Long-term considerations for Energy Performance Contracting

Six variables that can jeopardize your EPC

By: George Buchanan, founder and CEO of 2KB Energy Services

The energy and operational savings guarantee associated with a guarantee energy savings performance contract (ESPC) includes provisions where the parties assume and agree that routine maintenance will be performed by either the owner or the energy services company (ESCO). The guarantee may even include a contractual requirement for the documentation and reporting of such activities. During the investment grade energy audit that owner needs to carefully review its maintenance obligations, as failure to perform them during the guarantee term may result in an adjustment to the baseline and savings guarantee. A suitably trained and resourced staff should minimize the potential for adjustments. However, the owner may face adjustments due to what is known as standards of comfort and service. 

In order to understand the operation of end-use equipment and develop a baseline for energy and operational cost, the ESCO either makes assumptions or employs the use of data loggers to identify standards such as air and water temperature setpoints, average facility occupancy, facility occupied and unoccupied operating hours, and others depending on the nature of the energy conservation measures (ECM). Savings, and thus the guarantee are calculated assuming those standards will not change over time – a small permissible variance is often included in the guarantee terms. Even allowing for the variance, it is not reasonable to assume fixed setpoints and operations for up to 20 years. It is even less reasonable to base a performance guarantee this assumption. Here are a few reasons your savings and guarantee might be impacted over time: 

• Modifications to the use of space – the needs of your staff and departments will change over time as you adapt to the needs of students, the public, customers, and any others relying on you and your team. The addition or removal of walls might impact temperature zones, causing air handlers operation to drift outside the agreed-upon standard
• Staff relocation – in larger facilities, it is not uncommon for entire departments to move to other areas in the building, or to other buildings altogether. These changes could impact the building load and, if a department is public-facing, impact operating hours for the facility. 
• Personal preference – during the IGEA, the setpoints logged and recorded affected those in the building at the time of operation. Whether or not a formal policy is in place, people themselves have different levels of comfort. Let’s face it, if a new person joins the team, their position in the organization may afford them the chance to change setpoints. 
• Enhancing appearance – without the right stakeholders involved in future renovation projects, your organization might toss out energy and water efficient equipment installed as part of your GESPC.  
• Demolition – yes, there are times when the decision to vacate a facility with multiple ECMs installed under a GESPC cannot be avoided. In this case, equipment should be reused to the greatest extent possible, and the financing arrangement should retire any GESPC debt tied to the facility

GESPC projects can carry performance and repayment terms from 10- to 25-years. It is inevitable that something will change from the time you begin your project through the end of that term. Proper communication protocols can help mitigate the impact of these changes over time. However, taking a sober review of the proposed standards of care and operation during the IGEA will help further. Owners should seek wide latitude in the permissible variances on standards and maintain thorough documentation on work completed under the GESPC, including developing and documenting policies affecting included facilities. Failure to plan in this case can mean saddling your successors with limited options for continuing to provide best-in-class services with the changing times.