It’s Not Too Good To Be True: 5 FAQs of Energy Performance Contract Projects for School Districts
By David M. Newman, PE, CEM, LEED-AP, CEA. Vice President of Engineering at Energia. David has over 20 years of diverse experience in engineering project management and providing engineering services to industrial manufacturing, institutional, commercial and governmental clients.
ESPCs, EPCs and ESCOs — oh my! The sheer volume of acronyms alone is enough to leave a school administrator scratching their head.
Like many facilities improvement projects, energy performance contract projects (EPCs) can feel daunting without the proper support. EPC initiatives require hiring a contractor, processing paperwork, financing the project, and ensuring actual cost savings.
There’s a lot to understand about EPCs and other energy savings initiatives. But thankfully, many of the frequently asked questions we hear at Energia come with simpler answers than you may expect.
We tackled some of those common queries on a recent episode of the EnergiaSaves podcast, sharing insight into why you shouldn’t directly hire an energy service company (ESCO), how much paperwork you can expect and what happens if your contractor doesn’t deliver.
1. Can I hire an ESCO directly to perform an EPC?
You can, but it’s not in your best interest. School districts shouldn’t plan to hire an ESCO directly to perform their EPC. Why? Because an ESCO is a commercial company, they’re looking out for their best interest — not necessarily yours.
Partnering with an organization like Energia provides an additional layer of protection and accountability for school districts. Additionally, when multiple ESCOs are approached with a request for proposal (RFP), contractors are challenged to put their best foot forward (and their best price).
Requesting multiple proposals, as Energia does, creates a healthy, competitive environment, allowing schools to maximize their savings while also receiving the best end-product possible.
2. What paperwork is involved with an EPC?
Not nearly as much as most school administrators expect.
One of the unique aspects of an EPC is that it usually includes a competitive bidding exemption. This means schools can implement an EPC through Board approval, bypassing the bond referendum, and low-bidding requirements for capital projects. As a result of the exemption, the amount of paperwork and oversight involved is significantly less than most facility improvement projects.
EPCs are, generally speaking, more streamlined and easier to implement, because they involve one, turnkey contract with an ESCO, overseen by your energy-savings engineers.
3. How do I pay for equipment if I don’t have the savings money yet?
Most initiatives are self-funded, with no out-of-pocket costs. This makes EPCs a particularly attractive option for schools.
Turnkey partners and ESCOs front or lend the money for the development stage of energy savings initiatives, including planning and project development processes.
Once your project reaches the construction stage, EPCs are typically funded with tax-exempt leases. Banks will lend school districts the money upfront in an escrow account.
By aligning the repayment schedule with construction, districts can take advantage of the cost savings from the project’s environmentally efficient upgrades to help pay off the project.
4. Can I install solar as part of an EPC, or do I have to replace existing equipment?
In most states, laws allow EPCs to include both energy savings and energy generation, including solar panels.
This means that if you install renewable energy resources that generate electricity, you can use the sustainably-produced energy to reduce your electricity expenses, further contributing to the project’s savings.
Many school districts install renewable energy sources as part of an EPC, including roof, ground, carport, and canopy solar photovoltaic (PV) panels.
5. What if my savings aren’t enough to pay for the cost of the project?
Almost all EPCs require monetary guarantees in the scope of a project. This means that if the hired ESCO does not deliver the promised energy efficiency savings, the contracted company is required to either reimburse the school district or provide supplemental work at no additional cost to make up for the shortfalls.
School administrators should make sure contract language and measurement and verification protocols are written in such a way that provides the district with a meaningful guarantee. Vague or inaccurate contract language can lead to issues down the road. Energia teams with school districts’ legal counsel on every project to ensure the technical contract language provides for a strong savings guarantee and recourse if savings are not achieved.
Ensuring Successful Energy Savings
As you’ve seen, part of the role of energy-savings engineers for school districts is to make sure that an ESCO’s guarantee is iron-clad and free of any “get out of jail free”-type clauses and loopholes that could be used to evade responsibility.
Energy-savings engineers, such as Energia, have the expertise to properly check contract language and work with school districts to make sure they understand how energy efficiency will be measured, how the savings will be validated and why the chosen methods make the most sense for the project.
This article is based on an episode of the EnergiaSaves Podcast, a new podcast about how you can turn school district energy liabilities into educational assets. Don’t miss out on future episodes — subscribe to our YouTube channel for more best practices in energy finance solutions.
Energia believes that energy savings projects should result in actual savings. That’s why we work so hard to protect the school districts we work with from irregularities and cost overruns in Energy Savings Performance Contracts. To learn more, visit www.energiasaves.com.