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Benefits of ESPC ESAs: An ESPC ESA can be used to implement a distributed energy system on federal buildings or land and secure electricity cost savings with no upfront cost to your agency.

Video courtesy of the U.S. Department of Energy

An energy savings performance contract energy sales agreement (ESPC ESA) is a project structure, similar to a power purchase agreement, that uses the multiyear ESPC authority to implement distributed energy projects—referred to as ESA energy conservation measures (ECMs)—on federal buildings or land. The ESA ECM is initially privately owned for tax incentive purposes, and the federal agency purchases the electricity it produces with guaranteed cost savings. An ESPC can be used for the acquisition of utility services per 48 CFR § 41.102(b)(7) (2015).

Start an ESPC ESA

To start an ESPC ESA, an agency should review the ESPC ESA requirements and contract vehicle options. For questions, more information, or assistance:

ESPC ESA Contract Vehicle Options

Below is a comparison table that will help you determine the best contract vehicle for your planned ESPC ESA project.

Contract Vehicle DOE IDIQ ESPC DOE ESPC ENABLE Site Specific/Stand-Alone
Contract type Task orders (TOs) under DOE IDIQ GSA Supply Schedule SIN 334512 Request for proposal (RFP) is basis for the contract
ESCO selection process Notice of opportunity (NOO) NOO RFP
Private-sector partner One of 21 ESCOs One of over 20 ESCOs on GSA Supply Schedule 84 ESCO must be on DOE's Qualified List of ESCOs by the time of award
Project size $2 million or larger No fixed size or cost limits, suitable for smaller projects Distributed energy project that is typically greater than 500 kW
ECMs Unlimited Solar PV, lighting, water, basic HVAC controls, HVAC equipment, boilers, chillers; motors being added; other ECMs under hybrid approach Single ESA ECM preferable
Preliminary assessment (PA) and investment grade audit (IGA) PA and IGA required IGA required Not applicable, ESCOs respond to an RFP
Project development tasks ESCO can be made responsible for most tasks ESCO can be made responsible for most tasks Agency must complete most, if not all, tasks

Benefits of ESPC ESAs

  • ESPC ESAs do not require any upfront capital from a federal agency for the ESA ECM.
  • ESPC ESAs provide guaranteed cost savings, and a federal agency only pays for the electricity that is generated, minimizing federal risk.
  • The energy service company (ESCO) may be able to take advantage of federal and other tax incentives and can sell the renewable energy certificates generated by the ESA ECM to reduce the ESPC ESA price.
  • The ESCO is responsible for ESA ECM operations and maintenance, and for equipment repair and replacement, which also reduces federal risk.
Graphic displays the cycle of cost savings for ESA ECM.

The ESPC ESA project structure

ESPC ESA Requirements

ESPC Authority Requirements: The ESPC ESA must meet all ESPC legal requirements (see 42 U.S.C. § 8287, et seq.), including the requirement that the agency pay for the cost of the ESPC ESA from the energy cost savings generated each year over the life of the contract. The ESCO must be on the U.S. Department of Energy's (DOE) Qualified List of ESCOs or an agency’s list of qualified contractors prior to contract award.

Office of Management and Budget (OMB) Requirements: In order for the ESPC ESA contract to be scored annually, it must be consistent with the requirements under OMB Memo M-12-21, “Addendum to OMB Memorandum M-98-13 on Federal Use of Energy Savings Performance Contracts (ESPCs) and Utility Energy Service Contracts (UESCs),” including the requirement that the federal government retain title to on-site energy generation by the end of the contract.

Tax Incentive Requirements: The ESCO may be eligible for tax incentives such as the federal Investment Tax Credit and the Modified Accelerated Cost Recovery System. The Internal Revenue Service Revenue Procedure 2017-19, published in Internal Revenue Bulletin 2017-7, provides a safe harbor under which the IRS will not challenge the treatment of an ESPC ESA as a service contract under 26 U.S.C. § 7701(e)(3). Section 4 specifies safe harbor requirements, including a maximum contract length of 20 years. Section 5 contains details regarding an example ESPC ESA project. Tax incentive eligibility due diligence is the responsibility of the ESCO, not the government.

Learn How ESPC ESAs Work

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Learn How ESPC ESAs Work: An ESPC ESA is a great way to develop on-site distributed energy, get operations and maintenance services for the term of the agreement, and take advantage of other energy and cost-savings benefits. Take the on-demand ESPC ESA Training Series.

Video courtesy of the U.S. Department of Energy

ESPC ESA Successes

The National Institute of Standards and Technology (NIST) installed a 5 MW-DC photovoltaic (PV) system under an ESPC ESA. The system is projected to save NIST $3.5 million (nominal dollars) over the 20-year contract term. Read the ESPC ESA Case Study: Energy Affordability at the National Institute of Standards and Technology.

The U.S. Drug Enforcement Administration (DEA) installed a 2.5 MW-DC PV system under an ESPC ESA. DEA selected a private ownership scenario, which will save the agency more than $1 million (nominal dollars) over 20 years compared with the government ownership option. Read the ESPC ESA Case Study: Energy Affordability at the Drug Enforcement Administration.