Contract Mechanisms and Project Structures to Implement Energy/Water Projects

February 24, 2010

Roadway to Compliance

EPACT, EO 13423, EO 13514 & EISA

Federal Government Mandates

• Energy Policy Act (EPACT) of 2005 (P.L. 109-58, 8 Aug 05)– Beginning in FY06, reduce facility energy intensity (MBTU/sf) 2% per

year based on 2003 baseline– Renewable Energy: Sets annual goals for electricity generated with

renewables: 3% in FY07–FY09, 5% in FY10–FY12, 7.5% in FY13–thereafter 25% by 2025

• Executive Order 13423 - Strengthening Federal Environmental, Energy, and Transportation Management (24 Jan 2007)– Beginning in FY06, reduce facility energy intensity (MBTU/SF) 3% per

year based on 2003 baseline (30% by 2015).– Beginning in FY08: 2% water reduction per year based on 2007

baseline,16% by 2015.

EPACT, EO 13423, EO 13514 & EISA

Federal Government Mandates

• Energy Independence and Security Act (EISA) of 2007 (P.L. 110-140, H.R. 6, 19 Dec 07)– Repeat EO 13423 goal of 3% per year based on 2003 baseline (30%

by 2015).– Energy audits, 25% of audits per year in “covered” facilities will be

“comprehensive” audits for energy and water.

• Executive Order 13514, Federal Leadership in Environmental, Energy, and Economic Performance (5 Oct 2009)– Reducing potable water consumption intensity by 2% per year through

fiscal year 2020, or 26% by the end of fiscal year 2020, relative to a baseline of the agency’s water consumption in fiscal year 2007.

Energy Savings Performance Contracting (ESPC)

• An Energy Saving Performance Contract (ESPC) – is a method for public agencies to leverage private funds to implement energy/water efficiency and renewable energy projects. Once the projects are completed the guaranteed energy savings are used to repay the ESCO for their investment.

• Energy Services Company (ESCO) develops, designs, installs & commissions the project

• 25 Year contract term, including preliminary proposal period

• Used to reduce energy/water use and cost in client facilities

• ESCO may arrange third party financing for project

• ESCO guarantees a maximum project cost, no change orders

• ESCO guarantees energy savings

• Structured to produce neutral or positive cash flow for the client

• Mandatory Measurement and Verification (M&V)

ESPC Utility Bill - Before, During, & After

DOE Super ESPC Projects (16 contractors)$2.3 Billion Capital Investment (as of September 2010)http://www1.eere.energy.gov/femp/financing/espcs_doeescos.html

• USACE ESPC Projects (16 contractors)$397 Million Capital Investment (as of August 2010)

$180 Million Capital Investment (in process)

ESPC Projects

SPAWAR System Center PacificUSACE ESPC

Salinas Valley Memorial Hospital 1 MW Cogeneration Project, USA

• Energy audits

• Life-cycle cost analyses

• Identification of renewable energy projects – solar PV, and solar thermal

• Facility-wide water conservation upgrades

• Developed a utility and energy allocation analysis for each major facility

• Electrical Savings: 3,316,136 kWh

• Natural Gas Savings: 7,250 therms

• Water Savings: 2,514 kgal

• Project Cost $12.3 million

Utility Energy Service Contracts

• Utility Energy Service Contracts (UESC) offer Federal agencies an effective means to implement energy efficiency, renewable energy, and water efficiency projects. UESC financing term can be 10 years.

• UESCs have been used successfully to implement more than $2 billion in energy and water efficiency and renewable energy projects.

• In accordance with directives from the White House, Congress, and Senior Energy Officials, Federal energy managers have been directed to use UESCs whenever feasible to achieve their program goals.

• In a UESC, a utility may arrange financing to cover the capital costs of the project, which are repaid over the contract term from cost savings generated by the energy efficiency measures.

• The agency saves time and resources by using the one-stop shopping provided by the utility.

• UESCs are not required to include measurement and verification or to guarantee savings, however, agencies recommend some type of performance assurance

Area Wide Contract (AWC) Model Agreement

Basic Ordering Agreement (BOA)

Types of Utility Energy Service Contracts

Areawide ContractsAWC’s are blanket contracts, which are essentially indefinite-delivery, indefinite-quantity (IDIQ) contracts for public utility services

Basic Ordering Agreements (BOA’s)

BOA’s are not contracts, but do establish general terms and conditions for future contracts. A delivery order placed under a BOA constitutes the contract and details services to be delivered. Any Federal agency can establish a BOA with their utility.

Model AgreementsModel utility service agreements for civilian and Department of Defense (DOD) agencies were developed by a collaboration of FEMP, the Edison Electric Institute (EEI), Federal technical and contracting experts, and utility partners.

Source: http://www1.eere.energy.gov/femp/financing/uescs_types.html

UESC Utility Bill - Before, During, & After

Source: FEMP Utility Energy Services Contracts: Enabling Documents

NASA Ames Research CenterUESC

California State University Energy Efficiency Upgrade , USA

• Energy audits

• Life cycle cost analysis

• Identification of energy efficiency renewable energy projects including solar PV and solar thermal technologies

• Facility-wide water conservation upgrades

• Turn-key project implementation

• Expected annual energy savings of 8,856,795 kWh

• Expected annual energy savings of 766,056 therms

• Project cost: $14.3MM

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Typical Process

– Client qualification, initial go / no go decision

– Expression of Interest / Qualitative Selection

– Preliminary Assessment (PA)• High level assessment of project feasibility• Sometimes competition with 2 - 3 ESCOs• Identifies potential Energy Conservation Measures (ECMs)• Establishes approximate cost, savings, payback, financing mechanism• Technical proposal utilized as a selection tool; typically non binding • If selected / agreed by client, sign contract for next phase

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Typical Process (continued)

– Investment Grade Audit (IGA)• Detailed engineering study and cost estimate• Finalized costs, savings, financing• Confirm baselines for energy use, facility operating parameters, runtimes,

utility rates• Establishes M&V protocol to verify savings

– Implementation• Secure financing• Monthly payments based on percent complete - typical • Design and construct as per IGA

– Monitoring and Verification (M&V)• Verify actual vs. estimated savings

Renewable Energy Project Structure (PPA & EUL)

• A Power Purchase Agreement (PPA) is a long-term contract to buy power from an energy provider that uses its own source of funds to build an energy facility on a customer’s site, and maintains and operates the facility for an extended term up to 30+ years. – PPAs typically are structured to provide renewable power behind a

customers meter

• Enhanced Use Lease (EUL) is a method for funding construction or renovations on military property by allowing a private developer to lease underutilized property, with rent paid by the developer in the form of cash in-kind services.– EUL can be utilized to site renewable generation on federal facilities and are

typically done for utility scale generation, greater than the needs of the meter serving the federal facility.

NAVFAC SW Renewable IDIQ MACC N62583-10-D-0326

PPA

• Multiple award IDIQ contract to five awardees

• Solar based renewable energy in the Southwest

• $100 MM contract not to exceed $200MM

• Installations located throughout Western US in CA, NV, AZ, UT, CO, and NM

• Size from 1MW to 20MW

• Acceptable technologies include Photo-voltaic (PV), Concentrating PV, and Concentrated Solar (CSP or solar thermal)

Capital 200 MW Wind Farm, Australia

CSU San Bernardino Solar Installation, USA

Energy Services Projects

• Stimulate the economy through the creation of green jobs

• Deliver energy cost savings for governments, institutions and businesses

• Replace infrastructure that is aging and unsafe

• Reduce greenhouse gas emissions to combat climate change

• Bolster national security by reducing foreign oil dependence