Office of Energy Efficiency & Renewable Energy

The Power of Energy Savings Peformance Contracts

March 2, 2017

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Energy efficiency upgrades in McKinley County, New Mexico made possible by energy savings performance contracts.

Energy efficiency upgrades in McKinley County, New Mexico made possible by energy savings performance contracts.

New Mexico’s McKinley County, like many counties across the nation, is growing, and growth is often a stress on government budgets. In 2015, the county was looking for cost reductions; its electric rates had been increasing at 5% per year for several years, and its building service contracts were growing annually. McKinley County leadership sought a solution. It ultimately cut energy costs by joining a pilot program, LEEP (Local Energy Efficiency Performance), launched by the state with financial support from the Energy Department’s State Energy Program (SEP).

Energy Efficiency Upgrades

Through LEEP, the county retrofitted more than 40 buildings. Upgrades included heating, cooling and air distribution systems, condensing boiler plants and water heaters, building control systems, indoor lighting, street lighting, and other infrastructure.

The projects produced a 30% savings in operating costs, or about $350,000 per year. Its electricity use has declined 1.3 million kilowatt hours per year and upgrades have removed as much carbon annually as 800 acres of trees. As a result, the county won an award in October 2016 from the New Mexico Association of Energy Engineers for its achievement.

The Power of Energy Savings Performance Contracts

LEEP helps local governments increase the use of energy savings performance contracts, (ESPCs) which help reduce financial barriers associated with making energy efficiency upgrades. By executing ESPCs, there are no upfront costs required because building owners use future energy or operating cost savings to pay for the new energy-efficient equipment and services. This is done by guaranteeing that cost savings will meet or exceed payments for equipment and services over the contract period. By utilizing ESPCs, LEEP allows New Mexico’s counties and municipalities to go forward with energy projects with 20% or more energy savings assured.

“LEEP has sparked other public entities’ interest in ESPC,” said Erica Velarde from New Mexico’s Energy Conservation and Management Division. “With SEP’s assistance, New Mexico achieved over $25 million in ESPC in 2016 alone.”

How LEEP Works

Through LEEP, a local government chooses an energy service company from the state’s Purchasing Price Agreement List to perform an investment grade audit of its facilities. Then, the state contracts with a professional engineering firm that acts as an independent, third-party reviewer for the retrofit project, including verification of energy savings. The third-party reviewer provides quality assurance to the local government involved.

This New Mexico program, supported by a 2014 SEP Competitive Award, builds on other SEP efforts to cultivate ESPC programs, such as Minnesota’s Guaranteed Energy Savings Program. With the help of the Energy Department, New Mexico is progressing toward its state energy efficiency goal of 20 percent reduction in per capita energy use by 2020.

To learn more about the energy savings potential of ESPCs, visit our State and Local Solution Center.