(If you missed the Part II blog post in this series about the American College & University Presidents’ Climate Commitment, CLICK HERE!)
Several U.S. universities and colleges have pledged to eliminate net greenhouse gas (GHG) emissions from specified campus operations and encourage sustainability research and education by signing the American College & University Presidents’ Climate Commitment (ACUPCC). The ACUPCC recognizes the necessity of reducing emissions to mitigate climate change and adverse health impacts. Signatories are required to develop an inventory of all GHG emissions and a Climate Action Plan (CAP) outlining emission reduction strategies and milestones (read Part I and Part II in this series to learn more about developing a GHG inventory and Climate Action Plan). In crafting solutions to meet the AUCPCC’s framework, signatories have several financing mechanisms and project implementation strategies to consider.
Financing options for energy conservation projects
There are several options available to help fund energy conservation projects with minimal financial exposure and risk, including revolving loan funds, power purchase agreements and Energy Performance Contracting (EPC), to name a few. The ACUPCC has recognized Energy Performance Contracting in particular as an extremely effective vehicle to advance comprehensive energy efficiency retrofits by leveraging the savings generated to fund the capital improvements. Oftentimes, capital bonds and tax-exempt loans can also be leveraged to enhance the ultimate financial outcome.
For example, the Dimock Center, a non-profit health center located in Roxbury, Mass., recently leveraged an Energy Savings Performance Contract (ESPC) for a critical boiler decentralization project. Completed a year ahead of schedule and significantly under budget, SourceOne served as owner’s representative for this ESPC, managing the full design and construction phases for the replacement of the existing central steam plant with distributed boilers. Following project completion in October 2013, the Dimock Center now benefits from guaranteed savings valued at $150,000 per year, greater energy efficiencies, and improved occupant comfort (Read more about the Dimock Center’s boiler decentralization project HERE). By leveraging this innovative financing model, signatories can finance the cost of the project from the future estimated savings resulting from the capital improvements.
The University of Pennsylvania leverages “Green Steam” to help meet its ACUPCC commitment
Since each college and university’s campus, infrastructure and environmental footprint is diverse and unique, signatories can follow various paths to meet climate neutrality. As the first Ivy League signatory of the ACUPCC, the University of Pennsylvania (Penn) launched its Climate Action Plan in September 2009 and has committed to achieving climate neutrality by the year 2042. Penn has undertaken several significant efforts to improve sustainability in all aspects of campus life and operations, including developing a centralized system to track steam consumption, implementing several smart meter installations and leveraging highly efficient and sustainable “Green Steam” supplied by Veolia North America.
"Green Steam is an innovative environmental solution that captures and reuses heat that was previously lost to the environment. All systems on campus that require thermal energy - heat, hot water, lab equipment, humidifiers – are supplied with “Green Steam which totals about half of Penn's energy usage. As part of Veolia’s recently extended steam supply agreement with Penn, Veolia completed the replacement of an older, less-efficient oil-fired boiler with two new, natural gas-fired rapid-response boilers to significantly reduce GHG emissions and increase the overall efficiency of Veolia’s steam service. Veolia's multi-million dollar investment in energy infrastructure increases efficiency and reduces annual carbon emissions by the equivalent of 70,000 cars removed from the streets. According to Penn’s Climate Action Plan, the improvements are expected to reduce Penn’s emissions associated with steam by an estimated 10 percent (overall campus emissions are estimated to drop 2 percent).
New York University’s CHP plant ‘powers on’ through Hurricane Sandy
New York University (NYU) is also a signatory of the ACUPCC and has committed to reaching a zero-emission climate neutrality goal by 2040. According to NYU’s Climate Action Plan, launched in March 2010, the energy required to heat, cool, and power university buildings accounts for 96.5 percent of NYU’s direct GHG emissions. Therefore, reducing energy consumption through energy efficiency and leveraging clean energy are both fundamental strategies outlined in NYU’s CAP. NYU’s Climate Action Plan is structured around four major emissions reduction strategies, as follows:
- Reduce energy intensity
- Generate and use cleaner energy
- Generate renewable energy
- Reduce or offset remaining emissions
To help the achieve its emission reduction targets, save money and meet increasing electricity demands, New York University decided to expand its existing cogeneration plant on its Greenwich Village campus in 2010. Serving as owner’s representative, SourceOne led the redevelopment of the expanded 13.4 megawatt (MW) Combined Heat and Power (CHP) plant which serves the electrical needs for 22 campus buildings and steam and hot water for 37 campus buildings. According to NYU’s Climate Action Plan, the expanded cogeneration plant accounts for the single largest reduction in GHG emissions to date, representing a 23 percent decrease in total campus emissions since 2006. NYU's cogeneration system prevents an estimated 43,400 tons per year of GHG emissions and reduces the university's energy costs by over $5 million annually.
NYU’s cogeneration plant proved to be critical in ensuring reliable power and heat supply following 2012’s Hurricane Sandy. In the fall of 2012, Hurricane Sandy, left millions without heat and power and caused $50 billion in damages. While the majority of Manhattan was without power, most of NYU’s Greenwich Village campus had electricity, heat, and hot water. NYU was able to generate electricity and heat on its own from its expanded cogeneration plant (learn more about NYU’s experience HERE). The campus quickly became a haven for staff, students and surrounding community members without heat and power. Following the storm, it became a command center for emergency workers throughout Manhattan. In 2013, the U.S. Environmental Protection Agency (EPA) awarded NYU with the Energy Star CHP Award. As one of five award recipients, the EPA selected NYU for its efforts in reducing emissions and increasing energy reliability and efficiency for its cogeneration plant.
ACUPCC as a framework to guide energy efficiency and sustainability
Colleges and universities are the perfect partner to advance sustainability and emissions reduction efforts to mitigate climate change. The nation’s 4,000-plus private nonproﬁt and public colleges and universities educate more than 20 million students each year and own and manage tens of thousands of buildings, heating and cooling millions of square feet each day. The ACUPCC provides a solid framework to help colleges and universities implement advanced energy solutions to reduce emissions, save money and improve efficiencies.
- ACUPCC (Part I): Colleges and Universities Fight Global Climate Disruption
- ACUPCC (Part II): Develop a Climate Action Plan to drive energy conservation projects
- Best Practices Toolkit: Energy Performance Contracting for Higher Education
- Veolia Energy joins with Penn to Support the University's Climate Action Plan
- NYU Cogeneration plant expansion reduces annual energy costs by over $5 million and GHG emissions by 43,400 tons
- “Microgrids become reality as Superstorm Sandy's anniversary nears," by Julia Pyper, ClimateWire, September 11, 2013.
- "How Natural Gas Kept Some Spots Bright and Warm as Sandy Blasted New York City," by Andrew Revkin, The New York Times, November 5, 2012.
- “How N.Y.U. Stayed (Partly) Warm and Lighted,” by Matthew L. Wald, The New York Times, Green – A Blog about Energy and the Environment, November 5, 2012.
- U.S. Environmental Protection Agency: Winners of the 2013 ENERGY STAR® CHP Award
- To CHP, or Not to CHP? The Process of Evaluating Combined Heat and Power
SourceOne, a national energy consulting firm managed by Veolia North America, was named by Crain’s New York Business as a recipient of the"Best Places to Work in New York City,” representing the top 100 businesses in New York City. As the only energy firm listed, this recognition marks the fourth consecutive year that SourceOne’s New York office has made the list. The companies featured on the “2014 Best Places to Work in New York City” list were selected based on the results of a weighted survey and questionnaire of both employees and employers conducted by Crain’s New York Business in partnership with Best Companies Group.
Located at 7 Penn Plaza, SourceOne employees enjoy numerous perks including employee education and tuition reimbursement programs. Additionally, employees are invited to take part in educational seminars providing energy and engineering best practices. With extensive experience and these additional educational opportunities at their disposal, SourceOne employees hold some of the most significant certifications in energy engineering. Read more and check out the list HERE!
(If you missed the Part I blog post in this series about the American College & University Presidents’ Climate Commitment, CLICK HERE!)
Colleges and universities strive for climate neutrality with the ACUPCC
The scale and speed of global warming and its adverse impacts on human health and the environment has prompted a number of U.S. colleges and universities to sign the American College & University Presidents’ Climate Commitment (ACUPCC) – an agreement to eliminate net greenhouse gas (GHG) emissions from specified campus operations and promote sustainability research and education. Signatories of the ACUPCC are committed to reduce global GHG emissions 80% by mid-century to avert the worst impacts of global warming and to reestablish stable climatic conditions. In addition to developing a comprehensive inventory of all GHG emissions, signatories are also required to develop a Climate Action Plan (CAP) outlining strategies and progress towards achieving climate neutrality (read Part I in this series to learn more about developing a GHG inventory).
Developing a Climate Action Plan
Within two years of signing the commitment, the CAP should be completed, in addition to outlining a final target date and interim milestones for achieving climate neutrality. Under the terms of the Commitment, all Scope 1 and 2 emissions, as well as those specific Scope 3 emissions must be eliminated and/or neutralized:
- Scope 1: Direct Emissions - emissions that are physically produced on campus (e.g. on-campus power production, campus vehicle fleets, refrigerant leaks). These sources are “owned or directly controlled” by your institution.
- Scope 2: Indirect Emissions - emissions associated with purchased utilities required for campus operation. They are indirect emissions resulting from activities that take place within the organizational boundaries of the institution, but that occur at sources owned or controlled by another entity.
- Scope 3: Other Indirect Emissions - emissions from sources that are not owned or controlled by the campus, but that are central to campus operations or activities (e.g. non-fleet transportation, employee/student commuting, air travel paid for by your institution).
Many colleges and universities utilize the CAP as a strategic planning tool to drive energy conservation projects and guide in the reduction of GHG emissions. Often the CAP can be successfully incorporated into a more holistic sustainability plan. A comprehensive CAP should:
- Explain how your institution intends to achieve climate neutrality by its target date and outline specific strategies and conservation projects to mitigate emissions. Oftentimes, institutions are better served by hiring an independent energy consultant to streamline the process and facilitate the data collection, energy audits, emission calculations, reporting and project implementation to meet emission reduction targets.
- Describe planned actions to make climate neutrality and sustainability a part of the curriculum and/or other educational experience for all students.
- Describe actions to expand research and community engagement to support efforts toward the achievement of GHG reductions for the institution and/or the community and society.
- Outline mechanisms for tracking progress on goals and actions.
Evaluating energy conservation projects
The CAP should identify the largest sources of global warming pollutants, areas of greatest opportunity for GHG emissions abatement, and incorporate a comprehensive list of potential energy conservation measures for avoiding or reducing GHG emissions from each of the sources included in the GHG inventory. The emissions-reduction and savings potential of various projects should be carefully considered in order to reap maximum emissions reductions and return on investment. An energy consulting firm well-versed in energy, facilities infrastructure, engineering, and data management can help assess the viability and return on investment of each project and serve as owner’s representative to guide implementation. Various criteria should be considered when evaluating mitigation options:
- Potential to avoid or reduce GHG emissions.
- Flexibility as a step towards future emissions-reduction measures.
- Return on investment or financial impact (Life Cycle Analysis and Financial Risk Management analysis may be more appropriate than simple payback and ROI calculations).
- Potential to create positive and/or negative social and environmental side-effects.
- Relationship to other potential measures and opportunities for synergistic measures.
- Potential to be scaled upward if successful.
- Potential to involve students and faculty.
Careful analysis of the emissions reduction and energy conservation measures will enable signatories to envision possible courses of action and establish targets that are in line with the commitment to achieve climate neutrality. Once the measures have been evaluated and prioritized, early actions can be implemented. Oftentimes, energy conservation projects such as lighting retrofits, insulation, and HVAC upgrades can yield significant savings, relatively short pay-back periods and substantial emissions reductions.
Stay tuned for Part III of this series to learn more about financing options and creative energy solutions to meet your sustainability and emissions reduction goals!
About The American College & University Presidents’ Climate Commitment
The American College & University Presidents’ Climate Commitment (ACUPCC) is a high-visibility effort undertaken by a network of colleges and universities to address global climate disruption and accelerate progress towards climate neutrality and sustainability. Each institution has committed to eliminate net greenhouse gas (GHG) emissions from specified campus operations and to promote research and education geared towards stabilizing the earth’s climate.
ACUPCC was first created in October 2006 at Arizona State University with 12 college and university presidents as founding members. Today, over 675 universities and colleges in all 50 states and the District of Columbia are signatories under the ACUPCC, representing a student population of over 5.6 million.
The ACUPCC provides a framework and support for America’s colleges and universities to implement comprehensive plans in pursuit of climate neutrality. The commitment recognizes the unique responsibility that institutions of higher education have as role models within their communities and in providing education to accelerate climate neutrality and reverse global warming. In addition, implementing efficiency measures in educational facilities typically reduces long-term energy expenses, optimizes energy use and provides predictability for energy costs and budgeting.
As signatories of the ACUPCC, institutions have agreed to:
- Complete an emissions inventory.
- Within two years, set a target date and interim milestones for becoming climate neutral.
- Take immediate steps to reduce greenhouse gas emissions by choosing from a list of short-term actions (typically derived from an energy audit).
- Integrate sustainability into the curriculum and make it part of the educational experience.
- Make the action plan, inventory and progress reports publicly available.
Understanding your emissions trajectory
As a critical component of the ACUPCC, signatories are required to develop a comprehensive inventory of all GHG emissions within one year after signing the commitment and an updated GHG emission report every other year thereafter. Collecting your unique GHG emissions data can be daunting; however, understanding your emissions trajectory over time will provide a starting point for identifying potential energy conservation measures (ECMs) and developing a comprehensive climate action plan to achieve climate neutrality. Consistent with the GHG Protocol standards, ACUPCC signatories are required to report on three scopes of emissions sources, including Scopes 1 and 2, and two areas of Scope 3.
Scope 1: Direct Emissions
Scope 1 emissions are those that are physically produced on campus (e.g. on-campus power production, campus vehicle fleets, refrigerant leaks). These sources are “owned or directly controlled” by your institution.
Scope 2: Indirect Emissions
Scope 2 emissions are mostly associated with purchased utilities required for campus operation. They are indirect emissions resulting from activities that take place within the organizational boundaries of the institution, but that occur at sources owned or controlled by another entity.
Scope 3: Other Indirect Emissions
Scope 3 includes emissions from sources that are not owned or controlled by the campus, but that are central to campus operations or activities (e.g. non-fleet transportation, employee/student commuting, air travel paid for by your institution).
Greenhouse gas emissions inventory process
There are three stages to the GHG emissions inventory process: data collection; GHG emissions calculation; and data analysis for climate action planning. The raw data required for a campus GHG inventory calculation falls generally under the following major categories:
- Purchased electricity, steam and chilled water
- On campus stationary sources (energy generation)
- Transportation (commuting, air travel, campus fleet)
- Agriculture (fertilizer use, animal waste)
- Solid waste (incinerated, landfill)
- Refrigerants and other chemicals
- Offsets (Renewable Energy Credits purchased, composting, forest preservation, local offset project such as paying for boiler conversion at a local K-12 school, etc.)
This data may be acquired from a variety of sources, including: campus metering, energy management and data management systems, the physical plant department, the campus planning office, local utilities, etc. Following data collection, GHG emissions can be calculated from the raw data. Although there are free calculator tools available, institutions are often better served by hiring an independent energy consultant to facilitate and conduct the data collection, energy audits, emission calculations, reporting and resulting data analysis. Following the development of a comprehensive emissions inventory, a Climate Action Plan (CAP) should be developed to include strategies on reducing GHG emissions and achieving climate neutrality.
Stay tuned for Part II of this series to learn more about the ACUPCC and how to develop and implement a climate action plan to meet your emission reduction targets and sustainability goals!
For municipalities or industrial entities operating utilities, the growing need for energy reliability and leveraging central control of remote electric and/or mechanical equipment has led to a rise in Supervisory Control and Data Acquisition systems, or SCADA systems. These systems can monitor and alter utility and equipment performance across an entire infrastructure from one central location. However, out-of-date software, virus susceptibility and grid placement can create gaps in SCADA systems, leaving a utility vulnerable to cyber-attack or failure. Due to these severe consequences facing vulnerable utilities, selecting the proper SCADA system software provider is crucial to continued performance and safety. Expert energy consultants can help select the best provider, while also acting as a client agent throughout the Request for Proposal (RFP) and implementation processes, bringing best practice knowledge to the project and helping make educated choices about system execution.
When the Vineland Municipal Electric Utility (VMEU) required upgrades to its existing SCADA system, the municipally owned utility initiated a comprehensive bidding process for a qualified owner’s representative to manage the design and implementation. VMEU wanted to do all it could to proactively mitigate any potential security risks, while also ensuring continued power reliability for its customers in Vineland, New Jersey. Following a competitive bidding process, VMEU hired SourceOne, a national energy management firm, to serve as owner’s representative for the implementation of a state-of-the-art, multi-platform, open network architecture based SCADA system.
How do SCADA systems work?
Generally, SCADA systems use Remote Telemetry Units (RTUs) to monitor physical points, or substations, within an electric grid or comparable utility. These RTUs transmit data back to one central location, the master station, in order to monitor fluctuations in activity, emergency events and equipment failures. In addition to being able to see what is happening throughout the grid in near real-time, SCADA enables the operator at the central location to control alarm response, turn equipment on or off, close or open valves, reset fuses, signal backup equipment to takeover or other actions and efficiently allocate resources across the substations during an emergency event.
Using coded signals to provide control of remote equipment, Data Acquisition Systems gather information from meters and equipment and relay their operating status’ and performance history to the master station. Human Machine Interfaces (HMIs) process the data retrieved from RTUs and present it to the operator understandably, with the help of animations, schematics and graphs, to represent the current state of operating machinery. Diagnostic statistics can be conveyed as well to help a utility understand its performance and plan for any future failures. All of this data at hand results in more informed decision making regarding energy assets and the subsequent improved management of electrical infrastructure altogether.
Security risk mitigation for web-based SCADA systems
New innovations in technology have led to the development of cloud based SCADA systems, which can reduce infrastructure costs but leave a utility even more vulnerable to cyber-attacks than previous installations. In the event of a cyber-attack, a virus or hacker could alter the transmitted data, making performance appear normal and preventing any alarms even in the case of a system failure, regional power outage or surge. In the event of an electric grid failure or targeted power outage, hospitals could become inoperable, traffic lights could go out, water and wastewater utilities may not be able to treat water and a municipality would be left dealing with these and various other threats to the health and safety of its community.
In order to prevent disaster, SCADA systems and the experts who implement them must develop multiple layers of industrial-grade firewalls to keep attackers out and electric grids running. Complicating matters, many municipalities, including Vineland, operate on grids provided by other cities which require additional data transfer and therefore, permeation of certain firewalls. To account for these circumstances, cities and businesses can mitigate their risk by seeking help from energy consulting experts well-versed in SCADA systems and system security to select the best suited software. The SCADA software provider itself is responsible for all maintenance, upgrades, security threat mitigation and, in the case of company closure, stored data retrieval. This is even more reason to carefully select the right owner’s representative and SCADA system provider. Utilities may also want to question how controllers can access and respond to remote data alerts, as wireless systems and mobile devices can provide both an additional alert system and another point of attack.
Advanced SCADA systems provide redundancy and scalability
Part of a well-implemented SCADA system’s role is to ensure continued system reliability and performance, even in the event of an equipment failure. Selecting a system with built-in redundancy can help improve reliability at all times, but is particularly helpful during weather emergencies. Failing parts can be identified immediately, and their responsibilities taken over by remotely triggered backup equipment. This prevents an employee from driving to the substation during a severe weather event and offers a quicker response to the homes and businesses that depend on the substation in question. Perhaps even more appealing, advanced SCADA systems offer an electric utility more opportunity to upgrade and expand its system due to the technical flexibility and ability to add additional monitoring points and substations easily. Centrally managing these sites, and those that incorporate newer, renewable energy sources like wind and solar power, allow utilities like VMEU to deliver more sustainable and reliable power.
Selecting a qualified owner’s representative will ensure the implementation of the most effective SCADA solution to deliver power reliability and redundancy, while mitigating potential security risks. With an upgraded SCADA system in place, municipalities and industrial businesses will be better equipped to handle day-to-day operational threats and those threats posed by extreme circumstances. Scheduled to be completed by the end of 2014, Vineland Municipal Electric Utility’s SCADA project serves as a model example of a utility taking the necessary steps to better monitor, protect and control its power generation, transmission and distribution infrastructure, while delivering efficient and reliable power to customers.
NYMEX Natural Gas Futures Market
Mostly driven by heavy winter withdrawals and the exit from winter with inventories at a 10 year low, forward strips for 2015 have moved upwards since the six month low on January 10th at $3.995/MMBtu. Forwards for 2015 have softened in reaction to several strong storage reports over the past few weeks but there is still a premium on these forwards compared with this time last year. The June 14 contract gained about 11 cents to settle at $4.619/MMBtu in the last day of trading this week as open positions were closed. Monthly contracts for the balance of 2014 have followed a similar trajectory as the 2015 annual strip with some backing off of current trading values with an average balance of the year strip at $4.54/MMBtu and a six month high to low spread of about 87 cents. Future support and resistance levels for the remaining contracts in 2014 will be determined by both the actual level of gas demand created by summer cooling requirements and continued increased supply that has been created by current pricing.....
Click the link below to download the entire June energy commodity market update!
(If you missed the Part II blog post in this series about ESPCs and ESCOs, CLICK HERE!)
Why You Should Hire An Independent ESCO Owner’s Representative
Organizations should consider hiring an independent owner’s representative to manage an Energy Services Company (ESCO) when implementing an Energy Savings Performance Contract (ESPC) or an Energy Services Agreement (ESA), particularly when implementing complex, multi-year, energy conservation projects. Acting as owner’s representative, an independent energy consulting firm will objectively evaluate the ESCO’s Investment Grade Audit (IGA), validate the projected energy savings and costs, and oversee the implementation and ongoing Measurement and Verification (M&V) of the proposed energy conservation measures (ECMs).
Because the IGA serves as a blueprint for the project, any errors or miscalculations within this document can significantly impact the project’s financial and economic viability. In addition, an independent energy consulting firm will be able to guide the process and act on the owner’s behalf, particularly for projects complicated or broad in scope. Hiring an owner’s representative has proven to be particularly advantageous for the one of the largest cities in Massachusetts, in supporting its multi-year, city-wide energy management initiative to implement several energy efficiency and renewable energy projects.
(Learn more about ESCOs, ESPCs, ESAs, and IGAs within Part I and Part II of this blog series!)
One of the Largest Cities in Massachusetts Launches a City-Wide Energy Management Initiative
Nestled within a harbor along the south coast region of Massachusetts, one of the largest cities in the Commonwealth sought a cost effective and efficient strategy to reduce their attributable carbon footprint, operating costs, and energy costs associated with city-owned facilities and infrastructure. By leveraging SourceOne as owner’s representative, the city selected an ESCO firm and is negotiating a performance-based, multi-year Energy Management Services Project (EMSP), incorporating guaranteed energy savings, energy efficiency and cost savings projects at 40+ sites.
During the next phase of the project, SourceOne will continue to represent the city, including reviewing the ESCO’s Investment Grade Audits for the selected facilities, overseeing implementation of ECMs, verifying commissioning of newly installed equipment, and ensuring the accuracy of M&V analysis post-implementation. Specific projects include fuel conversion from oil to natural gas at several buildings, streetlight upgrades to LED technology and other renewable energy technologies. The efficiency projects, when completed, will improve the City’s habitability, infrastructure, and reduce operating and maintenance costs.
Maximize ROI for Capital Projects with an ESCO Owner’s Representative
Businesses, organizations, and municipalities should engage an independent ESCO owner’s representative to advance multiple energy conservation and capital improvement projects. An energy management expert will confirm and validate the baseline energy use, economic analysis, proposed project scope and costs, and guaranteed savings for the project, in addition to facilitating implementation and verification of ongoing M&V. Engaging an independent energy consulting firm, skilled in energy master planning, engineering, and ESCO procurement, enables streamlined and cost-effective implementation for complex, multi-year energy conservation projects, while ensuring that energy efficiency, water conservation, and emissions reduction goals are met.
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(If you missed the Part I blog post in this series about ESPCs, CLICK HERE!)
An Energy Savings Performance Contract (ESPC) is arranged between an organization and a private partner/contractor, often called an Energy Services Company (ESCO), that will manage the project and provide a solid guarantee on savings. ESPC’s enable organizations to implement a wide range of ECMs, including building envelope measures, building automation and energy management systems, energy and utility distribution systems, and advanced metering systems. Other ESPC financial benefits can also include savings from scaled-down operations and maintenance (O&M) costs, as well as utility and tax incentives. (Learn more about ESPCs and why organizations and businesses use them within Part I of this ESPC blog series!).
ESPCs - Breaking Down the Basics
Following the completion of a comprehensive energy audit to identify energy saving opportunities, the selected ESCO will develop an Investment Grade Audit (IGA), incorporating an advanced design, estimated project costs, and a savings guarantee. An IGA provides a thorough breakdown of potential energy conservation measures at a facility, everything from operation and maintenance recommendations to suggestions for major renovation. The IGA also incorporates a savings guarantee and is used as a mechanism to procure financing.
Once a guaranteed savings contract is executed, the next phase of the ESPC is implementation. The ESCO acts as the general contractor for the energy improvement project, taking full ownership of the whole process. This ensures that the project is executed with the same integrity as the analysis and also ensures single-source accountability from the development phase to the guarantee phase. The ESCO manages the installation of equipment and related ECMs. The ESCO is also responsible for performing annual Measurement and Verification (M&V) to ensure that the guaranteed savings are realized over the life of the contract. Under an ESPC, the energy savings are projected to match or exceed the costs of the retrofit.
The ESPC model is a very effective mechanism that can be leveraged by organizations and businesses to provide budget flexibility and innovative funding solutions for capital projects. Although organizations can leverage various contract models to advance energy conservation projects, including an Energy Services Agreement (ESA).
Energy Services Agreements and Why You Should Avoid Them
An Energy Services Agreement (ESA) is a contract established between a business/organization and an ESCO, where the ESCO incurs the financial risk, for a share of the resulting savings. The organization pays the ESCO over time as energy savings are realized. Although the organization may initially benefit by avoiding immediate risk and short-term budgetary constraint, ESA’s may not be as favorable in the long term for the following reasons:
- An ESA requires a private partner committed to investing capital. Providing enough incentive for the private partner’s investment can result in an agreement that may not be as favorable in the long term as some other options.
- ESA’s also face strict M&V requirements, as well as tight legal parameters to work within.
- Organization are obligated to pay the ESCO a share of the savings resulting from the energy efficiency improvements during the term of the contract, which can extend up to 25 years.
- Finally, ESA’s require businesses and organizations to make a long-term commitment to an energy partner.
Leverage ESPCs to Advance Infrastructure Projects
Organizations and businesses are often better served by procuring independent 3rdparty financing and leveraging an ESPC. Rather than share the resulting savings over the term of the contract with the ESCO, the organization absorbs the investment risk and reaps 100% of the savings throughout the life of the contract. An ESPC agreement limits long-term contract obligations and allows organizations to maintain control over their investment and assets. In addition, an independent energy consulting firm will design and select the best solution possible, rather than specifying and supplying its own equipment; which is a common practice of ESCO providers that also manufacture equipment. The ESPC model proved to be critical in advancing a boiler decentralization project for the Dimock Center, a non-profit health center located in Roxbury, Mass.
SourceOne Helps the Dimock Center Achieve $150,000 in Annual Guaranteed Savings Via An ESPC
Following an energy audit of The Dimock Center campus, SourceOne, a national energy consulting firm, identified the existing 1930’s central heating plant as a key energy conservation measure (ECM) and recommended its replacement. The projected energy savings and efficiencies presented by SourceOne persuaded The Dimock Center to replace its central plant; although, as a non-profit, The Dimock Center was unable to independently fund the project. In order to secure capital, SourceOne presented the ESPC model as a mechanism to finance and advance the project.
Public-sector entities, like The Dimock Center, are well-suited to take advantage of ESPC partnerships. Capital bonds and tax-exempt loans can be leveraged to enhance the ultimate financial outcome. Spreading a project’s cost out over time lessens the impact on budgets and ultimately allows the project to pay for itself as savings are realized.
Following The Dimock Center’s success in securing financing, SourceOne managed the ESPC, including the design and construction to replace the existing oil-fired steam plant with natural gas fired point-of-use boilers. The IGA, developed by SourceOne, identified an annual $150,000 guarantee on savings, and was an integral document enabling the Dimock Center to obtain 3rd-party financing.
Completed in October 2013, SourceOne successfully managed the design and construction for this boiler decentralization project, achieving a 30% reduction of capital costs, in addition to reducing the schedule by a year. By procuring independent financing, The Dimock Center will accrue 100% of the annual $150,000 guarantee on savings. Additional savings realized during the project implementation were also passed on to The Dimock Center. This turn-key solution, completed a year ahead of schedule and significantly under budget, will generate significant savings, greater energy efficiencies, and improved occupant comfort for the non-profit for years to come.
ESPCs Deliver a Solid Return on Investment
The guaranteed savings, positive cash flow, and projected Return on Investment (ROI) offered by an ESPC provide public entities and businesses the ability to argue in favor of investment. Coupled with the flexibility of the financing options, ESPC’s provide a strong case for implementation.
CLICK HERE to read Part III of this series to learn why you should engage an owner’s representative if you are considering hiring an ESCO.
If you missed the ESPC Part I blog post in this series, CLICK HERE!
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Implement Infrastructure Projects With Energy Savings Performance Contracts
These days, many businesses and organizations are reevaluating capital budgets and pinching pennies wherever possible to meet infrastructure needs, while still trying to grow their core business. Aging infrastructure, significant up-front capital cost requirements, and rising energy costs and volatility, represent significant challenges for businesses and organizations that are often unable to fund critical infrastructure improvements. Fortunately, there are financing options available to advance these projects, such as Energy Savings Performance Contracts (ESPC). An ESPC is an agreement between an organization and a contractor, often called an Energy Services Company (ESCO), who will design and manage a project to reduce energy and maintenance costs at a facility and provide guarantee on the resulting savings.
Finance Energy Efficiency Projects Via Future Estimated Savings
Through an ESPC contract, organizations can essentially finance the cost of the project from the future estimated savings resulting from the capital improvements. The ESPC model can be leveraged by organizations and businesses to advance complex and expensive capital infrastructure projects. By integrating energy conservation measures (ECMs) into consolidation plans, ESPCs can be used to execute projects of all sizes for commercial properties in any industry.
Facility improvements can constitute a wide range of energy efficiency enhancements, including the installation of new lighting, energy-efficient windows, automated controls, energy management systems, new high efficiency boilers, heating, ventilation and air conditioning (HVAC) upgrades, insulation improvements, water conservation upgrades or solar panel installations.
Why Organizations and Businesses Use ESPCs
Through an ESPC, facilities can achieve consolidation and energy efficiency incentives that may have previously been out of reach due to upfront fiscal restrictions. There are several motivating factors driving the adoption of Energy Savings Performance Contracts, including:
- Lack of capital to advance facility improvements within existing budgets.
- Guaranteed performance; Ensures accountability for
- Budget control through reduced utility, service and operating expenditures.
- Life-cycle cost solutions and technology improvements.
- The ability leverage a wide array of supporting services from external vendors for energy related infrastructure needs.
- Processes improvements.
- Enhanced occupant experience and productivity.
- Supports energy efficiency and environmental conservation goals.
- Building system-wide efficiency improvements and modernization.
- Capital avoidance resulting from incorporating capital costs into energy projects that generate Return on Investment (ROI) and/or positive cash flow.
Qualified projects and organizations should be looking at ESPCs as a best practice for optimizing their facilities. Although there are different contract models used to implement energy conservation projects and organizations should consider and weigh each option carefully.
CLICK HERE to read Part II of this post to learn more about ESPCs and various contract models used to implement capital improvement projects.
In light of today's complex business and energy environment, complicated lease language, and complex allocation models, managing utility costs and energy consumption can be difficult, time consuming, and costly. However, by implementing a web-based energy management system, tied to a robust metering system, organizations can achieve significant cost and energy savings. These systems allow you to track and quantify energy use, streamline meter data collection, and accelerate cost recovery, while providing customized energy tenant invoicing and reporting options....
Click on the link below to read the January 2014 New England Real Estate Journal article! Chris Barros, PE, SourceOne's Vice President and the General Manager of Energy Management, highlights the benefits of metering and web-based energy management systems in reducing energy use and generating cost savings for commercial buildings.