In a previous post on Energy Savings Performance Contracts (ESPCs), a Letter of Credit was explained to be a savings guarantee instrument provided by an Energy Services Company (ESCO) to cover nonpayment in the event of a shortfall. Because energy usage is neither consistent nor constant, there are other savings-related questions that must be considered in any ESPC.

Question:  How does an ESPC guarantee the savings if the energy consumption varies according to occupants’ behavior?

Answer:  The ESCO sets a baseline of usage – utilizing data from at least the previous two years – and then estimates what the energy use would be after the energy conservation measures are implemented. This is based in part on projected occupancy. If the occupancy, operational hours, thermostat settings, etc. change sufficiently as compared to the baseline, such things are accounted for in the guaranteed savings by baseline adjustment. Adjusted baseline is what the present energy use would be if the ESPC had not been implemented. This must be included in the ESP Contract, or the guarantee could be at risk.

Keep in mind that the baseline includes “how people behaved during the baseline period.” When an ESPC is implemented, communication typically occurs with the occupants asking for their cooperation in the energy savings efforts, so you can expect the occupants to have more energy awareness. If not, it is up to the facility operations and the energy manager to promote energy awareness to the occupants.

Legislation regarding ESPCs does vary at the state and local level. For additional resources regarding performance contracting where you live, check your state’s ESPC status.

If you have further questions regarding ESPCs, please comment to this post or contact a Technical Assistance Provider.

Content for this Blog post courtesy of Sentech-SRA/ICF International