Question: How common are disputes involving performance and energy savings on Energy Savings Performance Contract (ESPC) projects and how can discrepancies be resolved?

Answer: Fifteen years ago, Measurement and Verification (M&V) procedures were not very well established in the Energy Efficiency (EE) market. However, with the development of the International Performance Measurement and Verification Protocol (IPMVP)—first issued in 1996 and continually updated since—disputes are uncommon occurrences today.

The IPMVP contains an overview of current best practices for verifying results of an EE upgrade. Although the IPMVP does not specifically prescribe contractual terms, it does offer guidance to buyers and sellers of EE services. As such, IPMVP requires that Energy Service Companies (ESCOs) develop a separate M&V plan for any proposed project. And therefore, it is increasingly more important that facility owners understand and agree to the proposed M&V plan prior to any contractual agreements.

Once a project is complete, ESCOs are typically required to issue an annual energy savings M&V reconciliation report, describing the achieved savings for the project and all implemented Energy Conservation Measures (ECMs). And while the savings guarantee usually applies to the duration of the entire project, it is beneficial for both the owner and the ESCO to keep track of savings on a monthly basis so that any issues can be addressed immediately as they arise.

If the building/facility owner does not have in-house M&V reporting capabilities, it is recommended that a third-party consultant be hired to verify the accuracy of the ESCO’s reconciliation report. Therefore, if there is a shortfall in building savings, the ESCO can investigate the situation and take any corrective actions.

If it is determined that the shortfall is due to ECMs installed by the ESCO, the ESCO is required to reimburse the building owner within 60 days of the finding. (This is why it is important to have this provision specified in the original contract.) If the shortfall is caused by something attributable to the owner – e.g., increased occupancy, increased operating hours, or comfort settings different from what is prescribed in the contract – no ESCO reimbursement is necessary.

To access the most recent edition of the IPMVP, please visit the Efficiency Valuation Organization online. Submit your questions regarding M&V and ESPCs in the comment section below, or contact a Technical Assistance Program representative for immediate support with your EE program.

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