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Part 3: ESCOs: Success Requires Careful Selection of Energy-Efficiency Projects
By James Piper, P.E.
November 2012 -
When the energy audit is complete, the ESCO will present a list of projects, along with their estimated implementation costs and projected energy savings, that are appropriate for the facility and will help it achieve its goals.
Some of these projects will require additional efforts, such as the development of an engineering design. Those additional costs must be included in the project's cost estimate.
It is important that managers work with the ESCO to rank the projects for implementation. A project's rank should incorporate a number of factors, including implementation costs, how well the project matches the facility's goals, how implementation will affect facility operations, and how well the maintenance and engineering department will be able to support the project once it is completed.
It is also important to consider the structure of the contract with the ESCO because it will impact overall project costs, risks and benefits. While there are a number of ways contracts are established with ESCOs, the three most common types of contracts are shared savings, guaranteed savings, and no guaranteed savings.
Under a shared savings contract, the ESCO provides the funding and conducts the energy audit. Energy cost savings are calculated by an agreed-upon method and are shared between the ESCO and the facility.
A guaranteed savings contract sets an guaranteed level of energy savings that a particular project will achieve, typically at a level exceeding the project's cost. The facility is responsible for project financing.
Under a no guarantee contract, the ESCO conducts the energy audit, completes the project design, and manages construction and commissioning. The facility finances the project and assumes the financial risk associated with the energy savings, as there is no guarantee. The facility also reaps all financial benefits of the project.
Long-term maintenance needs are important when evaluating potential energy conservation projects. To meet their performance guarantee for energy savings, ESCOs often require a maintenance contract on the components installed over the life of the ESCO contract.
Eventually, however, maintenance of the components installed will become a manager's responsibility. Before committing to complex projects that require a high level of technical expertise or maintenance, managers must make sure their departments will be able to properly operate and maintain the components.
Working with an ESCO can be very beneficial, but managers must be actively involved in the process to ensure the maximum return on the investment.
James Piper, P.E. is a national consultant based in Bowie, Md., with more than 25 years of facilities maintenance and management experience.
Part 1: Understanding ESCOs and Facility Needs Equals Success
Part 2: ESCOs: Success Starts with Identifying Energy-Efficiency Targets