Energy Efficiency through Innovative Delivery
Federal agencies are embracing new contracting methods to help reduce energy costs, improve facilities and meet sustainability goals.
By Darcy L. Immerman, M.SAME, Michael Norton, M.SAME, and Randy Peacock
An ESPC will enable the Naval Warfare Systems Center Pacific in San Diego to replace older systems and meet energy savings requirements over a 19-year period. PHOTO COURTESY AECOM
When President Obama announced Executive Order 13514 in October 2009, the directive was clear. How federal agencies were going to answer it, however, would need to be decided.
EO 13514 builds on the energy reduction and environmental requirements of EO 13423 by making greenhouse gas emissions a priority and by requiring agencies to develop sustainability plans focused on cost-effective projects. It also expands the Energy Independence and Security Act (EISA) of 2007, which requires comprehensive energy and water audits in 25 percent of covered facilities and a 30 percent reduction in energy use by 2030. Given that the U.S. government occupies nearly 500,000 buildings, operates 600,000-plus vehicles, employs more than 1.8 million civilians and purchases $500 billion annually in goods and services, the energy reduction and cost saving potential is significant.
MAPPING A PLAN
Despite the implementation of EISA and the subsequent executive orders, funding was not made available to meet their requirements. And so amid this environment of tighter capital appropriation budgets, agencies are embracing alternative financing and delivery methods to save energy and water and reduce waste. In addition to substantial energy savings, many of these contracting mechanisms will reduce the cost of maintenance and equipment upgrades.
Power Purchase Agreement (PPA). A long-term contract to buy power from an energy provider that uses its own source of funds to build an energy facility on government land, owns, maintains and operates the facility for an extended term up to 30 years. PPAs typically are structured to provide renewable power behind a customer’s meter. The Army Energy Initiatives Task Force (EITF) is managing all large-scale (10-MW or greater) renewable energy PPAs (solar, wind, geothermal and biomass) for the Army and is using several contracting agencies to award these projects.
Enhanced Use Lease (EUL). Used for funding construction or renovations on military sites, an EUL can be used to site renewable power generation on federal facilities for utility scale generation, greater than the needs of the meter serving the federal facility. Like a PPA, the generation assets will be owned, operated and maintained by the developer. Given the amount of land the Department of Defense (DOD) manages, there is a natural fit between developers of renewable energy and military facilities.
Utility Energy Service Contracts (UESC). These offer federal agencies an effective means to implement renewable energy, energy efficiency, and water efficiency projects. A utility arranges financing to cover a project’s capital costs, which are repaid over the contract term from cost savings generated by the energy efficiency measures. The agency saves time and resources in using one-stop shopping provided by the utility.
Energy Savings Performance Contract (ESPC). Public agencies can use ESPCs to leverage private funds to implement energy-efficiency and renewable-energy projects. Upon project completion, the guaranteed energy savings are used to repay the Energy Services Company (ESCO) investment. The ESCO develops, designs, installs and commissions the project. It arranges third-party financing and must guarantee maximum project cost and projected energy savings. The work must produce neutral or positive cash flow for the client for the total contract term. The performance period for ESPC projects at Army facilities cannot exceed 25 years and must include the measurement and verification of savings for performance period. Further, the base can utilize operations and maintenance/ sustainment, restoration and modernization funding as a one-time savings to include additional energy conservation measures or reduce the contract term.
The ESPC method seems straightforward. But the projects are complex. The most successful are those that develop a partnership between base personnel and engineers, the ESCO and the contracting agency. This public-private partnership model has become increasingly critical in offsetting shrinking capital budgets at military facilities. As energy intensity is reduced, systems and infrastructure also are upgraded, bringing the added benefit of meeting ever-changing mission demands. With a UESC in place, a local utility can provide energy services that are similar to an ESPC but are typically less complex contractually.
ESPC IN FOCUS
The U.S. Army Corps of Engineers (USACE) Huntsville Engineering & Support Center has experience overseeing the team that manages and supports USACE ESPC multiple award task order contracts. Because this is not a typical contract, it is critical for the public works and garrison staff to understand the vehicle and how to reduce energy and water consumption through effective infrastructure improvements.
Huntsville Center offered the U.S. Navy’s Space and Naval Warfare Systems Center Pacific (SSCPAC) an opportunity, through an ESPC, to replace older systems and meet energy savings requirements over a 19-year term. Located in San Diego—and consisting of 225 buildings and more than 3-million-ft²—SSCPAC conducts research, testing and evaluations for command, control, communications, computers, intelligence, and surveillance and reconnaissance. Like all military installations, it is a major consumer of energy and resources. AECOM was awarded the $12 million contract, which is expected to result in an energy cost savings of $23 million during its duration. Work includes lighting upgrades, water conservation measures, chilled water air conditioning upgrades, a heating and hot water retrofit, upgraded air handlers, rooftop photovoltaic systems and electronic control systems. Facility workers already have noticed a more reliable and maintained air conditioning temperature and control in the lab spaces.
E0 13514 requires federal agencies to meet a number of sustainability targets, including:
- 30% reduction in vehicle fleet petroleum use by 2020;
- 26% improvement in water efficiency by 2020;
- 50% recycling and waste diversion by 2015;
- 95% of applicable contracts will meet sustainability requirements;
- implementation of the 2030 Net Zero-energy building requirement; and
- implementation of the stormwater provisions of EISA 2007.
Based on the success of the project’s first phase, AECOM recently was awarded second and third task orders for another $22 million of energy improvements. This work will include central cooling plant upgrades, data center cooling and controls improvements to optimize temperature distribution, and additional lighting and domestic water energy saving measures.
The SSCPAC improvements validate the advantages of bundling energy conservation and facility improvement measures. Shorter payback items, such as lighting and controls, are leveraged to implement longer-term payback projects including building automation controls and infrastructure upgrades.
Most agencies have limited appropriations available for energy projects. The Department of Energy’s Oak Ridge National Laboratory compared various ways of using these dollars in combination with private financing. The study evaluated three strategies:
- use of appropriated funds for the energy projects with the shortest paybacks, and private financing for as many of the remaining energy projects as feasible (appropriations priority);
- private financing for as many energy projects as feasible, beginning with the shortest payback items, and appropriations used for long-payback projects (finance priority); and
- private financing with appropriated funds applied as an up-front payment (finance priority with buy-downs).
Among the study’s findings was that the appropriations priority strategy can limit the amount of investment (and the amount of energy savings) that can be obtained at a given site. If too many short-payback projects are done using appropriations, there comes a point when the remaining projects cannot be implemented at all using ESPC.
The appropriations priority strategy also has been found to have the highest life-cycle cost. To maximize energy savings and minimize life-cycle cost, available appropriations should be used as one-time payments in larger ESPC projects or to direct-fund the longer-payback measures that cannot be done economically using ESPC.
In December 2011, the president launched an initiative to contract for an additional $2 billion in ESPC by the end of 2013.
The memorandum encourages agencies to enter into installation-wide and portfolio- wide performance contracts. It also recommends they undertake comprehensive projects that include short- and longterm energy conservation measures in order to maximize efficiency and returnon- investment. The clock is ticking.
Randy Peacock, is Head of Facilities, Operations and Energy Manager, SSCPAC; randy.peacock@ navy.mil.
The complete Oak Ridge National Laboratory study is available at: www.ornl.gov/sci/ees/etsd/btric/publications/ornl%20 TM%202012_235.pdf.