Energy Service Companies -An Analysis Prepared by the LCPS Energy Education Team November 12, 2009
What is an Energy Service Company (ESCO) An ESCO is a business that develops, installs, and finances projects designed to improve energy efficiency and reduce operations and maintenance costs for its customers' facilities.
How does an ESCO work? An ESCO generally acts as a project developer for a wide range of tasks and assumes the technical and performance risk associated with the project.
What makes an ESCO different than a standard contractor? What sets an ESCO apart from other firms that offer energy efficiency improvements is the concept of performance-based contracting. When an ESCO undertakes a project, the company's compensation is directly linked to the amount of energy that is actually saved.
Essentially an ESCO is a type of finance company as well as a contractor The energy efficiency retrofits in ESCO projects typically require a large initial investment and may offer a relatively long payback period. The customer's debt payments are tied to the energy savings offered under the project so that the customer pays for the capital improvement with the money that comes out of the difference between pre-installation and post-installation energy use and other related costs.
What are typical projects performed by ESCOs? Changing utility meters Water conservation projects Installation of steam traps on steam systems Replacement of chillers Co-generation projects Installation of energy efficient air handler units Alternate fuel sources for boilers Lighting system improvements Installation of building automation systems Building envelope and roof improvements Window replacements Replacement of traditional exit signs with LED signs
The Virginia Department of Mines, Minerals & Energy ESCO contract Ensures that competition is a part of any future contract. Assures that companies are pre-qualified. Process for implementation is already established. References to previous work accomplished are available from local entities.
Phase I RFP for ESCOs Develop a pool of qualified firms Keeps competition active in the process
Phase II Selection of ESCO for the project Select 3 (or more) potential ESCOs No cost back of the envelope audit of facilities to identify potential energy conservation measures Interview ESCO and negotiate contract
Phase III Technical Energy Audit Memorandum of Understanding (MOU) for audit Evaluation of recommended projects Baseline and measurement standards established If project is not acted on, the ESCO is paid for the technical audit If the project goes forward, financing needs are defined
Phase IV - Financing Lease Purchase project paid from energy savings Direct purchase Project paid for from a bond, grant, private donation or other traditional method Master Equipment Leasing Program through DMME
Phase V - Construction ESCO takes the role of construction/project manager Bureau of Capital Outlay Management (BCOM) review process (for a fee) Construction is completed
Phase VI Measurement & Verification The baseline used to negotiate the contract is used to measure performance of the project Measurement guidelines are finalized Any system settings requirements are established Project performance is monitored through the period negotiated in the contract
When is an ESCO a good choice? When the technical knowledge required to identify and execute an energy conservation measure does not exist within an organization When an organization is unable to finance an energy conservation through traditional financing methods
Considerations regarding LCPS choosing to use an ESCO We have the technical knowledge on staff to develop, implement and benefit from Energy Conservation Projects By hiring a third party when doing a project, project materials, installation costs, and the profit margin for the ESCO, must all be paid for Maintaining all available savings from an energy conservation project for the citizens of Loudoun County is favorable when compared to sharing savings
Advantages to utilizing existing staff and procedures LCPS staff makes decisions based on what will be most beneficial to students balanced with what is fiscally beneficial Available funding is used for the areas of greatest need, not just the areas with the highest level of potential profitability High level of institutional knowledge allows for consideration of the intangibles when developing a project
What is a Certified Energy Manager (CEM)? Since its inception in 1981, the CEM credential has become widely accepted and used as a measure of professional accomplishment within the energy management field. It is an industry-wide standard for qualifying energy professionals both in the United States and abroad. It is recognized by the U.S. Department of Energy, the Office of Federal Energy Management Programs (FEMP), and the U.S. Agency for International Development, as well as by numerous state energy offices, major utilities, corporations and energy service companies
What topics is a CEM familiar with? Codes & Standards & Indoor Air Quality Energy Accounting and Economics Energy Audits and Instrumentation Electrical Systems HVAC Systems Motors and Drives Industrial Systems Building Envelope Cogeneration and CHP Systems Energy Procurement Building Automation and Control Systems Green Buildings, LEED & Energy Star Thermal Energy Storage Systems Lighting Boiler and Steam Systems Maintenance & Commissioning Alternative Financing
Does LCPS have a CEM on staff? Michael Barancewicz, CEM John Lord, CEM Ken Miller, CEM
Existing Staff has the ability to execute projects LCPS Facilities Services executes the CAPP for the school system
Examples of CAPP projects Efficient lighting replacements HVAC equipment updates Building automation system upgrades Replacement of appliances with energy efficient equipment Building envelope improvements Roofing, windows
LCPS is also utilizing the Energy Education Inc. people-based program. These energy reduction techniques are no-cost or low-cost The savings can be dramatic Isolating the effect of these programs from an ESCO project savings would be very difficult
Further, LCPS is implementing mechanical system audits in conjunction with the Energy Star Program Schools Audited to date -River Bend MS -Horizon ES -Harmony IS -Eagle Ridge MS -Loudoun Valley HS -Mountain View ES
Recommendation A strong commitment to existing county staff is important Funding the CAPP is crucial to long-term success Alternate funding methods will have an equal effect on credit ratings and debt levels, but will reduce the benefit to the school system by the introduction of an additional party to be paid LCPS is in a great position to address energy conservation and environmental impact reduction with existing resources