Achieving energy savings at institutional and commercial facilities will always be the bedrock of a relationship with an energy service company (ESCO).
But as facilities managers know, their buildings are constantly changing, due to lack of maintenance, climate change or occupancy shifts resulting in the need to contract or expand square footage due to the changing needs of occupants.
While ESCOs have been in existence for about 40 years, the industry keeps evolving.
Chris Halpin and David Weiss have combined for more than 70 years of experience in the ESCO industry, both serving in several roles, from consultants, representatives of ESCO clients as well as part of ESCOs.
Their time in the industry has allowed them to view the evolving relationship between ESCOs and their clients through unique lenses.
“The motivation for doing these projects really has never been energy efficiency; it’s been deferred maintenance,” says Weiss, an energy-savings consultant. “We chronically in this country do not maintain our equipment the way we’re supposed to, and the facilities managers have to make do with inadequate budgets. They found that doing these performance contracts, where you can borrow money against energy savings, created a pot of money to update the equipment.”
As the ESCO/facilities relationship evolves, the motivation to do energy savings performance contracts (ESPCs) has trended away from an emphasis on guaranteed energy savings and instead focusing on facilities getting updated technology with new systems.
When Weiss started in the industry, he worked for the federal government and was tasked with replacing old, large chillers failing to the point that parts were becoming scarce and more costly to repair. One of the options for maintenance for those boilers was to fly in technicians from Saudi Arabia to make repairs. In lieu of such costly measures, the federal government eventually turned to the performance contracts to upgrade components and limit spending.
Another change that Weiss is seeing in the ESCO/facility manager relationship is in the implementation of services provided. Instead of just retrofitting a lighting or HVAC system, many ESCOs today will include managing systems or doing the actual construction and installation of systems as part of the deal.
“I think the future of energy service contracts are moving away from sort of a guaranteed energy savings or design-build contract into a contract that is more service-oriented,” he says. “It may start with a smaller construction project and then more service, more operating the facility, but by a third party ESCO and over time during even construction projects.”
The wildfires in Los Angeles and snowstorms in the southern part of the country already this year are two reminders to facility managers of the importance of designing and maintaining resilient buildings.
Building resilience into a performance contract is another step in the evolution of the ESCO process, Halpin says. He cited facilities such as K-12 school districts, military sites and healthcare buildings, facilities where it’s essential to keep the power on during storms and other natural disasters.
“If you have some sort of critical role in the community instead of just doing a normal performance contract when, say a school comes in and says we have to do all 20 schools but four of them are designated places of refuge (during emergencies, such as natural disasters), that never came up before 5-10 years ago,” says Halpin, president of Celtic Energy, a company that works in training and technical advisory for energy efficiency. “No one even talked about it. (Facilities) maybe had a generator, and if they did, it kept the cafeteria open or the gym, or a place where people needed to come because of the increasing frequency of storms.”
Projects that once included only LED and HVAC upgrades are now including heat pumps and other components that contribute to electrification and decarbonization efforts. Electric vehicle charging stations are also emerging as another type of emerging performance contract project.
“I’m seeing more and more performance contracts coming in with solar and battery storage, especially things that are resilience-focused, like electrification,” Halpin says. “That’s just another energy conservation measure that’s changing and adding a lot more value to the community.”
With so many options for facility managers to consider when partnering with an ESCO, it’s important that managers lay out their goals for the project before moving forward and make sure everyone is on the same page.
“At the start of the process, know you’re initially trying to figure out what it is that you really want to get done,” says Tim Unruh, executive director of the National Association of Energy Service Companies. “The energy savings performance contract comes with a blank slate. Usually, the owner has some concept of what they want to do and figure out what kind of pet projects that you have had sitting on the burner that you want to try to implement.”
To learn more about performance contracting as well as how to register for an owner’s rep certificate course offered by the Department of Energy, click here.
Dave Lubach is the executive editor for the facilities market. He has more than nine years of experience writing on facilities management and maintenance issues.
