Performance Based Options for Energy Efficiency

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Performance Based Options for Energy Efficiency

• Illinois Green Government Council
• April, 2006

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Energy Costs for the State are High
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Energy Costs remain VERY Volatile
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And Electricity deregulation is coming

• Starting January 1, 2007
• New Rate Structures for all State facilities
  serviced by investor owned utilities
• Separate and independent AND variable commodity,
  transmission, and distribution costs
• No ceiling on the unit cost of energy
• Protecting the budget will become very difficult
  to manage

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Energy Efficiency can...

• Reduce the cost of government.
• Mitigate price shocks in the market (i.e. natural
  gas and electricity).
• Avoid budget shortfalls during the fiscal period.
• Improve comfort in State facilities
• Increase the longevity of equipment
• Enhance staff productivity

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Challenges to Energy Efficiency

• Access to Capital
• Lower general capital budgets in recent years
• Practices
• Lowest cost instead of Life Cycle cost project
  decisions
• Accountability
• Few guarantees that equipment and systems will
  perform or be maintained as specified

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Project Design and Selection

• Elevate energy efficiency projects in the capital
  planning process
• OMB now evaluates energy impact of capital
  projects
• Commitment from OMB and CDB to find and fund more
  energy projects
• Specify performance based energy design standards
• Adhere to higher energy standards (i.e. Energy
  Star, new building code)
• Require long term performance levels (i.e. five
  years performance within specified operating
  tolerance range)
• Increased design integration to deliver
  improvements in comfort standards as part of a
  "total-building" approach
• Evaluate and select projects based on entire cost
  of ownership
• Move towards life cycle cost instead of first
  cost for project selection
• Leverage operational savings to fast-track
  efficiency project work without jeopardizing
  important capital work that must be done for
  other reasons

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Construction and Service Contracts

• Construction contracts
• Require financial guarantee from contractors that
  equipment will perform to an established standard
  over a period of years
• Service contracts
• Require service contractors to maintaining a
  minimum standard of performance for equipment
  covered in contract (i.e. retrocommissioning
  standards)

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Energy Savings Contracts

• Definitions
• A contract that allows energy and operational
  savings resulting from energy efficient equipment
  upgrades to pay for the costs of the upgrades.
• A contract that establishes detailed energy and
  cost performance measures for construction
  projects with a single point of accountability
  for project suitability.

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Energy Savings Contracts
Before During
After Savings Savings
Savings Contract Contract
Contract
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Energy Savings Contracts Lessons Learned

• Installations must meet the State's applicable
  construction code and comfort standards.
• Installations cannot sacrifice durability,
  capability, or comfort standards in favor of low
  energy usage
• Procurements must conform to the mechanisms
  provided for by the State Procurement Code
• The supporting financing structures must compare
  favorably against traditional capital projects
• Measurement and verification protocols must be
  consistently applied and favor the State and
• Must be driven by economics that are good for the
  State not necessarily for the project
  developer and,
• Should be coordinated under a single authority to
  assure consistency in contract execution, MV,
  and reporting

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Conclusions

• Energy efficiency is a crucial part of managing
  the States real estate portfolio
• Individual Agencies can elevate energy efficiency
  projects within their own capital requests
• Agencies, CMS and CDB can develop performance
  based construction and service contracts to
  shift accountability squarely on contractors
• Agencies, CMS and CDB can move to incorporate
  suitable energy savings contracts where applicable