Energy Savings Performance Contracts Leverage Scarce Federal Dollars

The GSA reinforced its role as a key partner in achieving President Obama’s greenhouse gas and energy efficiency goals in an announcement on June 11 in Lanham, Maryland. Agency Administrator Dan Tangherlini revealed a major Energy Savings Performance Contract (ESPC) to install energy-saving retrofits and renewable energy sources at the IRS New Carrollton Financial Service Center. Improvements will include LED lighting, geothermal wells in the parking lot, efficient chilled water plant, solar canopies and solar thermal heating systems. The $43 million project, expected to reduce energy use overall by 60%, will be financed by Ameresco at no cost to taxpayers; ESPCs create public-private partnerships in which a contractor provides energy efficiency and renewable upgrades and receives payment from the resulting savings. The IRS facility upgrades, plus improvements at the adjacent Silver Spring Metro Center 1, are expected to generate $3 million in savings in the first year.

The first ESPCs were awarded in 1998, authorized by Congress to accelerate energy conservation investments in existing federal buildings. The regulations were created by a Department of Energy (DOE) program, Federal Energy Management Program (FEMP), as required by the Energy Policy Act of 1992 and reauthorized in the Energy Policy Act of 2005 (EPACT) and Energy Independence and Security Act of 2007 (EISA) (summarized recently here). Since the program’s inception, DOE has awarded 315 ESPCs, resulting in more than $3.23 billion in sustainability investments and $7.88 billion in cumulative energy costs savings to the government.

The contracts, as alternative procurement methods, are popular with federal agencies because operating funds, not capital dollars, fund building improvements. No allocations are required from Congress. The process does require establishment of a long-term partnership between an agency and a private consulting Energy Service Company (ESCO). ESCO experts audit the federal facility, identify potential efficiency improvements and, in consultation with the agency, design and construct the project. The ESCO also obtains the needed financing and guarantees that the energy cost savings to the agency will cover payments to the ESCO over the term of the contract not to exceed 25 years.

The largest ESPC contract to date is a $195 million project for the FDA’s White Oak campus in suburban Maryland. Improvements there, designed and implemented by Honeywell, include heating, ventilation and lighting upgrades and a more efficient central utility plant to power the 1.2 million-square-foot expansion of the Center for Biologics Evaluation and Research. The annual emissions savings from the FDA White Oak project are expected to be equivalent to removing 4,000 cars from the road.

Helpful information and tools are provided by the FEMP to facilitate the sometimes-daunting ESPC process. Especially useful may be a 12-month timeline template for planning, scheduling and tracking a project, and suggestions on how to select an ESCO. FEMP emphasizes that measurement and verification are required for ESPCs to ensure consistent savings over the term of the contract. By allowing agencies to leverage savings from improvements to pay for facility upgrades, these contracts may well contribute ever-more-significantly as the administration continues to raise the bar for energy efficiency. In a one-minute House speech last June advocating ESPCs, Representative Peter Welch (D-VT) notes that the federal government spends about $6 billion per year to heat, cool and power roughly 500,000 facilities. Deploying ESPCs to fund upgrades without upfront appropriations not only preserves capital and decreases carbon emissions but generates jobs and supports local economies. Said Welch to his Senate colleagues, “This is something we can and should do together: save money, create jobs, improve the environment.”

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