ESPC: Raising standards, lowering costs  

Mar. 28, 2008

By Justin Ward
Europe District

Energy Savings Performance Contracts allow for risk-free cost and energy savings, low up-front costs and easy implementation at any military installation in Europe.  Do you know enough about them?

Here's the challenge.  The Energy Policy Act of 2005 requires all federal facilities - including all military bases in Europe - to cut energy consumption 20 percent from 2003 usage by 2015.
 
Here's the problem.  Energy prices are increasing.  In fact, so are the energy consumption levels of federal facilities, making energy one of the largest (and growing) operational expenses, especially considering that budgets at most facilities haven't kept pace with rising costs.  To make matters worse, these increasing financial constraints often cause facilities to cut back on new infrastructure - such as heating and ventilation systems - which usually means decreased efficiency and increased energy expenses.
 
But through a tool called the Energy Savings Performance Contracts (ESPCs) - offered through the U.S. Army Corps of Engineers - federal facilities can save energy and money at the same time.
 
"It's called a performance contract," said James "Dusty" Stehr, the U.S. Army Corps of Engineers ESPC manager for Europe District.  "It's much different than the other contracts we do; but it's a really great tool."
 
Here's how it works.  Federal facilities in Europe can sign an agreement with one of three chosen Energy Services Companies (ESCOs) that will swap energy-efficient infrastructure for an agreed-upon monthly amount of guaranteed cost savings.  Any additional cost savings resulting from the new infrastructure can be added to the installation's bankroll, free of charge.
 
"It's a really smart way to do business," said Hunter Dandridge, the District's previous contract manager.  "It's like a mortgage.  But you pay it off with your savings."

Other than a small supervision and administrative cost, all initial costs for the new infrastructure are funded by the ESCO.  This could include upgrading the existing heating, ventilation, electricity or water systems using renewable energy technology, installing better insulated windows and doors or a combination.
 
"Sometimes an automatic thermostat could mean big savings," Stehr said.  "Or sometimes you have to gut the whole thing.  It just depends on the age of the building, what's currently there and how efficient it is."
 
The ESPC program, managed in Europe by Installation Management Command-Europe (IMCOM-E), has been helping federal facilities finance prohibitively expensive large-scale energy savings projects for more than 10 years.        

According to David Yacoub, IMCOM-E's ESPC manager, the program's strength lies in its ability to use private investment for public gain.
   
"The president has encouraged federal agencies to use the program extensively to achieve mandated energy and water reduction goals," Yacoub said.  "Garrisons decide what they want to implement, provided that the measure generates savings.  The only criteria to qualify for an ESPC project is that the project generate savings to amortize within the life expectancy of the system."
 
Most contracts, Stehr said, last five years with optional three-year and then two-year extensions.  "We're actually developing a new contract now that will allow for more competitive bidding.  So it'll be a little different in the future."
 
Expectations for the program, implemented through the U.S. Environmental Protection Agency, are that each facility undergoing a comprehensive upgrade financed through an ESPC achieves a greater than 50 percent reduction from current energy consumption levels.
 
Maintenance on the new infrastructure is normally conducted by the ESCO, Yacoub said, but could instead be done by each facility's Directorate of Public Works to cut costs even further.
 
Currently, the largest executed contract is at the U.S. Army Garrison-Vicenza, where ESCO Siemens AG is installing a new boiler plant, which includes a cogeneration unit that will simultaneously produce heat and power by using the escaping "waste heat" from electricity production to produce steam that could help heat the installation. 
 
"The ESPC is absolutely a win-win," Stehr said.  "In fact, every organization involved wins."