This Energy Savings Performance Contracts (ESPC) Blueprint includes a high-level overview of the process and benefits of ESPC, showcases important tools and online resources, and outlines Key Activities to help guide EECBG Program entities to success. A Blueprint Summary PDF is also available for download (below), which provides a concise summary of the Blueprint Key Activities. DOE plans to make technical assistance available to support all entities interested in ESPC, which may include, one-on-one support from national lab or DOE experts, webinars, and peer learning opportunities.
What is Energy Savings Performance Contracting?
ESPC is a contracting and financing method that enables public and private-sector entities to implement facility improvements with little or no upfront capital by leveraging a guaranteed multi-year stream of avoided utility and other costs. This approach saves money by reducing energy, water, and operational expenses, thus freeing up those operating funds for other priorities. ESPC is not a financing option on its own, but rather a mechanism that must be paired with one or more funding sources (e.g., loans, leases, bonds, grants, internal funding, etc.). HVAC, lighting, building controls, and water efficiency have all been common targets for upgrades offered through ESPC. Distributed renewable technologies such as solar and ground source heat pumps as well as procurement of electric and hybrid vehicle fleets can often be integrated into ESPC projects as well, depending on state regulations.
Justice and Equity: Governments can state a preference for local, small, women- or minority-owned businesses (including sub-contractors) as they develop selection criteria for an ESPC provider.
Why is ESPC Helpful?
ESPC offers many economic benefits and a long, reliable energy savings track record. ESPC projects reduce total building energy consumption, thus reducing utility and other operational costs and the associated taxpayer burden. Under tight budgets, available funds for capital projects are often directed towards urgent equipment repairs or replacements, or more aesthetic upgrades. The upfront financing available through ESPC enables more retrofit projects to move forward than might otherwise. ESPC also allows customers to implement upgrades across their building portfolio with a single transaction, and they can be customized to align with specific energy, emissions, and performance goals. Building owners can use ESPC to support facility priorities like addressing deferred maintenance, managing increasing energy costs, streamlining ongoing operations and maintenance (O&M) of their facilities, improving indoor air quality and occupant health and comfort, and integrating energy security and resiliency. ESPC projects also support economic development by creating jobs and spurring local investment in materials and equipment.
The cornerstone of ESPC – the savings guarantee – offers customers peace of mind because the energy service company (ESCO) usually assumes certain project risks and guarantees the resulting utility savings, ensuring that project savings meet or exceed project costs. An ESCO is a turnkey contractor that designs, installs, and commissions the project, is responsible for monitoring, measuring, and verifying the savings, and in some cases, even maintains and operates the new equipment. Depending on the contract, the ESCO also guarantees the functional performance of the installed energy conservation measures (ECMs) (i.e., there must be sufficient light, comfortable temperatures, adequate indoor air quality, and so on, in the building’s workspaces).
It is recommended that customers maximize funding sources and incorporate directly funded ECMs that do not need to be repaid into an ESPC project rather than implement them separately. Incorporating funds into ESPC has a leveraging effect, allowing the energy savings from the funded ECMs to be capitalized and used to either expand the project scope or reduce the payback period of the project. Incorporating funded ECMs in a performance contract also offers other benefits, such as streamlining contracting with a single provider, coordinated implementation, savings and performance guarantees, and proper operation and maintenance.
Who Should Consider This Blueprint Topic?
Government organizations (state, local, or tribal) facing aging infrastructure, rising energy costs, and limited budgets. This may include organizations such as cities, housing authorities, and school districts that are seeking to lower energy bills and have deferred maintenance in their buildings, as well as entities that are seeking to pursue building performance upgrades with little to no upfront capital investment. Most states and territories have legislation that authorizes public-sector entities to enter into energy saving performance contracts and defines requirements and parameters, such as maximum contract term.
- Key Resource: DOE has compiled an inventory of ESPC legislation across states and territories in the Legislation Library.
Who/What Will You Need?
Management, facility managers and staff, operations, engineering, and finance, budget, or accounting, contracting, or purchasing, legal, and environmental/sustainability personnel, among others, all have a role to play in supporting organizational energy efficiency objectives. It is important to identify key stakeholders early in the project and seek their buy-in on the key scope and objectives. This also includes identifying project approval processes and decision-makers. Identifying an internal project manager to oversee the project and ensure that all relevant stakeholders are actively engaged will help to ensure success. If an energy assessment or energy audit was performed prior to engaging an ESCO, many of these key players may have already been involved. If an owner’s representative (OR) is hired to provide expert guidance throughout the ESPC process, the OR can ensure that all key personnel receive relevant communications and opportunities to provide input throughout the process.
These selected Key Activities are suggestions of important steps a government could take to begin or make progress on their ESPC journey. EECBG Program awardees that utilize a blueprint will receive expedited application review from DOE. Applicants must execute at least one of the key activities listed under each selected blueprint but should avoid going beyond the recommended activities. Going beyond these key activities may trigger additional reviews of your EECBG Program project to ensure you’re meeting National Environmental Policy Act (NEPA), historic preservation, and/or other federal regulations. While each step is important, they should be seen as a guide. Awardees should determine their own priority activities based on their local context.
High-level plans for funding/financing the project are helpful to determine at the outset of the project, perhaps even before the ESCO is selected, and final details are determined once the project scope and terms are more defined, late in the Investment Grade Audit (IGA) process. Although financing is usually separate from the ESPC, the two are informally linked through payment schedules and the savings guarantee.
Many funding resources are available to public entities, including grants, rebates, and incentives. The balance of the project cost is financed, generally through bonds, loans (such as from state revolving loan funds or green banks), or tax-exempt lease purchase agreements. Legislation, regulations, or program policies may dictate what financing mechanisms are allowable in a jurisdiction.
- Key Resource: The ESPC Financing Decision Tree outlines considerations for deciding between the financing options that are available for state and local ESPC projects, and includes a description of each option and pros and cons to consider.
Note: ESCOs (and owner’s representatives) are prohibited from providing advice on ESPC financing, other than “general information that does not involve a recommendation regarding municipal financial products or the issuance of municipal securities,” without appropriate registration as a municipal advisor. This important prohibition comes from a 2013 U.S. Securities and Exchange Commission (SEC) rule pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
There are multiple steps and considerations in selecting an ESCO and procurement for an ESPC project.
Retain an Owner’s Representative (OR)
An experienced OR can provide vital expertise in each phase of an ESPC project. Key roles include supporting the customer in selecting an ESCO; facilitating an understanding of the ESCO pricing and guarantee; acting as a critical communication liaison between customer stakeholders and the ESCO; facilitating the IGA; delineating risks and responsibilities of both parties; and reviewing and advising on ESCO engineering studies, financial proformas, measurement and verification (M&V) plans, and more. The owner’s representative services can and should be tailored to the needs of the project and the customer. Even where government staff have ESPC experience and technical capacity, ORs can supplement staff expertise in key areas.
- Key Resource: This short guide provides prospective ESPC customers with key considerations for retaining an owner’s representative.
Solicit and Select an ESCO
- Prepare the RFP or RFQ – Prior to beginning an ESPC project, the customer team, including the OR, must define the objectives of the project. This includes understanding and documenting the building owner’s needs and the building’s requirements. Once the needs and objectives are defined, and preliminary information is gathered about the targeted building’s condition, energy and water consumption, and annual utility costs, the RFP or RFQ can be developed. Some jurisdictions may prequalify ESCOs using an RFQ or RFP process, and then select an ESCO from a prequalified pool for a specific project.
- Solicit and Evaluate RFP/RFQ Responses – Examples of evaluation categories include: the percentage of work that will be carried out in-house versus subcontracted; pricing and financing approach; the proposed technical solutions, including ECMs and electrification measures, and expected savings; how the response and proposed solutions address the customer’s goals; and the applicant’s previous experience.
- Key Resource: Model RFP/RFQ, IGA, ESPC contract and companion document templates are available to reduce ESPC project timeline and transaction costs.
- Key Resource: Document presents the current U.S. Department of Energy (DOE) Qualified List of Energy Service Companies (ESCOs)
- Key Resource: The General Services Administration (GSA) cooperative purchasing program allows state and local governments to access the GSA Multiple Award Schedule (MAS) Special Item Number (SIN) 334512 contract to procure ESCO services.
IGA, Project Proposal, and Contract Negotiation
The ESCO will perform an IGA to collect data on each building, determine the baseline consumption for each energy and utility type and operations and maintenance costs, and identify ECM opportunities and estimated savings and implementation costs. The IGA serves as the basis for the project proposal. Following submission of the project proposal, the ESCO and customer develop the final contract together, including creating project schedules, finalizing financing, developing measurement & verification (M&V) and operations & maintenance (O&M) plans, etc.
Best Practice: Good documentation is essential to ensuring the success of an ESPC project, from the planning and development stages throughout the contract term. Complete and well-organized documentation provides a history of decisions made throughout the project, information about any issues that arose and how they were resolved, details about the agreed-upon roles and responsibilities of the ESCO team and the building owner’s team, and a record of project performance and M&V reports. This information is critical for responding to any potential audits and enables reporting of accurate project results to internal and external stakeholders, which also helps safeguard public trust in the jurisdiction’s ESPC projects and programs.
- Key Resource: eProject Builder and eProject eXpress (ePX) are tools that are available to support ESPC projects through the contract term and beyond. Standardized templates record key project and financial details and can capture the annual M&V data to quickly generate a report of project energy and cost savings. Additionally, stored files and data ensure continuity of access to project information in the case of personnel turnover.
During the construction phase, the customer’s team must stay in sync with the ESCO to avoid delays and project complications. The facility owner’s responsibilities during the construction and post-installation commissioning and performance verification stages include facilitating site access for the ESCO, witnessing tests and measurements (when required), reviewing reports and documentation provided by the ESCO, and understanding the commissioning results and report prior to project acceptance. The customer should ensure the project complies with contractual requirements, that performance verification is completed, and that any agreed-upon training and materials are provided, before notifying the ESCO of project acceptance in writing.
Effective and meaningful M&V, which costs a small percentage of the project’s savings, provides multiple benefits to ESPC customers. M&V enables documentation of ESPC project performance and whether guaranteed savings are being achieved and ensures that any needed corrective action or reimbursement is provided to the customer. Additionally, M&V can improve or optimize the performance of facilities by identifying deficiencies in equipment performance, as well as support the documentation of any non-energy benefits, such as improved occupant comfort and productivity and environmental sustainability, that are of value to the customer. The M&V report and supporting data should be reviewed and accepted by the ESPC customer each year to verify that contractually agreed-upon ECM performance is being sustained.
- Key Resource: The ESCO can upload annual M&V data into eProject Builder or eProject eXpress to enable the customer to access and report on the project’s M&V data at any time as needed.
- Key Resource: The Business Case for Conducting Measurement and Verification in State and Local Government ESPC Projects highlights the substantial, cost-effective benefits of incorporating well-documented M&V in ESPC, including ongoing data collection and regular reporting of M&V results.
Next Steps for Getting Started
Additional Federal Funds to Leverage and Braid with Your EECBG Program Award
ESPC can involve one or more sources of non-financed funding, including ratepayer-funded incentives (from utilities or state public benefit funds), grants (usually from the federal or state government), customer capital, and others.
- Key Resource: The Database of State Incentives for Renewables & Efficiency (DSIRE) is a comprehensive source of information on incentives and policies that support renewables and energy efficiency in the United States.
- Key Resource: ESPC Financing Options (DOE) Resource offers funding and financing explanations and options for ESPC.
In some cases, state-level ESPC programs, often housed in the Department of General Services or Department of Energy or Environment, or equivalent, provide support services to local governments and schools to enter into an ESPC. Where the state does not provide this support, local governments can turn to DOE, the Energy Services Coalition (a national non-profit with chapters in many states) and owner’s representatives for support.
- Key Resource: DOE’s Performance Contracting National Resource Center (PCRNC) is a hub for best practice resources and solutions for ESPC with resources for both federal and state/local users.
For a closer look at each stage of the ESPC process, check out the PCNRC’s on-demand interactive eight-part training series. Each module walks users through a stage of an ESPC, from project planning and scoping to project implementation and the performance period.
Potential Activity Costs
ESPC project sizes vary widely. Small projects (as little as $100,000) may necessitate the use of group procurement and joint contracting strategies. Large projects in the tens of millions may be used to implement comprehensive upgrades across multiple facilities and campuses. Many state and local projects fall within the $5 million range.
Partner with Others–In 2009, Hamilton County, OH received $3.4 million in an EECBG Program grant. However, many municipalities in the county did not receive any EECBG Program funds due to their small population size. To leverage the funding opportunity for these smaller municipalities, Hamilton County led the development of an aggregated energy savings performance contract (ESPC). To take advantage of the economies of scale in ESPC – where bundling more energy savings measures into a larger project scope reduces the burden of fixed upfront costs - the county undertook an ESPC project with three of its smaller municipalities (populations under 5,000). The county provided an incentive to each participating municipality out of its EECBG Program funds, and utility incentives were also used to support the ESPC project in each community. An owner’s representative supported the entire process by working with the ESCO and each municipality to understand each community’s goals and to provide education and technical expertise to each municipality. The leadership and financial support of the county, guidance of the OR, and combined project scope of the participating municipalities made an aggregate ESPC viable and successful, and enabled Hamilton County to leverage EECBG Program funds to facilitate energy efficiency and infrastructure improvements across several communities. See: Hamilton County, OH Energy Performance Contracting Aggregation Project
Learn How–For strategies and case studies for implementing ESPC in smaller towns, rural counties, and small school districts to complete energy upgrades and maximize energy savings See Energy Savings Performance Contracting, see Energy Savings Performance Contracting for Small Projects.
- Cities leverage grants for ESPC & make project tracking easy with eProject eXpress! (eProject): This video introduces eProject eXpress as an online tool for managing projects.
- Municipalities Leveraging Grants for Energy Retrofit Projects (eProject): This webinar explores how municipalities can leverage federal funds to successfully implement energy efficiency/renewables projects for maximum impact.
- Implementing ESPC Projects (DOE): This training features practical tips for carrying out an ESPC project.
Guidance, Tools, and Links
- Energy Savings Performance Contracting (ESPC) Toolkit (DOE): This Toolkit is a collection of resources that are grouped so that potential users of the mechanism can easily find the information they need at each stage of their ESPC decision-making process.
- Performance Contracting National Resource Center (DOE): This is a hub for many of DOE’s best practice resources and solutions for ESPC with resources for both federal and state/local users.
- eProject eXpress (ePX)(DOE): Provides a streamlined, tailored pathway for state and local governments to document, track, and demonstrate the ongoing value of their ESPC projects and programs.
- Model Documents for an ESPC project (DOE): Model contract templates and companion documents that can be used when developing or updating procurement and contracting documents for ESPC projects and programs.
- An Ally in Your Corner: Benefits of Using Owner's Representatives (DOE): This short guide provides prospective ESPC customers with key considerations for retaining an owner’s representative.
- ESPC: Improving Infrastructure and Turning Waste into Wins (DOE): This factsheet focuses on realizing the ESPC market opportunity for MUSH (municipalities, universities, schools, and hospitals) properties.
- Achieving Energy Savings in Small- and Medium-Sized Public Facilities: A Strategic Approach to Prioritizing and Financing (DOE): This resource addresses the unique challenges of smaller energy-saving projects and making informed decisions about financing.
- Energy Savings Performance Contracting for Small Projects (DOE): This document presents strategies for applying energy savings performance contracting (ESPC) to small projects.
- The Business Case for Conducting Measurement and Verification In State and Local Government Energy Savings Performance Contract Projects (DOE): This document highlights the substantial, cost-effective benefits of incorporating well-documented M&V in ESPC.
- Energy Services Coalition (ESC): ESC is a public/private partnership, providing education on, and serving as advocates for, the widespread use of ESPC by state and local governments. Many states have ESC Chapters that can support ESPC project development and provide local ESCO contacts.