seven years.
These ESPC programs work better for large facilities that will expend at least $750,000 in capital improvements. Acceptable projects for this program include new HVAC equipment, insulation, new windows, high efficiency lighting, and energy management control systems. Calculators are available online to help a manager determine if this program would work for them. ESPCs have assisted many facilities in lowering their operating costs while helping to protect the environment and making their buildings become “green”.