HUNTSVILLE, Ala. (April 25, 2019) – Instructors from the Department of Energy visited the U.S. Army Engineering and Support Center, Huntsville, in late March to lead training for key project managers and engineers assigned to the Engineering Directorate here on the topic of Energy Savings Performance Contracting.
Energy Savings Performance Contracts, or ESPCs, give federal agencies a way to make improvements to existing infrastructure at military installations that increase energy efficiency, ensure energy resilience, and save taxpayer money – all without the requirement of upfront capital costs or congressional funds.
Shah Alam, project manager from Huntsville Center’s Energy Division, took the class as refresher training, but he said most everyone else in the class was approaching the material with new eyes.
Alam said they were in good hands with the team of instructors.
“The trainers that we had are some of the best they have in DOE,” Alam said. “They are nationally recognized. As far as the content, they kept the discussions open. The people in class had a lot of questions and were able to ask them. We had open and very fruitful discussion.”
Training included processes that DOE and U.S. Army Corps of Engineers have to help organizations implement ESPC task orders contracts, along with best practices and resources.
The class also covered the main phases of an ESPC project: acquisition planning, ESCO selection and preliminary assessment, project development and detailed feasibility study, project implementation and construction, and post-acceptance performance. Alam said they also spent about half a day on the measurement and verification process and another half a day on managing the financing component.
THE ESPC PROCESS
ESPC task orders are distinct from other avenues of securing funding for a project in that they leverage third-party financing to fund energy-conservation measures. Because not all military installations have funds budgeted for improvements on existing infrastructure, third-party financing is often the best fit for projects that don’t fall into the category of new construction.
“You don’t need to have appropriations. It’s financed through the savings, so it enables you to do infrastructure upgrades to your site without having to use appropriated funds,” said Brandi Eng-Rohrbach, energy technology program specialist from the Federal Energy Management Program at the Department of Energy’s Office of Energy Efficiency and Renewable Energy in Washington D.C., who also served as a trainer for this three-day class.
As part of the ESPC process, Huntsville Center maintains a list of energy-service companies, or ESCOs. It is the ESCO that secures the contract for a project and takes on the responsibility of producing the upfront capital costs through a financier. The ESCO and financier make back their money from the savings generated by the energy-conservation measures the ESCO produces for an installation.
In the project development stage, a detailed feasibility study helps establish a baseline of utility spending to determine what the installation spends annually on energy. So, if an installation spends $1 million on their utility bill, an ESCO might calculate a projected reduction of that bill by 20 percent based on planned upgrades. On top of that, because it is a performance-based contract, the ESCO might guarantee 18 percent of that $1 million – or $180,000 – annually.
Assuming the ESCO is able to generate those agreed-upon savings, those energy savings are used to pay for the agreed-upon contract value every year. In other words, this is a self-funded task order. These savings are certified by annual measurement and verification. If, on the other hand, the ESCO is for some reason unable to generate the guaranteed 18 percent, and it’s determined to fall within their responsibility, the ESCO does not get paid that shortfall.
“It’s a budget-neutral approach, because you are spending money on utilities, sending the money to the utility company, and now the savings – instead of sending that money to the utility company, you are sending it to pay off the investment. You’re paying the ESCO from the guaranteed savings,” said Kurmit Rockwell, ESPC program manager from the Federal Energy Management Program at the Department of Energy’s Office of Energy Efficiency and Renewable Energy in Washington D.C. “If there’s no guaranteed savings realized through measurement and verification, then the contractor doesn’t get paid fully.”
In terms of energy, improving efficiency and ensuring resilience are not mutually exclusive, as improvements to energy infrastructure can do both. For example, last year Huntsville Center awarded a $23.8 million task order for energy-savings upgrades to existing infrastructure that are designed both to save energy and ensure critical mission capabilities are protected from disruption and degradation.
The Army’s increased push for energy resilience was codified in Army Directive 2017-07, which outlines the requirements for energy and water security at Army installations. This includes protections against degradation and disruption, and directs that each installation develop the capability of providing its own energy and water needs for at least two weeks.
In May 2018, the White House issued Executive Order 13834: “Efficient Federal Operations.” The order recognizes the need for energy resilience for federal infrastructure and operations, like Army Directive 2017-07, but it also highlights the need to utilize performance contracting “to achieve energy, water, building modernization and infrastructure goals.”
According to Rockwell, that’s a direct reference to ESPC, and the two contract-holding organizations that facilitate ESPCs are the U.S. Army Corps of Engineers and the Department of Energy.
Rockwell added he hopes the use of ESPCs continues to grow.
“I think the future is bright,” he said.
If you missed this training, DOE offers this course three times a year. The class is free for government employees, but they will have to pay travel costs. In the meantime, anyone can check out the Department of Energy’s resource and training website at www.energy.gov/eere/femp/resources-implementing-federal-energy-savings-performance-contracts.
“I think if people come into this training who don’t have experience, they leave having all the tools and knowledge on where to get help,” Rockwell said. “We give them all the resources they need so they can help themselves and come to us for help. We support these projects even after this class. We can still answer questions and support people.”