During Washington’s last legislative session, I wrote glowingly about a bill introduced by Representative Hans Dunshee that would have sold $3 billion in bonds for energy efficiency retrofits in public schools across the state. It didn’t pass. But what appealed to me was that this idea is a 3 for 1 deal. A win, win, win. It could reduce climate changing emissions, create much-needed green jobs in local communities (reviving a flagging economy), and save money on energy bills. In fact, it could create enough savings to pay back the bonds. I called it Green Increment Financing.
Maybe this kind of far-thinking, money-saving, job-creating, innovative policy will pass next time around. Meanwhile, I have found out that this kind of financing is already happening in the Northwest—albeit on a much smaller scale—hundreds of thousands of dollars versus the hundreds of millions it would take to retrofit all schools. It’s called Energy Service Performance Contracting. Washington’s General Services Administration and Oregon’s Department of Energy have been doing this for awhile, and the model has existed since at least the 1990s.
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Here’s how it works. A public agency applies to participate in the program. If they meet the basic criteria established by the state, a private contractor, an Energy Services Company—or ESCO, is contracted to conduct an audit to determine where the greatest opportunities for savings can be found. There are three big things that make this program appealing to public agencies.
First, there is no bidding process for the contractors since the state takes care of the selection of the ESCOs and creates a registry of preapproved contractors. The ESCO handles all aspects of the work, from the audit through completion of the project. Second, there is no up-front cost for the project as it is covered through financing pre-arranged by the state and the ESCO. Finally, the ESCO is paid from the energy savings. No savings through efficiency upgrades, no payment. This provides an incentive to the ESCO to do the work that will save the most energy and money for the agency.
The Tigard-Tualatin School District completed projects district-wide earlier this decade using performance contracting. One school, Mary Woodward Elementary, saved 15,518 kWh and 283 therms per month (that’s about a 24,000 snickers bars). The districts overall energy consumption dropped 11.7 percent over four years, even though they actually added square footage with new construction. And the district expects to save $3,129,414 over 10 years.
Even though the large scale improvements to schools using bond financing didn’t pass Washington’s legislature this year, there is a great proof of concept in the performance contracting model. It accomplishes everything that efficiency work is supposed to do—and without the additional work and spending on the front end. What makes this solution work is that the payment to the ESCO is connected to the performance. Making this kind of model work on a larger scale would create many more new in-state jobs and training opportunities for a growing construction sector—green building and efficiency
The ESCO model has been around for a long time, and judging from the relatively profitable outcome for the companies involved, it certainly delivers savings somewhere. The problem with this model is that it inherently focuses only on the most significant potential gains, at the expense of all the other upgrades that should be undertaken simultaneously. For example, an ESCO might see that a quick lighting retrofit consisting of better lamps would have significant immediate returns, and implement this. But really, a longer term perspective would suggest that it would be better to upgrde the whole lighting fixture and control system to generate better savings over the longer term. This kind of retrofit is too expensive for the short term payback sought by the ESCO, so these potential savings will be left on the table every time. And once the potential savings stream from the lamp component is captured by the ESCO, the rest of the upgrade will never again be cost-effective.In the article above, the school district achieved energy savings of about 11%. This is the right direction, but the kinds of performance improvements being discused nationally and locally for codes and voluntary programs are in the neighborhood of 30-50% energy use reduction, increasing to net zero energy performance for buildings within about 20 years. Unless we focus on programs that deliver these kinds of deep energy savings now, we’re just rearranging the deck chairs.
Well, Mark has a point, but to use a well worn (more like worn out) phrase, don’t let the perfect be the enemy of the good.A project that yields an 11% savings is great! And it’s likely that with that kind of success the school district will be more willing to make more investments in energy efficiency. If we design our EE programs to require that they all achieve the “deep” savings, it’s likely that on the whole, less will get done because the risks seem greater.
I develop Energy Savings Performance Contracts for an ESCO in the local government, K-12 schools and higher education markets. Mark is correct that too often only the energy efficiency measures with the fastest paybacks get addressed, but he’s blaming the wrong entity. The customer decides what cost-effectiveness criteria will be used and it is they that drive decisions that result in long payback measures being ignored. Unfortunately, that often means those measures never get addressed. A good ESPC is one with the right blend of short and long term measures; one that essentially uses to short term measures like lighting to help pay for the other measures.