Performance Contracting: Paying for Improvements Today with Guaranteed Future Savings

I recently read an article on Performance Contracting in Water Efficiency Magazine and realized that many operators in Kentucky may not be aware of this tool for accessing capital ($) to make essential infrastructure improvements. Today, we all are struggling to find ways to pay for improvements in tough economic times. Performance contracts guarantee future monetary savings that can be leveraged today to make much-needed infrastructure improvements or expansion.

Typically, a utility looking to make infrastructure improvements can look to an Energy Service Company (ESCO) for a performance contract. An ESCO is a business that develops, installs and arranges financing for projects designed to improve the energy efficiency and maintenance costs for facilities over a seven- to twenty-year time period. ESCOs generally act as project developers for a wide range of tasks and assume the technical and performance risk associated with the project. Typically, they offer the following services:

  • Develop, design and arrange financing for energy-efficiency projects
  • Install and maintain the energy-efficient equipment involved
  • Measure, monitor and verify the project’s energy savings
  • Assume the risk that the project will save the amount of energy guaranteed

These services are bundled into the project’s cost and are repaid through the dollar savings generated. For more information on ESCOs, visit http://www.naesco.org/resources/esco.htm.

In Kentucky, the Kentucky Division of Facility Efficiency is responsible for managing the state’s Guaranteed Energy Savings Performance Contracting (ESPC) program. This program was authorized by KRS 56.770 to 56.784 and allows for the installation or implementation of energy services or equipment, including efficiency measures, conservation measures and alternate energy technologies in state government buildings. The cost of these measures is funded by the energy and operational savings generated by the services or equipment.

Additional information can also be obtained by contacting the Kentucky Department of Energy Development and Independence (DEDI) at http://energy.ky.gov/efficiency/Pages/default.aspx.

 

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