What Is Performance Contracting?

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Energy Performance Contracting is an alternative financing option approved by the United States Congress. It is a way to finance Energy Conservation Measures (ECM’s) using the potential savings of said ECM’s to pay for the cost of the project itself. It is a very useful financing model because you can avoid upfront costs as the customer, and it will help to guarantee performance — if there are no savings, the company doing the work does not get their money.

Is performance contracting good for more than just the bottom line?

Energy Performance Contracting can have a very positive effect on the bottom line and can save you a lot of money in your facility. Implementing ECM’s from this process, however, can do more than simply put more money in your pocket. It is also good for the environment. By saving money, you almost by default are reducing your carbon footprint, and as a healthy byproduct, you are conserving the resources of the planet. Any time you can reduce the impact your business has on the environment, it is a good thing.

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How can you use performance contracting in your business?

There is a process to how you can implement this in your business. Typically, you would contract an Energy Service Company (ESCO), and they would perform an audit on your building. This audit would identify the ways you consume energy, the equipment you have, and identify all of the ways you could perform an ECM and begin saving money. When the Audit is complete and the ESCO presents the potential ECM’s, you would then create an agreement to how much savings you would realize, and how the payback would happen for the project. Like I mentioned before, this is a win-win, because it allows you to hold the ESCO to meeting the standards they set, and being able to hold the people who want our money to a standard is a wonderful option to have.

How do you know that the savings claimed are actually being provided?

If an ESCO is to conduct this process properly, from the initial audit all the way to the substantial completion, they will utilize metering in the project. Metering that includes any resource you wish to understand, be it Power, Water, Gas, BTU’s, and more. The need for metering is not an arbitrary piece, it is essential. To understand your savings, you need to create a baseline first. This will let you know how exactly you consume energy, at what times, and where, within the facility. The baseline will then inform what the most prudent ECM will be. You could need LED lighting, or before that happens you may need to upgrade your air handlers, or maybe the most simple ECM will be simply a change in behavior for the employees in that facility.

Cash

At the end of the day, avoiding the upfront costs of a project, and then paying for the project with money that you actually obtained because of the project, is a smart investment. Ensuring performance, and allowing your company to maintain its cash flow, make it a win for you and a win for the contractor. However, things can go south if it is not done correctly. You must implement metering, and you must use an ESCO that is trustworthy and reputable. It is a fantastic time we live in, and the ability to do the things that we can to save money is almost too good to be true.

 

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