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Energy Efficiency
Case Study:
Performance Contracting 3N 111(d) Meeting
December 4, 2014
Ashley Patterson
Director, Government Relations & Public Policy
Ameresco
Chris Hessler
Partner
AJW, Inc.
ESCO Working Group
Extensive expertise delivering project-
based energy efficiency
─ An Energy Service Company (ESCO)
specializes in performance-based
contracting for energy savings
Energy efficiency is a cost-effective
emissions reduction strategy
Third-party delivered energy
efficiency—Performance Contracting—
should be an acceptable compliance
mechanism
ESCO working group submitted
comments to the EPA on 111(d)
─ Link to ESCO Comments to EPA:
http://ajw-inc.com/pc/ 2
Performance Contracting Program
Third-party delivered, project-based program for energy efficiency
─ Leverages well-established existing U.S. market; all states have enabling
legislation for performance contracting and majority have active markets
─ Program can be incorporated into various CPP pathways
Comprehensive, performance-based projects are funded through private
capital—energy savings ($) repay investment over time
─ Realigns existing utility expenses towards improvements which save energy
and reduce CO2 emissions
Projects will be implemented by Energy Service Companies
─ Contractual agreements that guarantee energy savings
─ Measurement and Verification (M&V) to verify project savings, EM&V for
programmatic CO2 reductions
Projects can occur in public and private sector buildings and facilities
─ Federal, state, municipal, educational, hospital, institutional and commercial
3
How Performance Contracting Works
Realigns utility expenses towards
improvements which save energy─ Bundles multiple efficient solutions
(lighting, HVAC, controls, building
envelope, renewables, etc.)
Budget-neutral approach─ Cost savings are amortized and
accrue over the term of contract
─ Sufficient to repay project cost
Typical project energy reduction
ranges between 15% to 30%
─ Contract term typically ranges
between 10 to 17 years
─ Typical per project investment can
range from $1M to $45M+
4
Program Funding
Performance Contracting does
not rely on state or utility
investment
Can incorporate other program
incentives, rebates and credits
─ See light purple bar to left
$7B+ U.S. market investment
annually through financing which
is repaid through energy cost
savings
─ Projected to grow to $10 billion
to $15 billion annually by 2020
─ Scalable for 111(d) compliance
5
Investment in energy efficiency through
ESCOs and utility programs, categorized
by program, 1993-2012, ($bn)
Source: Bloomberg New Energy Finance, “Sustainable
Energy in America Factbook”
State Program Example
As of June 2014, Colorado’s Energy Performance Contracting
Program portfolio includes 182 active and completed construction
projects totaling $447.4 million in investments
ESCOs guaranteeing $28.8 million in annual utility costs savings
Project penetration across 75% of Colorado counties
Colorado ranks #3 nationally in total PC investments and #5 in
investments per capita (according to Energy Services Coalition’s
Race to the Top)
The Colorado Energy Office provides technical assistance to
public agencies, monitors and establishes standards for ESCOs,
maintains contract documents, and provides education/outreach
Standardized and state pre-approved contracting documents
Pre-qualified contractors
“Standards for Success” document
6
SIP Compliance Example
City of Shreveport, Louisiana, Energy Savings Performance
Contract utilized for SIP
Shreveport’s Early Action Compact (EAC) submission to USEPA
for the 8-Hour Ozone Standard under the National Ambient Air
Quality (NAAQ) Standards
20-year Performance Contract for 33 Municipal Buildings - Energy
Savings of 9,121,335 kWh/Yr
─ Energy savings contractually guaranteed by Energy Service
Company with annual true-up to ensure savings
─ Measurement & Verification (M&V) consistent with EPA Roadmap for
Incorporating EERE Policies and Programs Into State and Tribal
Implementation Plans
Demonstrates State and Federal enforceability to utilize
performance contract within SIP
7
PC Contribution Scale
8
Potential of 52-95 Million tons of CO2 reductions in 2030
PC Contribution to 49 State Goals
9
53 lbs.
CO2/MWh
89 lbs.
CO2/MWh
Incorporating Program into 111(d) Plans
Performance Contracting is compatible with EPA Criteria for
Evaluating State Plans and Emissions Reduction Measures
Performance Contracting is a viable, highly-predictable and
credible source of CO2 reductions and provides long-term
persistent electricity savings
─ PC electricity savings can reoccur annually through 2020-2030
─ PC Program can complement other energy efficiency programs and
policies (supports robust EE program)
Performance Contracting is:
─ Measurable
─ Enforceable
─ Quantifiable
─ Verifiable
10
Projecting PC Contribution to Plan
State can utilize State Energy Office, other agency or third-party
to develop reasonable and conservative estimate of PC program
projects based on size and building type(s) of projects
─ Example, Federal PC Program & Presidential Memorandum
States could provide this information to Utility-Run program
─ Would support ability to mitigate double counting
High-level of predictability for future year reductions based on
long-term nature of PC project contracts
─ Energy Service Companies design projects through Investment
Grade Audits which provides predictability of project electricity
savings on annual basis well before construction commences (12-24
month lead time)
─ Annual electricity savings determined and contractually guaranteed
PC projects incorporated into registry support ongoing
benchmarking of program progress
11
Predictability from PC Project Pipeline
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
12 12 12 12 12
11 11 11 11 11 11
10 10 10 10 10 10 10
9 9 9 9 9 9 9 9
8 8 8 8 8 8 8 8 8
7 7 7 7 7 7 7 7 7 7
6 6 6 6 6 6 6 6 6 6 6
5 5 5 5 5 5 5 5 5 5 5 5
4 4 4 4 4 4 4 4 4 4 4 4 4
3 3 3 3 3 3 3 3 3 3 3 3 3 3
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
12
111 (d) Compliance Year
Year
PC
Pro
ject
Co
ntr
act
Sig
ned
Contracted
Project in
Construction
Measures
Operating Under
Guarantee
Measures
Operating –
w/o Guarantee
Program Mechanics Summary
Establish or Utilize Existing Performance Contracting (PC) Program
─ Leverage existing enabling legislation, augment with mechanism to
increase utilization and capture project data
Include PC Program in State Implementation Plan
─ Include a conservative estimate of PC contribution to plan
Develop PC Projects
─ Contractors develop projects which provides annual electricity savings
information which supports long-term visibility for program goals
Register PC Projects
─ Utilize project registry to support data capture for savings, M&V, etc.
PC Projects Implemented
─ Annual project-level M&V occurs to verify savings occur
PC Program Evaluation
─ Program-level EM&V can occur to benchmark program progress
13
Quantification and M&V
Quantification of CO2 reductions can be tracked via national, state
or regional project registry
Projects have specific KWh savings calculations on annual basis
─ High-level of predictability for programmatic approach
Measurement and Verification (M&V) of electricity savings will
occur at project level
─ M&V occurs at measure and project level
─ Pre- and post-installation report on measures installed
─ On-site inspections and reconciliation report to verify performance
─ ESCO reports electricity savings to the project registry whereby
savings will be documented
Evaluation, Measurement and Verification (EM&V) of electricity
savings will occur at program level
─ Can include, for example, auditing of a sample of project M&V reports
14
Non-Duplicative and Permanent
15
CAA Requirement
STATE PC PROGRAM ELEMENT
EPA GUIDANCE NEEDED/DESIRED
-
othin in the C re uires or accounts for the reductions
achieved C pro ects
C-derived can e easil separated from other utilit - or state-run pro rams trac in use of
re ates and incentives
should clarif that C-derived emission reductions ill e treated in the same manner as pro ects and state- and utilit -run
pro rams
Compara le to other control measures
he life of C pro ect elements ill var , ut C performance is ell understood, and ell documented usin appropriate protocols
should determine accepta le methods of incorporatin in state plans and pro ress reports reductions related to C pro ect C s that have een properl
measured and verified
Enforceability
State-Run Pathway EGU-Obligated Pathway
16
• Use conservative estimates of PC
project in State Plan
• Use public building requirements
similar to existing State/fed models
• Energy audit/retrofit
requirements
• EE incentive payments
• Part of a robust EE portfolio
• Surplus (compared w/ plan) GHG
reductions from PC projects can
delay/avoid more expensive
compliance actions
• EGUs can contract with project
participants to take ownership of the
GHG reduction value of the project
• Alternately, tradable emission
reduction credits could be generated
by projects and purchased by
obligated parties
• To increase quantity/rate of PC
projects, EGU could offer incentives
similar to EERS
• Rigorous PC M&V supports
contractual agreements and
generation of credits
Process for Reporting on PC Program
The conservative and reasonable estimate of PC contribution is
the baseline for the PC program
─ The State energy office and air agency can work together to capture
project data into a project registry or utilize data provided by a
national or regional project registry
─ This could generate report of projects occurring in state and
scheduled CO2 reductions that will occur in future years
The inherent long-term predictability of reoccurring annual savings
associated with PC projects provide high-level of visibility on
program performance during compliance period
Project-level annual M&V provides ongoing mechanism for
tracking PC program progress
─ Individual project information to be reported into project registry
and/or project attributes could be collected directly by state agency
17
Roles for State Agencies and Others
Clean Air Agency
─ Include PC contribution estimate in compliance plan
─ Report Actual PC-related CO2 emission reductions in progress reports
─ Notify appropriate offices if PC contributions need to be increased
State Energy Office
─ Work with Clean Air Agency on PC contribution estimate for plan
─ Support PC Program Contracting as applicable
─ Manage/monitor the registry of projects/emission reductions
─ Report to Clean Air Agency actual EE/CO2 emissions reduction from
PC projects for progress reports
PUC
─ Ensure that EGUs are using least costly options for 111(d) compliance
─ Facilitate use of emissions credit trading
─ Support ISO-wide use of EE-derived GHG reductions
18
Roles for State Agencies and Others
(Cont’d)
Registry
─ Collect and catalogue PC-projects, attributes and information
─ Aggregate projected and actual PC-derived CO2 emission reductions
─ Ensure use of consistent data sets and formats to facilitate oversight
─ Can be utilized to generate data for state reports
ESCOs:
─ Contractual agreements, project implementation, and M&V
─ Implement projects according to contractual agreements
─ Conduct M&V needed to validate CO2 reductions for compliance
19
Example: Georgia
State 111(d) Final Goal
State 111(d) Compliance
Rate without PC
State 111(d) Compliance
Rate with Low-Case PC
State 111(d) Compliance
Rate with High-Case PC
Utilize BSER Baseline Levels
BSER Baseline, except RE at 90% of BSER
levels
BSER Baseline, except RE & EE at 90% of BSER
levels
PC Supports Flexibility
20
834 811 792
834 819 800
834 829 812
834
842
851
Summary
Performance Contracting (PC) projects are consistent with the
Clean Air Act and the Clean Power Plan
PC projects can add flexibility to, and lower the costs of, state
implementation activities
Most states only need to create an aggregation/registry activity to
utilize GHG reductions from PC projects under 111(d)
Encourage state air officials to familiarize themselves with
performance contracting in state
Encourage state energy officials to support increased utilization of
performance contracting to have bigger contribution impact for
compliance
21
Thank You & Questions
Ashley Patterson
Director, Government Relations & Public Policy
Ameresco
Chris Hessler
Partner
AJW, Inc.
Link to ESCO Comments to EPA: http://ajw-inc.com/pc/
22
PC Program Mechanics
Establish or Utilize Existing Performance Contracting (PC) Program
─ Leverage existing ESPC enabling legislation
─ Utilize Executive Order or legislation to increase utilization across public
facilities;
─ Utilize PACE legislation or other programs to increase private sector
utilization
─ Address use of incentives to mitigate double counting
─ ESCO qualification, contract standardization and M&V Requirements
Include PC Program in State Implementation Plan
─ State Air Agency can work with State Energy Office or other agency
currently responsible for performance contracting in state
─ Include conservative and reasonable estimate of potential PC contribution
towards state plan (i.e. potential cumulative electricity to be avoided)
─ Includes federal, state, municipal, county, K-12, institutional, commercial
23
C g M h s (C ’d)
Develop PC Projects
─ Energy Service Companies design projects through Investment Grade
Audits which provides high-level of predictability of project electricity savings
on annual basis well before construction commences
─ Annual electricity savings determined and contractually guaranteed
Register PC Projects
─ Project entered into state/national project registry detailing guaranteed
energy savings, carbon reductions, implemented measures, measure life,
contract term, M&V details and incentives/rebates/emissions credit
allocation and ownership
─ Utilization of third-party project registry will reduce cost and resource burden
on state (potential for use of DOE e-Project builder)
─ Registry will capture M&V data and can support EM&V
24
C g M h s (C ’d)
PC Projects Implemented
─ Project will be installed and commissioned and will enter performance period
─ Electricity savings and CO2 Reductions will start occurring
─ Project-level ongoing Measurement &Verification (M&V) will occur
─ Completion of first year M&V report using EPA approved protocols (e.g.,
IPMVP, FEMP, ASHRAE) will verify savings are occurring
─ Project shortfalls can be identified through M&V and addressed accordingly
PC Program Evaluation
─ Utilize registry to produce report of PC Program cumulative progress
─ State can utilize independent evaluation (e.g., every three years) consistent
with other utility/state EE programs
─ EPA approved program-level EM&V protocols can be applied to a random
sample of projects
─ Results compared to project-level savings projections, project-level M&V
reports and program-level savings targets and used to adjust energy
efficienc “realization factors” prospectivel applied at a pro ram level
25
C g M h s (C ’d)
Program Shortfalls can be addressed in two ways:
1. Preventing shortfalls
• The savings guaranteed in PCs are less than those projected,
meaning conservatism is inherent in the industry
• Plans can include a portion of projected savings from PC,
allowing some margin for shortfall
• Making up for shortfalls
• Program-level shortfalls can be compensated for with increases
in EE projects driven by increased incentives or requirements for
energy retrofits in additional sectors
• State could also choose to utilize other EE programs (such as
residential EE) to ramp up other EE savings
• In EGU-obligated approach, more credits could be purchased
26
PC Market Activity
27
85% of activity is in Federal,
State, Municipal, University,
Schools, Hospitals (MUSH)
Driven by budget
constraints, energy costs
and policies
All states have enabling
legislation
Majority of states have active
performance contracting
markets
Savings: ESPC vs. Appropriation-funded
28
Potential Cumulative Electricity Savings
29
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
GW
h
Potential Cumulative Electricity Savings from PC Projects
Low Estimate High Estimate
Potential Market Scale 2020-2030
30
Average Potential Contribution
31
Associated Jobs Impact
32
Appendix: Georgia Table Example
33
