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Funding For Energy Efficiency Retrofits — ESPCs Rock

Originally published on RMI Outlet, the Rocky Mountain Institute blog.
By Cara Carmichael

Of the various funding mechanisms for implementing energy efficiency retrofits in buildings, energy savings performance contracts (ESPCs) may be the most powerful, especially for federal buildings, where capital for upgrades is about as common as ocean-front property in Arizona. Under an ESPC, the capital costs to undertake a retrofit are funded by its operational energy savings. It is a fantastic, scalable mechanism to get to deep energy retrofits in our existing buildings.


Achieving deep energy retrofits is an essential part of achieving our nation’s energy-use-reduction targets. But we’re not going to get there using the same, tired process that we have been using for the past 20 years. That’s where, surprisingly enough, a federal agency is stepping in and taking the bull by the horns. The General Services Administration (GSA) is the nation’s largest public real estate organization—it manages more than 7,000 properties that provide workspace for some 1.2 million federal employees. With such an immense real estate portfolio comes the opportunity for equally big energy savings and positive impact.

GSA, in collaboration with the Federal Energy Management Program (FEMP), is undertaking a National Deep Energy Retrofits program (NDER). The main thrust is to work with energy service companies (ESCOs) to increase the amount of savings GSA typically achieves through energy performance contracting on its projects.

GSA has already made significant headway over the past few years. In recent years, in part as a result of working with RMI—we both helped shape the NDER program and trained key GSA and ESCO stakeholders on how to effectively achieve deep retrofits—the energy savings on GSA retrofit projects have more than doubled, from 18 percent to 39 percent, with a few projects surpassing 60 percent. This year, GSA plans to execute close to 30 ESPC contracts, more than it has executed in the last 10 yearscombined.

The implication is clear: the Administration’s use of ESPCs as a means to improve buildings is taking hold and having nationwide impact. The 11 regions within GSA each have very varied experience and adoption rates of ESPC contracts. Currently, all regions are doing an ESPC project. GSA is working closely with FEMP, the agency that oversees the majority of ESPCs on behalf of the federal government, so any ESPC process improvements that they identify can impact all other federal sector work.

In ESPC circles, it is widely acknowledged that barriers to executing deep energy savings are not technical. Rather, the barriers constitute a breakdown of process and structure, notably the absence of integrative design. The same collaborative, analytical process that RMI adds to deep retrofits can lead to exponentially beneficial results under an ESPC as well. The most successful passive design comes from a truly integrative design process, a practice that the ESPC industry has not fully embraced yet.

I have found a couple of structural challenges preventing integrative design and deep ESPCs, including: 1) the highly competitive design process which prevents truly collaborative interactions with facilities managers and financiers and 2) the perception that deep retrofits have high costs and long paybacks. That’s the whole point of integrative design! To explore compatible energy efficiency measures (EEMs) using technical potential and whole-building analysis (I’m not talking about your mother’s simple spreadsheets for calculating energy-efficient-lighting paybacks) and create a compelling business case. It’s a virtuous cycle. In a world that is as risk adverse as the ESPC industry, I argue that there is much greater risk in executing a fragmented, under-analyzed project devoid of load-reduction measures. To reach scale, the industry needs some transparent innovators to lead the way, combined with cross-silo decision-making from GSA’s project managers and contracting officers.

The other major shortfall of the ESPC process at the federal level is that it is very challenging to engage building occupants in energy savings. Approximately 1/3 of energy use is driven by occupant behavior, which is a big opportunity for ESCOs and GSA alike. While ESCOs can install the submetering equipment and train operators and occupants, it is uncommon for the ESCOs to remain deeply involved with the operation of the building. Occupant energy-reduction programs require ongoing engagement to overcome staff turnover, maintain momentum, and align the incentives.

In parallel with the NDER program, GSA is becoming more active in the rapidly emerging world of remote auditing, a simple, cost-effective way to track how buildings are using energy. This data is essential to identify good candidates for deep retrofits. In April 2013, GSA awarded a contract to FirstFuel to add 75 more buildings to the database. Combined with an initial 25 buildings, GSA will now have 100 buildings in the virtual assessment tool by the middle of 2013. This accounts for half of the major energy-using buildings that constitute over 75 percent of GSA’s energy use.

There is a great interest in and willingness to explore deep retrofits from the ESCO community and building portfolio owners alike. It’s caught the attention of the nation’s largest building owner. And I anticipate we will see major movement from this retrofit delivery method in the next few years!

Image Courtesy of Shutterstock

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Since 1982, RMI (previously Rocky Mountain Institute) has advanced market-based solutions that transform global energy use to create a clean, prosperous and secure future. An independent, nonprofit think-and-do tank, RMI engages with businesses, communities and institutions to accelerate and scale replicable solutions that drive the cost-effective shift from fossil fuels to efficiency and renewables. Please visit for more information.


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