Energy performance contracts are an agreements between a facility and contractor to provide a low cost energy efficient retrofit.
Energy performance contracts are a means for commercial property owners to make their commercial electric lighting, HVAC and other systems more sustainable.
Under an EPC, the return on investment from the energy savings are projected to match or exceed the costs of the retrofit. An overhaul to a building’s systems with high energy consumption rates yields instant economic savings, which are then free to be spent on the replacements. Facility owners are essentially getting new equipment for free, and they continue to profit from the savings for years.
EPCs are an easy way for a commercial property with a tight budget to get necessary upgrades, and the savings continue after the loan amount is repaid.
How energy performance contracts work
The process begins with an audit by an energy service contractor, or ESCO. Audits by energy efficiency consultants look at a facility’s current energy usage and potential for savings with more energy-efficient options. Once the ESCO determines a need for a retrofit project, they calculate the costs of the project and the economic savings. Based upon those calculations, financing is set up so that the payments for the equipment and installation do not exceed the projected savings.
Once the facility manager and ESCO reach an agreement, the installation begins. The installation may be through a separate contractor, but the ESCO arranges for the construction and payment to occur.
After the installation, some additional maintenance services may follow to make sure that the equipment is functioning properly during the repayment term. This ensures that savings are maximized and the ESCO does not incur any loss if the savings do not meet or exceed projected goals.
Once the loan is repaid, the savings pass on to the facility owners and they have a functional energy saving solution for years.
Conditions that call for an EPC
Certain conditions point to the need for an EPC. These conditions include an aging building, aging equipment, too many demands on maintenance staff, a tight budget and no recent upgrades on lighting or control systems. If a building is already operating at a good efficiency, there is not a need for an EPC because the guaranteed savings will be too low to recover installation and equipment costs.
Commercial lighting solutions of the previous generation included incandescent bulbs, metal halide lamps and high-pressure sodium lamps that were not as efficient as today’s lighting options. Now that new versions of those lights and LEDs have been created for a more efficient lighting experience, EPCs usually include the installation of LED lighting systems, dimming controls and occupancy sensors.
A commercial property with older lighting and other control systems benefits greatly from an EPC because they are designed around the needs and budget of the facility owners. Needs for parking lot lighting vary greatly from those of lighting for offices. Having a custom system gets a facility the right commercial lighting system for the best possible price.
Benefits of energy performance contracts
EPCs are insurance that a retrofit project will yield promised results, much like a warranty.
Savings are guaranteed for the term of the contract. The contractors want to fulfill their end of the deal so that they do not have to cover any costs. They also want to provide outstanding service to ensure continued business, so they’ll often cover all aspects of maintenance and installation. Rather than dealing with multiple contractors, facility owners have one source for any questions or repairs.
Older equipment is replaced with newer equipment. This improves safety, as worn equipment is more prone to hazardous breakdowns and malfunctions. With lighting and other systems, fire risks are increased with wiring and parts that may not meet current standards. There are also higher maintenance costs with old equipment because the parts have seen more wear and tear.
Many new systems include automation as well. Lighting systems have computerized controls that manage energy usage, automatically dim lights and centralize the task of monitoring equipment. After the ESCO is no longer responsible for maintenance, facility owners do not want to be left with a lot of maintenance tasks. Digital controls streamline those tasks for effortless facility management.
EPCs at work in different industries
EPCs are available for commercial properties in any industry.
In Mattoon, Ill., Sarah Bush Lincoln Health System has begun an EPC that includes commercial exterior lighting and new climate control equipment. The new equipment for the entire installation is price tagged at $3 million, but SBLHS is expected to save $334,000 every year. In as little as eight years, the healthcare facility will recover those project costs. The building owners will have continued savings and create a more comfortable environment for their patients with updated systems that operate more efficiently.
The Haldane School District in Cold Spring, N.Y., completed its installation in February 2013. The installation costs were $2.2 million and the district’s contract guarantees savings of $140,000 a year. The new lighting, boilers and other equipment will pay for themselves in about 15 years. While the school is saving dollars, the new energy saving systems are saving the environment by cutting down on harmful emissions caused by the brown energy sources used to provide electricity.
Applications can be large or small. They can be an overhaul of all systems or only one, but they are useful for any facility owner looking for an affordable way to improve a commercial property’s energy usage.
What to consider before entering an EPC
Finding an EPC is no different than any other renovation project. There are many different options to consider: vendors, equipment, costs and return on investment.
Shopping around is a necessary step. Less-expensive installations are a good deal, but they won’t mean much if guaranteed savings are small. The best contracts offer a good ratio between costs and the repayment term. Cheaper equipment is not as beneficial if the energy savings won’t recoup the costs in a reasonable amount of time.
No matter what vendor a facility owner chooses, energy performance contracts are a profitable investment. Newer technologies are made to last longer so savings continue for years.