4 FM quick reads on Performance Contract
1. Performance Contracting: Saving Energy, Saving Money
Today's tip is about how an energy performance contract can be an effective method for funding energy efficiency upgrades with a limited budget.
As the economy tightens again, using third-party money to make energy efficiency upgrades with guaranteed results is a good tack to take. An energy performance contract is an agreement between a third-party energy services company and facility managers.
Follow these steps to ensure a successful contract and the resulting long-term energy savings. First, do an energy analysis to determine which systems are the best candidates for upgrades. Assemble your in-house performance contracting team, and carefully define the scope of the work. Agree on terms with your ESCO, including maintenance requirements, which party will be specifying the actual equipment, and ensuring that financing provisions meet the parameters for your organizations. You might also consider including language in the contract that covers initial commissioning and ongoing commissioning as well.
Some further tips: Be careful about the clauses in the contract that deal with measurement and verification, and after the work has been completed, be sure to review the results frequently - as often as monthly or quarterly - to ensure the project is on track.
Also, be sure to make the ESCO define precisely how each upgrade will be done. There are industry cautionary tales out there of an ESCO promising a 50 percent cut in lighting energy. And then simply going in and removing half of the lighting fixtures. So buyer beware! As with any contract, make sure you know what you're getting, and hold your contractor to exactly that.
2. Using the Climate Climate Initiative to Fund Energy Efficiency Projects
Today's tip is about how you can work with the Clinton Climate Initiative to get money to upgrade inefficient facility equipment. The Energy Efficiency Building Retrofit Program, a program administered by the Clinton Climate Initiative, helps hook up facility executives with Energy Service Companies, which identify projects that can reduce energy by 20 to 50 percent. Facility executives will sign up for an energy performance contract with the ESCO, and then be eligible for financing from financial institutions participating in the program. The energy savings are then used to repay the loan.
There are several benefits to utilizing the program, not the least of which is that you can tap into funds for energy upgrades that may not been have available otherwise. It offers facility executives the opportunity to package several energy upgrades into one project. And, it gives access to a wide array of experts and information that can be invaluable resources during the energy upgrades and beyond.
The overarching goal is to reduce carbon dioxide emissions from commercial facilities by accelerating facility executives' timetables for replacing inefficient equipment.
Not all projects will be good fits for the project, however. A building that has recently been upgraded extensively, for instance, probably won't qualify. Small buildings may not be good candidates either, due to the relatively long ROI for equipment upgrades. Most buildings in the program are 100,000 square feet or larger.
For more information, see the article in the July 2010 issue of Building Operating Management or go to www.clintonfoundation.org.
3. Tips for Energy Performance Contracting Success
Today’s tip is about how to get the most out of an energy performance contract.
An energy performance contract is a partnership undertaken with an energy services company, or ESCO, whereby the ESCO provides the up-front capital for energy upgrade projects, and then you pay them back over time with the energy savings those upgrades yield.
There are a few considerations you should take into account when selecting your ESCO partner. First, look for a provider with a track record on performance contracts in your type of organization, whether public school district, university or hospital. Make sure the ESCO has an army of auditors, engineers and project managers to give your project the attention it deserves. Does your ESCO understand current technology? What do they tell you about potential utility rebates? Will they do preventive maintenance on equipment as part of the contract or is that something you have to ask for extra?
Once you’ve found your ideal ESCO, a few tips can help ensure a successful project. First, designate someone to manage the contract. That person, and it may be you, doesn’t necessarily have to be an expert in everything from finance to facilities, but he or she should be able to find that expertise quickly. Also, make sure leadership in the C-suite, especially the CFO, is on board. Finally, really know what products are being specified and installed in your facility. You may wish to provide the ESCO with a list of approved vendors or products during the contract phase. Overall, understand that an energy performance contract will take a bit of time to execute – but it’s time well-spent!
4. What Is a Green Performance Contract?
Today’s tip is about a way that facility executives can cheaply and easily finance green upgrades in their facilities: green performance contracts. The idea of a green performance contract is that they expand the scope beyond the energy upgrades normally included in a performance contract to focus on a facility’s sustainability holistically. Green performance contracts are a terrific option for facility executives who don’t have the upfront capital to pay for major renovation projects.
Most green performance contracts, which almost always include energy efficiency projects as well, work similarly to straight energy performance contracts – a third-party service company pays for and handles the installation of green retrofits and then is paid back by the savings from the projects. Green performance contracts can include projects that cover water use reduction, green purchasing, renewable energy and emissions offsets, indoor environmental quality, recycling and many other facets of sustainability beyond just energy savings.
Facility executives in either public or private organizations can use green performance contracts, and local, state and federal legislation is being passed more and more frequently to smooth the process and provide even more incentive.