It saves money. According to the U.S. Department of Energy, as of May 2011, more than 570 ESPC projects worth $3.9 billion were implemented at 25 federal agencies and 49 states and Washington, D.C., saving $13.1 billion in energy costs.
It creates/saves construction jobs. One of the industries hardest hit during this recession was construction. Federal and state budgets have seen record deficits and have been subject to deep cuts in spending programs and have reduced demand for construction services from public owners. ESPCs provide a mechanism for projects to go forward when they otherwise would not be feasible with current budget restraints, and the highly technical nature of the projects requires the use of highly skilled engineers and trade contractors.
No up-front capital costs. The most obvious benefit of ESPCs is the ability of cash-strapped government and public agencies to obtain much needed renovations and infrastructure improvements without having to have large cash reserves.
It's good for the environment. The improvements implemented through performance contracts significantly decrease the energy and water consumption of federal and state agencies. The U.S Department of Energy reported that as of May 2011, ESPC projects have saved an estimated 32.8 trillion BTU annually, which is equivalent to the energy consumed by 345,000 households, or a city with a population of 893,000.
Making the Right Choice
ESPCs are not always the right choice for every owner or every project. The savings that can be generated from the upgrades and retrofit must be enough to cover the financing within a reasonable term. The most common types of energy savings measures that are implemented in an ESPC contract are: lighting retrofits, controls retrofits, HVAC upgrades, VFD (variable-frequency drive) and motor replacements, and water conservation projects. These types of projects typically have good "payback" because the savings that are generated from the new system is substantial in relation to the cost to implement the change.
The conditions that often make ESPC the right delivery method for an owner include projects involving aging buildings or equipment, recurring maintenance problems or high maintenance costs, limited or no budget resources for improvements, comfort complaints from occupants, high demands upon maintenance staff, no recent upgrades to the lighting or controls systems, and high-energy use equipment that is ready for replacement.
When used properly and in the appropriate conditions, there is almost no disadvantage to ESPCs. Owners receive new systems, operational and energy savings, maintenance training and service, and guaranteed performance. They are simply re-allocating costs that would have been used to pay for energy and operations, to instead pay for financing of the design and construction of the project.
Gina Vitiello was one of the first attorneys in the state of Georgia to obtain LEED Accreditation from the U.S. Green Building Council. Vitiello, a partner in the Construction and Commercial Litigation practice with national law firm Chamberlain Hrdlicka in Atlanta, represents clients in contract negotiation matters, dispute avoidance/resolution and litigation. To learn more about green building law, visit Gina’s blog at: http://constructionandgreenbuildinglawblawg.wordpress.com/.