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CCI Partners with ESCOs on Performance Contracting
OTHER PARTS OF THIS ARTICLEPt. 1: This PagePt. 2: Performance Contracting How ToPt. 3: Innovation: Tax Lien Financing
In almost every building, it's easy to find opportunities to improve energy efficiency. But in many cases, it's difficult to get the funding to carry out the retrofits that will reduce energy costs. That's especially true when the upgrade involves a payback longer than a year or two.
When funding is the problem, performance contracting can be the answer. Under a typical performance contract, an energy service company (ESCO) designs and implements energy retrofits, and helps to arrange a loan to cover the cost of the project. The ESCO also guarantees that the project will achieve a specific level of energy savings over a given period of time, savings that are usually enough to cover the building owner's monthly loan payments. If the savings fall short of projections, the ESCO pays back the shortfall to the building owner. Savings are guaranteed in units such as kilowatt hours or gallons of water saved, not in dollars, and are then translated into projected dollar savings.
A high-powered effort to use ESCOs to improve the energy efficiency of the stock of existing buildings is the Clinton Climate Initiative's (CCI) Energy Efficiency Building Retrofit Program, now in its third year. CCI has partnered with ESCOs to complete projects around the world, first in the public and now in the private sector. And innovations in funding are opening new opportunities for energy projects in buildings.
Public to Private
CCI's retrofit program was launched in May 2007, with 16 big-city mayors pledging to green significant portions of publicly owned building stock, according to Arah Schuur, director of the CCI Energy Efficiency Building Retrofit Program. Initially CCI sought to create large-scale, replicable projects in the public sector, and to introduce cities outside the United States to the performance-contracting model, which allows for massive projects to be funded over long periods of time based on projected and guaranteed energy savings. CCI has now turned its focus to the private marketplace and is helping to get funding for privately owned buildings as well as government owned facilities.
"We work on individual projects and focus on them to understand and identify barriers that exist and why retrofits aren't happening more organically and on a greater scale," says Schuur. In the United States, because "the vast majority of the building stock is privately owned and the amount of energy efficiency work and retrofitting is minimal . . . we have chosen to focus on the commercial marketplace and the problem of financing," says Schuur.
Perhaps the most well-known project involving the Energy Efficiency Building Retrofit Program is the series of upgrades involving the Empire State Building. That project is serving as a model. The Energy Efficiency Building Retrofit Program and its partners are in the process of replicating what they did on the Empire State Building in at least a dozen additional buildings in the New York metro area, according to Schuur.
The Energy Efficiency Building Retrofit Program also has been working on a global project with CitiGroup for more than two years "to develop a turn-key, effective methodology to address their facilities around the world," says Schuur. In the United States, CitiGroup has campuses in Florida, Texas, and New York. "We are helping them take aspects of performance contracting and applying it to their needs as a private owner and a multinational corporation," says Schuur. "They have come up with a unique process for procuring, developing and implementing retrofit projects, and they are looking at this as a global initiative, and are looking to develop partnerships with a number of ESCOs . . . [they are creating] a model that can be applied around the world with the tens of millions of square feet of their buildings," says Schuur.
By contrast, the MUSH (municipal buildings, universities, schools, and hospitals) market in the United States is relatively well-developed and doing a lot of retrofit, Schuur says, so the Energy Efficiency Building Retrofit Program sought to export its best practices overseas.
This is not to say the program and its partner ESCOs are not also working in the public sector in the United States. Performance contracting is growing rapidly in the public sector for a number of reasons, according to Chad Nobles, an account executive for the energy efficiency group of Siemens Industry, Inc. "There's been lots of budget cuts, and the public sector doesn't want to raise taxes," Nobles says. "And CCI and other organizations are pushing emissions reduction and conservation."
For example, one large scale project involving municipal building stock is underway in Houston. The work involves a wide range of buildings, some that are up to 60 years old, and the project is being done in phases.