CT s Standardized Energy-Savings Performance Contracting (ESPC) Program Lynn Stoddard and Matt Cohen DEEP, Lead by Example Program Andrew Brydges CEFIA
What is ESPC? Implementation of energy savings measures with no upfront capital Costs of installation are paid for by guaranteed savings from future operating budget Approach is over 30 years old, approx. $4.1 billion market in U.S. in 2013 1 SMUSH Sector > 50% of ESPC Market 1 Lawrence Berkeley National Laboratory, Current Size and Remaining Market Potential of U.S. ESCO Industry. (Presentation to Energy Services Coalition, August 13, 2013)
Cash Flow ($) Benefits of ESPC Re-purpose wasted utility dollars to: Upgrade facilities to highly efficient energy systems Stabilize energy costs, improve budget accuracy, stabilize load profiles Reduce budgetary burdens of deferred maintenance Eliminate costly emergency repairs Utility Costs Savings Finance Payments Utility Costs Savings Utility Costs Before ESPC During ESPC After ESPC
Typical Energy-Savings Measures LED Lighting Advanced HVAC Systems Optimized energy management systems High efficiency motors and variable speed drives Building weatherization Low flow fixtures Renewable energy systems BEFORE AFTER
Who Benefits? Municipal leaders finance projects outside of capital budgets Taxpayers reduced budget burden Building occupants healthier working and learning environments, increased comfort Facility managers improved efficiency, fewer complaints, fewer emergencies repairs
CT Towns With Prior ESPC Experience
Development of CT Program Public Act 11-80 required DEEP to develop standardized ESPC process Developed by Interagency Workgroup DEEP, Administrative Services, Construction Services, Policy and Management, Attorney General, Treasurer US Department of Energy provided technical assistance on best practices, processes, standardized documents Started with templates developed out of years of experience in other states nationwide
CT Standardized Program Users ESPC targets state/local government facilities: K-12 schools (including regional school districts) Offices Wastewater treatment facilities Campuses, dormitories Prisons Hospitals State agencies, inc. higher ed - Thou Shalt use Municipalities - Thou May use
Confidence, Ease for Program Users Clear, streamlined, repeatable, transparent process Program pre-approval by key state agencies provides legal, procurement, and financial confidence Consistent, level playing field for vendors Designed to mitigate risk for agencies and municipalities: vendor s energy savings guarantee must be total project costs vendor pays if there is an energy savings shortfall payment is contingent on appropriation of funds
State Program Resources Pre-qualified vendor list Energy technical support Standardized contracts Financing technical support
Pre-Qualified Vendor List 12 Qualified Energy Services Providers (QESPs) are pre-qualified and on State contract
Standardized Contract Documents Base contract between DAS and QESPs, includes fixed cost and pricing (markups and margins) Pre-approved contract exhibits, details to be added for each project RFP to select QESPs to do Cost-Effective Feasibility Analysis Investment-Grade Energy Audit Energy-Savings Performance Project Statement of Work, Schedules
Technical Support - Energy Program Manager at DEEP Utilities Review of Energy Savings Measures for incentives through CT Energy Efficiency Fund 3 rd party Technical Support Providers ( Owner s Rep ) to review energy savings measures, performance guarantees, measurement and verification, etc. for each project. Up to $10k/project funded through CT Energy Efficiency Fund
Technical Support - Financing Clean Energy Finance and Investment Authority (CEFIA) staff to provide advice and support on financing options, introductions to capital providers and financial institutions Tax-exempt municipal lease/loan guidance documents
Basic Financing Concept Energy Services Agreement Guaranteed Energy Savings Qualified Energy Services Provider Project Payment Municipality, Agency, or Institution KEY: KEY: Energy Savings > Finance Payments Capital $ Loan, Lease, or Bond Agreement Finance Payments Financial Institution
Typical Financing Methods State/Local Bond or Municipal Lease is most common financing mechanism for State/Local or K-12 School projects 1 1 Lawrence Berkeley National Laboratory, Current Size and Remaining Market Potential of U.S. ESCO Industry. (Presentation to Energy Services Coalition, August 13, 2013)
Tax Exempt Lease Purchase (TELP) Lessee has ownership interest from start; Lessor has security interest Readily available in marketplace for terms up to 15 years Amount borrowed matches needs; term matched to life of equipment Funding comes from operating budget Non-appropriation language included in agreement provides cancellation provisions Does not violate borrowing limits or need town vote (does not create public debt) Will be considered by rating agencies Can be more timely, efficient, and cost effective than bond financing
State/Local Bonds Appropriate for large issues, long terms Need voter approval consumes staff time and creates hidden expenses and overhead costs Issuance cost high and measurably affects true borrowing rates Costs continue after bonds are sold Trustee fees; Compliance reports; Footnote disclosure and added audit fees; Periodic rating agency reviews and fees Restricts future bond issues due to borrowing limits Bond issues may not exactly match capital needs; term may exceed useful life of equipment
First Projects under CT ESPC Program City of Bristol Connecticut Valley Hospital Department of Corrections Department of Motor Vehicles
ESPC Process and Support Expression of Interest Feasibility Development Implement Operation Month 0-2 Month 2-8 Month 8-12 Year 1 15+ Host QESP DEEP CEFIA TSP Lender
Initial Steps typically no costs 1. Contact DEEP for initial discussion DEEP can provide technical assistance throughout initial steps 2. Collect energy data, benchmark building energy use using EPA Energy Star Portfolio Manager 3. Identify poorly performing buildings 4. Build support within municipality for ESPC process 5. Use contract documents to issue RFP and select QESP
Next Steps require cost commitments 6. Secure financing for Investment Grade Energy Audit Will be wrapped into cost of ESPC unless project doesn t go forward 7. Utilize CEEF-funded Technical Service Providers Municipality may wish to continue services beyond $10k grant from CEEF 8. Sign project finance agreement and ESPC contract document CEFIA can provide guidance and assistance on financing 9. Begin project
www.ct.gov/deep/leadbyexample Lynn Stoddard, Dept of Energy & Environmental Protection lynn.stoddard@ct.gov 860-424-3236 Matthew Cohen, Dept of Energy & Environmental Protection matthew.cohen@ct.gov 860-424-3077 Andrew Brydges, Clean Energy Finance & Investment Authority andrew.brydges@ctcleanenergy.com 860-258-7834