What is an Energy Service Performance Contract?

One of the barriers to submetering is financing the initial investment. Installing submeters in an entire facility may be perceived as expensive and securing funds may be  challenging. The Return On Investment (ROI) on submetering is high; still, that doesn’t change the fact that it requires an initial investment.

To overcome this prception with submetering,  a program called Energy Service Performance Contracts (ESPC) and Energy Service Agreements (ESA) were introduced in the United States and Canada respectively. They represent a contract between an Energy Services Company (ESCO) and a company (or a person) that wants to implement cost-saving improvements related to energy into their facilities.

How an ESPC/ESA Works

An Energy Service Performance Contract, or Utility Energy Service Contract (UESC) is basically a partnership. If a facility owner or manager cannot gather enough funding for submetering (or any other energy conservation measure, an Energy Service Company (ESCO) will cover the cost of initial purchase and installation of the necessary equipment.

The customer repays the ESCO over a period of time determined by the contract using the cost savings that resulted from the new energy conservation measure.

A crucial factor in these types of contracts is measurement and verification of system performance by submetering. Accurate measurements determine the amount of resources used before the resource-saving project is implemented. Experts project the level of resource conservation and cost saving. These cost saving projections represent the amount of money the customer needs to pay back to the ESCO.

If the projections were off and the project actually saves more money than initially calculated, the customer is allowed to keep the excess. If the cost saving projections were higher than in reality, then the ESCO pays the customer the deficit to the project savings amount.

How to Select the Best ESCO

If you wish to enter a partnership such as this one with an energy services company (ESCO), you first need to select the right one. Here are some simple steps to achieve this:

• Find an approved ESCOs that operate locally to you.
• Gather all the information about your building and utility usage.
• Hold a meeting with all ESCOs at the same time. Walk them through your building or facility.
• Explain your project and the goals you’re hoping to achieve with it, including the minimum percentage of energy you want to save.
• Give the ESCOs reasonable time (30 days) to come up with suitable contracts.
• Review their proposals once they come in. Select the ESCO you feel is best for your project and that will be a good long-term partner for your organization.

Conclusion

Whther you don’t have the finances or the risk appetite necessary to implement your cost and energy-saving project (such as submetering), look into an Energy Service Performance Contract or ESA. Find an energy services company that will be a good fit for your project and company, and have them cover the initial investment.

ESPCs are convenient because in esence the project odes not cost you anyathing, you are paying the money from the amount you save from your project. Essentially, it doesn’t require you to alter or reduce your budget in any way. Then once the contract is up, all the utility-saving costs go straight to you.