What began as a pilot program 25 years ago within the Federal Energy Management Program, energy savings performance contracts have now become one of the most widely used project financing vehicles in the federal government.
While the U.S. Department of Energy's Federal Energy Management Program (DOE FEMP) celebrates 50 years of federal energy management, another significant milestone is being commemorated—the 25th anniversary since the first energy savings performance contract (ESPC) project that was awarded and administered by DOE FEMP.
This historic event took place at the world's largest Coast Guard base: the U.S. Coast Guard Base Kodiak, located on Kodiak Island, Alaska.
Comprised of more than 400 buildings, including three large aircraft hangars, a communication command center, a medical clinic, several ships, and almost 600 housing units, the base has a rich history of supporting joint operations with various military, international, and intergovernmental partners.
However, due to the location's isolated nature, situated 250 miles south of Anchorage, it comes with expensive utility costs. The station's electricity and heating expenses nearly 200% higher than the national average.
Back when the project was awarded, ESPC was still considered by DOE to be a pilot program, with non-permanent congressional authorization. Thus, the Coast Guard's decision to embrace this unique opportunity for capital improvements to energy infrastructure without the traditional upfront investment was commendable.
Though they opted for a shorter 7-year term instead of the 25 years available to them, the chosen energy conservation measures aligned with modern ESPC awards. Measures included boiler and chiller improvements, building automation systems, building envelope modifications, renewable energy systems, electric distribution system improvements, and lighting upgrades.
Through this ESPC, the Coast Guard accomplished $1.1 million worth of energy efficiency improvements without requiring congressional appropriations. By leading the way in streamlining federal financing and procurement for energy-saving projects, they saved more than $220,000 annually in energy costs at their facility throughout the contract term.
Following the success of the initial proof-of-concept, the Coast Guard went on to award two more contracts—valued at $5.8 million and $33.3 million respectively—at the Kodiak base, with plans underway for a fourth project.
What began as a pilot program 25 years ago, conceived, designed, and implemented by FEMP, ESPCs have now become one of the most widely used project financing vehicles in the federal government. The ESPC model has even been adopted by numerous countries to address their own funding limitations for energy improvements.
Over the past quarter-century, the DOE ESPC program has achieved significant milestones, with cumulative project investments reaching a remarkable $8 billion and counting.
ESPCs serve as a contracting vehicle that allows government agencies to procure energy savings and facility improvements without any upfront capital costs or special appropriations from Congress.
An energy service company (ESCO) is a private-sector contractor that develops, designs, and implements improvements at the project site and borrows the necessary funds for the project. The government incurs no costs until the savings start to accrue, with the agency paying the ESCO over the contract term using energy and energy-related cost savings generated by the project.
For more information about ESPCs, check out the Energy Savings Performance Contracts fact sheet.