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