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ESCO Relationship Benefits Service Company, Facilities

7/18/2023

When institutional and commercial facilities enter into an agreement with an energy service company (ESCO), they can take advantage of several opportunities. 

Those advantages include cost and energy savings on energy consumption from completed audits and system retrofits, improved system operations that improve a district’s sustainability efforts as well as reduce an institution’s carbon footprint. 

Through the agreements, the ESCO and facility can work together to achieve energy saving goals, as both sides risk losing money if energy agreements aren’t met by the district. 

Facilities are experiencing unique federal funding opportunities through federal funding programs that are available through various governmental programs. Agreements with ESCOs are a way to update buildings and make them more efficient in a cost-efficient manner. 

In this article, we talk with several people associated with the ESCO process and discuss their benefits. The question-and-answer format includes responses from: 

The following Q&A is edited for length. 

FacilitiesNet: What kinds of facilities can engage in energy savings performance contracts? 

Unruh: Any facility can do an energy savings performance contract. We find that our market is dominated probably 90 percent or more with government owned facilities. That’s federal, state, city, county governments, K-12 schools, universities, hospitals. We estimate that’s about 25 percent of all the buildings in our country. The reason they are doing that is they’re more attuned to energy savings and they’re more challenged in getting money. All those government entities typically require some elected body or electorate approval for funding to occur. Public funding for facility upgrades often falls toward the lower end of public interest in funding. So states around the country and the federal government passed legislation that allows them to trade the savings for facility upgrades through an early stage retrofit and are now getting retrofitted again because technology moves forward. Legislatures have provided this funding and this pathway for funding for many years because they recognize the challenges with getting funding. Schools, I think, have an $80 billion deficit in needs across the country, so it’s a pretty significant need. 

FacilitiesNet: What does the process of working with an ESCO involve for facilities? 

Larson: The ESCO is going to sit down and work with the end client and identify the needs they have, and they’re going to prioritize them. And they’re going to go through this exercise of budgeting out what’s what and what can be paid for through the savings. As a subcontractor or support mechanism, we supply a host of various technologies and measures as part of that project and help them develop, run the calculations, engineer the project, and bring our pieces to the table. We bring new technologies and various types of things. Some of these projects have savings, and some of them have minor savings, but other benefits as well. So when some customers are looking specifically for IAQ, there are some energy saving pieces to that, which allows that to help get funding inside a project. As we install (products), we implement, we measure, we verify and do all the things that an ESCO is going to need as part of a project. 

FacilitiesNet: How do school districts initiate the ESCO process? 

Unruh: Generally, the first contact is probably from the private industry to the school district. That’s not 100 percent of the case, but it’s the majority. The energy service company has a sales force that goes out and effectively targets school districts that they think have an opportunity to participate. They begin to develop relationships, showing them what they can do and how it works. And then the school district typically must go through an RFQ type process to select a partner to be in with to develop a project. If a school district is interested in pursuing something like this, probably the easiest pathway to learn more is if they have any vendors supplying services to them now. They can go to trade show events or go to NAESCO’s website which has all of the contact information there.  

FacilitiesNet: How has the pandemic affected ESCOs? 

Unruh: We’ve seen our industry grow year upon year, and we think there’s probably going to be somewhere between 6 and 8 percent growth between 2022 and 2023. There probably was a little bit of pandemic spike when all the ESSER funds came out, but I think we’ve settled into more of a normal case now. The challenges I think we’ve seen is projects have gotten more comprehensive, customers are finding the model pleasing, they’ve liked the way they’re delivered and the partnership that develops. One of the things to remember is when a performance contract is done, it’s not something like a normal construction project. In a normal construction project, you design a project, build it, and you’re out of there. In a performance contract, you design it, build it, monitor it and stay with it, measure and verify performance for potentially two decades. You form a tight relationship with that owner, and the owner forms a tight relationship with you and you depend on each other for the success of the project. Partnership is a rarity in the construction industry.  

FacilitiesNet: What kind of impact does an ESCO have on the client? 

Barlow: ESCOs are far more detailed and specific, and not just focusing on selling a product suite, but more solving the underlying issues that have traditionally caused errors, whether it’s duct sealing or mechanical redesigns or building envelopes to help prevent some of the infiltration/exfiltration type of stuff. ESCOs are allowed through that mentality to really educate the customer and then direct the customer within that space to build more of a total building solution rather than just a specific product suite sale. 

Dave Lubach is executive editor of the facilities market.