The ABCs of ESPC ESAs for Federal Agencies

Your agency is working hard to meet federal energy goals and mandates.

You’ve started planning a new distributed energy project to help meet these goals, and now you’re thinking about how to make your plans a reality.

If your agency lacks upfront capital for a distributed energy system, or your long-term contracting options are limited, the U.S. Department of Energy’s Federal Energy Management Program, also known as FEMP, has a solution—an Energy Savings Performance Contract with an Energy Sales Agreement—or ESPC ESA for short.

An ESPA ESA is a great way for federal agencies to develop on-site distributed energy technologies, such as solar PV. The distributed energy project receives operations and maintenance services for the entire term of the agreement—and bundling PV with other energy conservation measures, or ECMs, generates additional energy savings.

So what is an ESPC ESA?

An ESPC ESA is an ECM within an ESPC. It leverages the long-term ESPC authority to implement distributed energy projects on federal buildings or land.

ESPC ESAs must still meet all ESPC requirements, such as guaranteed savings and measurement and verification requirements, but they are structured a little differently. ESPC ESAs are privately owned, rather than government-owned, and have a maximum contract term of 20 years, instead of the typical 25-year maximum ESPC term.

ESPC ESAs can also allow the energy service company, or ESCO, to take advantage of certain tax incentives, such as the federal investment tax credit, resulting in additional savings that would otherwise not be available to a federal agency.

Most civilian agencies do not have long-term contracting authority and thus cannot enter into a long-term power purchase agreement, or PPA. ESPC ESAs offer an opportunity to enter into a PPA-like arrangement that would otherwise be unavailable to many federal agencies.

Here’s how it works.

First, your agency will determine the type, estimated size, and location of the distributed energy project. Your agency will also decide whether to include other ECMs in the ESPC ESA.

Second, you will select an ESCO to implement the project, typically through a Notice of Opportunity process.

Unlike most ECMs, an ESPC ESA is initially privately owned. This can allow the ESCO to benefit from tax incentive savings and potentially offer a lower cents/kilowatt-hour energy price to your agency.

The ESCO is required to provide operations and maintenance services and repair and replacement during the term of the ESPC ESA.

Once the distributed energy system is operational, your agency pays a cent/kilowatt-hour rate to the ESCO for the electricity produced by the system.

This rate must be lower than your site’s cost of electricity—this is the guaranteed savings part of the contract—and your agency only pays for the electricity that is generated.

Finally, the ESCO sets a small portion of your agency’s payment aside in a reserve account. This account funds the transfer of equipment title to your agency at the end of the contract term, which meets one of the U.S. Office of Management and Budget requirements for annual scoring.

In 20 years or less, when your ESPC ESA contract term is finished, your agency will own the solar PV system and continue to benefit from its operation, while taking over all operation and maintenance responsibilities.

Many federal agencies have implemented ESPC ESAs and benefitted by reducing their energy costs, meeting their renewable electricity goals, and demonstrating federal leadership in the renewable energy sector.

Now that you know the ABCs of ESPC ESAs, are you going to take the next step and implement a distributed energy project for your federal agency?

Contact FEMP or your Federal Project Executive to get started on your ESPC ESA project!

Visit the FEMP website to learn more about ESPC ESA contract vehicle options and review FEMP’s ESPC ESA training series.