In December 2008, the U.S. Department of Energy (DOE) awarded 16 new indefinite delivery/indefinite quantity1 (ID/IQs) energy savings performance contracts (ESPC) that should result in billions of dollars to the following 16 energy services companies (ESCOs) through out the U.S.

• Ameresco, Inc.
• Chevron Energy Solutions
• Clark Realty Builders
• Consolidated Edison Solutions, Inc.
• Constellation Energy Projects & Services Group, Inc.
• FPL Energy Services, Inc
• Honeywell International, Inc.
• Johnson Controls Government Systems, LLC
• Lockheed Martin Services Inc.
• McKinstry Essention Inc.
• NORESCO, LLC
• Pepco Energy Services
• Siemens Government Services, Inc.
• TAC Energy Solutions (Schneider Electric)
• The Benham Companies, LLC
• Trane U.S., Inc.

This action increased the number of Super ESCOs (those companies authorized to work on Federal facilities) from 8 to 16 and removed regional and global boundaries. Each of these 16 ESCOs received $5 billion in ESPC, ID/IQs. Examination of the fine print reveals that each ESCO is limited actually to $5 billion per project. Thus creating a nearly limitless opportunity for these ESCOs to expand to meet the demands created by the current legislation.

ESPC: A No-Cost Solution

ESPC is an excellent vehicle for federal agencies to implement energy and water conservation measures, load management strategies and upgrades to facility infrastructure. Under an ESPC, the contractor (ESCO) conducts the detailed engineering analysis, performs the design-build-install and obtains the necessary financing for a bundled energy savings project. In addition, the contractor guarantees the energy savings, resulting from the installed energy conservation measures (ECMs), which fully offsets the monthly financing cost. Consequently, federal agencies can implement the measures without taxpayer funding. In addition, once the term of the contract (which is also the financing term) expires, all continuing energy savings accrue directly to the agency.

Many of the most common ECMs include lighting, motors and HVAC efficiency upgrades, energy management systems, variable frequency drives (VFDs), and Variable Air Volume (VAV) boxes. Although, in recent years offerings have been expanded to include electric and gas supply strategies, environmental compliance, indoor air quality (IAQ), water conservation and wastewater treatment, backup power generation and co-generation, building renovations and modernizations, security (CCTV), and fire and safety.

In fact, some of the most successful ESPCs have included non-energy related, site-specific measures bundled into the performance contract. These measures can be a vehicle for many government agencies to use the ECMs to offset total facility renovations all within the framework of an ESPC solution, as long as the overall project meets the payback requirements.

Additional site-specific measures could include the use of landfill gas in close proximity to the federal facility and combined heat and power (CHP) where there is a significant thermal load such as absorption chillers, food service or laundry needs. The use of renewable and sustainable technologies exists only to the limit of the payback requirements. Other site-specific measures are sure to be employed in the months and years to come.

Legislative History

Spurred by legislation as far back as 1978 and the National Energy Conservation Policy Act (NECPA), more recent legislation — including the Energy Policy Act (EPAct) of 2005 and the Energy Independence & Security Act (EISA) of 2007 — has set out federal guidelines for energy reduction in all Federal facilities using 2003 as the baseline

While this article is not intended to provide a comprehensive review of the current legislative requirements, the highlights are provided herein. The legislation now reads,

“…each agency shall apply energy conservation measures to, and shall improve the design for the construction of, the Federal buildings of the agency (including each industrial or laboratory facility) so that the energy consumption per gross square foot of the Federal buildings of the agency in fiscal years 2006 through 2015 is reduced, as compared with the energy consumption per gross square foot of the Federal buildings of the agency in fiscal year 2003,” by the percentage specified in the adjacent table.

To put this goal into perspective, according to the U.S. Department of Energy (DOE), the single largest end-user of electricity in the U.S. is the federal government. According to DOE’s Federal Energy Management Program and Lawrence Berkeley National Lab, the federal government pays roughly $7 billion per year for energy for approximately 500,000 federal facilities (the number of federal facilities excluding military housing is approximately 165,000) in the U.S. and abroad. The government spends roughly $700 million per year, or about one-tenth of its annual energy bill, on energy efficiency investments.

During the past five years, for example, $1.4 billion of Federal facility energy efficiency improvements were financed through ESPCs, and $0.6 billion were financed through utility energy service contracts (UESCs) — contracts with franchised or serving utilities that are paid for from energy efficiency cost savings. During this same five-year period, an additional $1.7 billion was financed from direct agency expenditures.

According to DOE, estimates of efficiency investments needed to meet the 30 percent reduction goal range from $6 billion to $10 billion (although other estimates of this cost put the expenditure at significantly higher levels). These expenditures are intended to save approximately 100 trillion of 350 trillion BTUs currently used in federal facilities. If dramatic improvements in the efficiency of the most energy-intensive buildings can be achieved, a significant portion of the overall energy consumption of federal facilities can be reduced.

In addition, current legislation requires new federal facilities to achieve 100 percent reduction in fossil-fuel energy consumption by the year 2030.

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Sustainability and Innovation

In addition to the energy efficiency gains required by the federal legislation described above, the cumulative legislation defines the requirements for the use of renewable energy in federal facilities:

EPAct 2005

Requires the Secretary of Energy to ensure that, to the extent economically feasible and technically practicable, the following amounts of the total electricity consumed by the federal government be attributable to renewable energy:

• Not less than 3 percent in fiscal years 2007-2009
• Not less than 5 percent in fiscal years 2010-2012
• Not less than 7.5 percent in fiscal year 2013 and thereafter.

Defines “renewable energy” as electric energy generated from solar, wind, biomass, landfill gas, ocean, geothermal, municipal solid waste, or new hydroelectric generating capacity achieved from increased efficiency or additions of new capacity at an existing hydroelectric project.

Requires the installation of 20,000 solar energy systems in federal buildings by 2010.

Executive Order 13423

Mandates that at least half of renewable energy used by the federal government must come from new renewable sources (in service after January 1, 1999).

EISA 2007

Requires 30 percent of the hot water demand in new federal buildings (and major renovations) be met with solar hot water equipment, provided it is life-cycle cost-effective.

Getting to the Finish Line

The questions we can ask are:

• How will the legislative requirements in energy reduction and renewable installations be met with only six years to the deadline?
• How are these 16 companies going to spend $5 billion each in the next six years without building a temporary infrastructure of human and other associated resources?
• Are there enough contractors and consultants to hire on a temporary basis?

It is good news that ESPC is a no-upfront cost solution that saves taxpayer dollars, the current legislation provides for compelling and aggressive energy reduction and renewables goals, and there are now 16 companies with nearly limitless opportunities to conduct ESPCs in federal facilities around the world. If you manage a federal facility, now is the time to get started on your energy conservation and ESPC activities.


FOOTNOTE:

1. ESPC, ID/IQ is the process used to award a contract to an ESCO, prior to the detailed engineering study/analysis. ID/IQ’s are not a guarantee the project will move forward.