Energy Performance Contracting Approach

David BirrPresident

Synchronous Energy Solutions

What is Energy Performance Contracting?

A contract for the acquisition of comprehensive energy efficiency improvements and services with minimal up-front costs

Provided by qualified Energy Service Companies (ESCOs)

Uses the utility and resident allowance savings from the project to pay for the work

What is Energy Performance Contracting? (continued)

Protects the customer by requiring a performance guarantee linked to measured savings over time

Guarantees can be structured to cover all project costs, including financing, over a specified contract term,usually 15-20 years

Standard Services Offered by ESCOs

Investment grade energy audit Comprehensive project design &

engineering Sources of project financing Equipment acquisition Complete project installation and

management

Standard Services Offered by ESCOs (continued)

Project performance guarantees for the duration of the contract

Savings measurement and verification data analysis

Ongoing equipment maintenance and inspection services

Extensive resident training services on improvements

Standard Services Offered by ESCOs (continued)

Commissioning and testing of new equipment

Project monitoring and advice Extensive ongoing training for

building operators Access to energy program

financial incentives and grants

Multifamily Market

Multifamily (5+ units): over 15 million households• Private conventional rental

housing: 10 million• Private assisted rental housing: 3

million• Federal public rental housing: 1.3

million• City, state public rental housing: 2

million

Federal Public Housing

1.3 million households

Very low income

“Family” and “elderly” occupancy

Owned and managed by municipal nonprofits

Federal Public Housing (continued)

PHAs generally have little or no credit history or financing expertise

HUD regulates performance contracting and other energy incentives

Federal Public Housing Performance Contract

Opportunities

HUD regulatory incentives in place since 1991

RFP procedures in place Average investment: $2,000-

$4,000 per unit among experienced ESCOs

PHAs qualify for tax-exempt financing

Residential Market Characteristics that Matter

Ownership/market segmentation (single, multi, public, private, etc.)

Building construction, size, age, and condition

Occupancy (family/elderly/handicapped)

Utility costs

Is EPC right for your PHA ?

Metering configuration and applicable rate structures (master/individual/building-based)

Age,efficiency ,and condition of lighting,water,and HVAC equipment

Total Current Utility Costs

Current and Projected Utility Rates

What is Different About PHA Performance Contracting?

Water efficiency measures are key measures that pay for other improvements

Construction will require access to resident units

Must sell the project to PHA management, tenants and HUD

Public housing success requires housing background because the HUD rules are complicated

PHA Barriers Hard to work on due to 24-hour

occupancy

Management and regulatory bureaucracies in public housing

Metering configuration and rate analyses are sometimes complex

High transaction costs for smaller projects

ESCO Challenges in PHA Market

Access to and quality of available utility consumption and cost data

Lack of PHA in-house technical and financial expertise

Shifting HUD regulatory guidance

Why Use an ESCO? Technical Expertise with PHA

Properties

Project Financing Expertise

HUD Regulatory Knowledge

Why Use an ESCO? (continued)

HUD allows you to keep utility savings to pay project costs depending upon the incentives you use

Long-term project performance monitoring

Reduced project performance risk

Project Benefits

Improves energy efficiency and occupant comfort levels

Reduces environmental problems

Creates local jobs

Benefits of Performance Contracting

Replace aging equipment with new equipment

Access to 3rd party financing for needed capital energy improvements

Decreased equipment repairs and lower maintenance costs

Benefits of Performance Contracting (continued)

Optimized equipment performance through project commissioning

Better overall management and control of facility

Risk Reduction Benefits of Performance Contracting

Contractually guaranteed measured savings reduces the risk of savings erosion over time

Integrated project analysis, design, and construction reduces the risk of lost savings opportunities and schedule delays

Utility savings and performance monitoring reduces the risk of under-funding key maintenance requirements

Risk Reduction Benefits of Performance Contracting

(continued)

Up-to-date training and knowledge for facility operating personnel reduces the risk of project non-performance

Ability to select services and materials based upon quality and value, rather than on lowest first cost

Savings Erosion Over Time is Typical of Conventional

Energy Projects

0

10

20

30

40

50

60

70

80

90

Percent ofPredicted Savings

Achieved

Year 1 Year 2 Year 3 Year 4 Year 5

Stable Savings Guaranteed Over Time is Typical for EPC

0

20

40

60

80

100

120

Percent of PredictedSavings

Achieved

Year 1 Year 2 Year 3 Year 4 Year 5

GuaranteedSavings

% PredictedSavings Achieved

Comparison of Cumulative Long-Term Energy Savings Achieved

Over Ten Years

0102030405060708090

100

Percent ofPredictedSavingsAchieved

Per

form

ance

Co

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act

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act

Conventional Bid and Spec EPC Negotiated Procurement

Conventional

May take several years to secure sufficient funds to implement comprehensive energy projects

High staff costs due to a piecemeal approach to bidding and managing each separate project

Performance Contracts

All funds needed for a comprehensive energy project are readily available

Lower staff cost and quicker completion of a comprehensive project

Conventional Bid and Spec EPC Negotiated Procurement

(continued)

Conventional

Multiple contracts with multiple vendors can result in conflicting project requirements

Energy savings are not guaranteed

Performance Contracts

One contract with single point accountability for project performance

Long-term energy savings are guaranteed by the ESCO

Conventional Bid and Spec EPC Negotiated Procurement

(continued)

Conventional

Guarantees of comfort and operating standards are not usually offered by equipment vendors

Incremental project implementation misses savings design opportunities

Performance Contracts

Performance contracts typically contain explicit comfort and operating standards

Comprehensive project implementation maximizes savings design opportunities

Conventional Bid and Spec EPC Negotiated Procurement

(continued)

Conventional

Energy projects must compete for limited budget resources with other improvement projects

No direct incentive for building staff to reduce energy costs

Performance Contracts

Energy projects are funded with utility bill savings

ESCO compensation is tied to providing energy savings over the term of the contract

Conventional Bid and Spec EPC Negotiated

Procurement (continued)

Conventional

Limited staff or lack of expertise may put project performance at risk

Operations and maintenance budgets are usually under-funded, resulting in wasted energy

Performance Contracts

ESCO provides ongoing technical expertise to insure project performance

Utility bill savings finance operations and maintenance required to maintain project performance