Checklist for Considering an Energy Performance Contractor

UNDERSTAND WHAT AN ENERGY PERFORMANCE CONTRACT (EPC) IS… and what it can and cannot do. An EPC allows you to obtain capital and expertise to install and operate energy-saving measures. In return, you share the savings with the vendor under specified contract terms. Energy savings depend on more than “new equipment.” Expertise and services are at least as important. A successful outcome is an active partnership between the vendor and the host facility. Expect your staff roles to change and evolve to accommodate a working relationship with the vendor. Even with a vendor in place, you will depend on your own staff for 50% or more of the potential savings.

KNOW WHAT YOU WANT. Define an end result and work backward from that when establishing selection criteria based on your target outcomes. Where are your biggest energy expenses and related risk (cost, environmental, safety)? What are your other organizational needs that can be addressed by energy-related investments, grants, rebates, and other opportunities? Do you need to address aging or obsolete infrastructure? Don’t be afraid to itemize what you do NOT know. Make this part of the conversation with prospective ESCOs.

ESTABLISH AN EVALUATION TEAM FOR SELECTING ESCOs. Multidisciplinary leadership from your organization: procurement, finance, operations, maintenance, engineering. The more complete the list, the better off you are. This team provides the communication channels you’ll need for input, buy-in, and support. Let the team flesh out their selection criteria and concerns: Operational intrusion issues? Equipment needs? Budget concerns? Operations & maintenance? Focus on results and qualifications first, then price. Avoid prescriptive RPFs—these formats kill creativity, de-emphasize service, and are a distraction from results.

SHOP AROUND. Contact other organizations that have used ESCOs. Ask about their experience with particular vendors. DO NOT shop simply on the basis of proposed equipment costs. Vendor selection should be based on ESCO qualifications. Can the vendor describe their strengths and weaknesses relative to their competition?

BEWARE OF THE LURE OF FANCY TECHNOLOGY. The solar & wind stuff is sexy, but the economics are marginal without heavy subsidy. Prioritize energy efficiency—lighting, HVAC, controls, building envelope improvements. These measures save real money that can then subsidize the renewable projects. The more established and proven the technology, the better the chance that the performance projections/savings can be met. Savings from traditional efficiency measures can help to subsidize future solar and other initiatives. Avoid “black-box” solutions, where the vendor’s implementation is not transparent. Open architecture is preferable to being locked in to brand-specific solutions.

UNDERSTAND THE BREAKDOWN OF THE ACTUAL CASH FLOW FROM ENERGY SAVINGS. It typically includes (1) guaranteed portion of savings (50-80%), (2) ESCO’s profit/management fee of 20-40%, and (3) a balance of excess savings that should accrue to YOU, per the language of the contract. The contractual split between items (2) and (3) is what defines the performance risk.

UNDERSTAND THE RISKS. (1) Technology risk – check for adequate capacity, performance, reliability, cost to operate. (2) Human risk – this applies to YOU, the host facility. What’s the quality of your operating & maintenance protocols? How skilled are your staff? How dependable? Supportive attitude? Does your team have the ability to document, learn and communicate during the course of the performance contract? (3) Financial risk: recognize and measure the difference between consumption variance and price variance.

UNDERSTAND THE ROLE OF THE ENERGY AUDIT. The energy audit is the benchmark from which all work will follow. The list of potential improvements is drawn from the energy audit. The audit’s findings will shape the savings targets that are set forth in the performance contract. Good quality audit = better quality of performance risk measurement and management. You get what you pay for, and what you get shapes your cash flow for years to come. A good investment grade energy audit does more than list a series of “projects.” It addresses variables that impact performance over time, especially the “people factors” related to maintenance and occupant behavior.

PERFORMANCE MEASUREMENT AND VERIFICATION. You can’t manage what you don’t measure. Don’t leave it all to the ESCO. IMPORTANT: your results are entirely dependent on the quality of measurement and verification (M&V). Someone on YOUR STAFF needs to access, interpret, evaluate, and communicate energy performance data: everything from reading the utility bills to weather normalization, to calculation of dollar variances. Consider an independent consultant. The international protocol for energy measurement and verification (IPMVP) is available on the web: evo-world.org. Discuss with the ESCO which of the four IPMVP options are to be used: (A) partially-measured retrofit isolation; (B) retrofit isolation; (C) whole building or main meter, or (D) calibrated simulation.

DETERMINANTS OF YOUR SUCCESS.
1. FACILITIES: building ages, potential function & occupancy changes, condition of mechanical equipment, level of on-going maintenance, annual utility budget, energy and cost savings potential.
2. ORGANIZATIONAL FACTORS. Longevity and durability of the organization. Access to resources. Creditworthiness.
3. PEOPLE FACTORS. Committed support from top management. Team involvement. Understanding needs and potential benefits. Labor depth, dedication, training, attitude.