PRESENTATION DOCUMENT Maximizing Cost-Effectiveness of Energy Service Performance Contracts Andrew Knox National Environment, Energy, and Sustainability Symposium and Exhibition Denver, Co May 7, 2009
1 Facilities comprise one third of government energy spending Total US Government Energy Purchases (Billion USD) $11.3 B DOD Petroleum Non-DOD Non- Petroleum $3.2 B DOD Non- Petroleum Facilities $3.5 B Ft. Carson 1 st Brigade Combat Team HQ $35.6 Million 140,000 sq ft. LEED Gold Total FY07 =$19 Billion Non-DOD Petroleum $1.1 B Source: Energy Information Administration, Fort Carson Sustainability and Environmental Public Relations, March 2009
Million Dollars 2 Since 2000, 65% of Energy Efficiency spending has occurred through ESPCs and UESCs US Government Energy Efficiency Spending 800 700 600 500 400 300 Upfront Contracts (UESC, ESPC) 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 Source: General Accountability Office September 30, 2008, Council on Environmental Quality, August 3, 2007
Million Dollars Efficiency spending needed to meet EO 13423 (or EISA) was estimated by CEQ at 20% of the annual facilities energy budget US Government Energy Efficiency Spending 1600 1400 1200 (Actual Expenditures) (Projected Requirements) E2S2 Presentation 1000 800 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Projected Need: $11 Billion Source: General Accountability Office September 30, 2008, Council on Environmental Quality, August 3, 2007 Required Spending Upfront Contracts (UESC, ESPC) 3
4 Three steps to maximize benefits from ESPCs 1) Establish baselines and energy reduction goals 2) Establish a framework to prioritize investments 3) Use government funding where possible
5 Step 1: Set Start and End Points Step 1: Establish baselines and energy reduction goals BEFORE SIGNING AN ESPC: Install meters Establish a baseline Clarify mission requirements Set goal for facility or installation
6 Step 1: Set Start and End Points Benefits from advanced metering No quick financial return on investment but Ready for Smart Grid Benchmarking Independent baseline Overall progress measurement Measure return on Investment for other initiatives Accounting system for energy use
7 Step 2: Establish Prioritization Framework Step 2: Establish a framework to prioritize investments Elements of a Framework: A: Sequence B: Return on Investment for Initiatives C: Make or Buy Analysis (What to put in ESPC)
8 Step 2: Establish Prioritization Framework Sequence initiatives to maximize savings EPA Standard Sequence Retr o- com miss ioni ng Ligh ting Loa d Red ucti on Fan Syst ems Heat ing and Cool ing CUSTOMIZE FOR UNIQUE MISSION OR TIMING REQUIREMENTS Source: EPA 2004 Energy Star Building Upgrade Manual
9 Step 2: Establish Prioritization Framework Illustration of prioritization framework with hypothetical facility 100,000 MMBTU / Year All electricity Needs 30% Reduction by 2015 Four options: Solar PV Panels Retro-commissioning Green Roof Energy Efficient Lighting
Internal Rate of Return E2S2 Presentation 10 Step 2: Establish Prioritization Framework Compare relative ROI versus energy reduction potential Return and Energy Reduction for Selected Actions 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% Retro- Commissioning Lighting 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Annual Reduction in MMBTU Green Roofs Solar Reduction Goal 30,000 MMBTU
Cost of Reducing Energy Use ($ per Million BTU) E2S2 Presentation 11 Step 2: Establish Prioritization Framework Build a supply curve of available ECMs 1600 Supply Curve for Reducing Energy Use Solar Panels 1400 1200 1000 Green Roofs $9M (for required half of potential) $9M (for unused half of potential) 800 600 400 200 0 Retro- Commissioning $0.3M Energy Efficient Lighting $0.8M $7.5M 0 10000 20000 30000 Reduction Potential (Million BTU) Goal (30% of 100,000 MMBTU)
Million BTU/ Year 12 Step 2: Establish Prioritization Framework After sequencing and ranking, conduct make or buy analysis Planned Energy Conversation Measures and Timing To Meet 30% Energy Reduction 120,000 ESPC 100,000 80,000 6% In-House 8% 10% 6% 60,000 In-House 40,000 20,000 0 Regulatory Baseline Retro-Commissioning ESPC Baseline Lighting Green Roofs Solar Panels Target Energy Usage Baseline Energy Usage and ECMs in Order of Implementation
13 Step 3: Use Government Funding Step 3: Use government funding where possible Payment Structure With 3 rd Party Financing Payment Structure With Appropriated Funding $ Loan Payments Agency ESPC Investor Loan (at Treasury Rate + Spread) ESCO 14 Year Loan at Treasury Rate Bond Purchaser Treasury $ $ Payments Agency Subcontractors Equipment One Time Payment Recurring Payment One Time Payment Subcontractors ESCO Equipment
Million Undiscounted Dollars 14 Step 3: Use Government Funding Agencies can spend most of their ESPC savings on principal and interest payments 2 Savings, Loan Payment, and Agency Share of Hypothetical $10 Million ESPC 1 0-1 -2-3 -4-5 -6-7 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Total Agency Share of Savings Value: 6% Agency Share Savings Loan Payment ESPC Payment
Million Discounted Dollars 15 Third party financing can add 40% or more to the cost of a project compared to directly borrowed and then appropriated funds Extra Financing Cost for 3 rd Party Financing of a Hypothetical $10 Million ESPC (Assumes 4% Treasury and 7% ESPC) Step 3: Use Government Funding 16 14 12 10 8 $8.3 M $1.7 M $10.0 M $1.1 M $3.2 M $14.2 M Extra Financing Cost: 42% 6 4 2 0 Total ECM Cost ESCO Markup (20%) Total Project Cost Interest During Construction Additional 3rd Party Loan Payments Over Treasury Cost Total Project Cost with Financing
16 Contact Info For more information or comments, please contact: Andrew Knox Booz Allen Hamilton McLean, Virginia 703 377 6152 knox_andrew@bah.com