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OutlineWho We Are
Energy Savings Performance Contracts (ESPCs) 101
What About Georgia?
Important Deal Terms
Financing
Who We Are (www.alston.com)Or, why is this guy up here talking…
Headquarters in Atlanta with over 850 attorneys Attorneys ranked among the best in the U.S. and the world Strong practices in energy and infrastructure developmentPublic finance and gov. authority representation International construction & government contracts practice
Represent: Ga. state and local governments, public and private owners, engineering and design firms, contractors and subcontractors.Extensive Experience with: public finance, commercial construction, hospital-medical office building projects, college and university projects, retail and hospitality projects, sporting venues, industrial plants and facilities.
OutlineWho We Are
Energy Savings Performance Contracts (ESPCs) 101
What About Georgia?
Important Deal Terms
Financing
ESPC 101 – Basic StructureA private energy services company (ESCO) will identify and evaluate energy saving opportunities.
The ESCO will then recommend a package of improvements to be paid for through savings and cost avoidance.
The ESCO guarantees that the savings and cost avoidance will meet or exceed all project costs or the ESCO will pay the difference.
The terms of the contract are mutually developed between the ESCO and the Customer
ESPC 101 – Basic StructureThe ESCO, in coordination with Owner’s Rep., should:
Identify and evaluate cost avoidance opportunitiesDevelop engineering designs and specificationsManage the project from design to installation to monitoringArrange for financingTrain your staff Provide ongoing maintenance and monitoring and verificationGuarantee that cost savings will cover all project costs
ESPC MarketsMUSH – municipal and state governments, universities and colleges, K-12 schools, and hospitalsFederalCommercial and IndustrialUtility Residential ProgramsPublic Housing
Empire State Building
Project Value: $19.6 million
Projected Savings: $4.4 million (per year)
ESCO Guarantee Term: 15 years
Guaranteed Savings: $36 million (for term)
Projected Energy Use Reduction: 38%
Projected GHG Emissions Prevention:105,000 metric tons of greenhouse gas emissions over the next 15 years
Colorado State Capital ComplexProject Value: $20 million
Guaranteed Annual Savings: $1.1 million
ESCO Performance Contract Term: 19 years
Energy Use Reduction: 34%
Greater Albany School District (Or.)Project Value: $4.9 million
Annual Utility Savings: $169,383.00
Environmental Impact: Reduced CO2 emissions by 1,232 tons
Financing:Total Loans: $2.7 million (Qualified Academy Zone Bond (OR))State school energy funding : $2.54 millionBusiness Energy Tax Credit: $522,072.00Energy Trust of Oregon Incentive: $83,504.00
Greil Memorial Hospital (Al.)
Project Value: $1.4 million
ESPC Term: 20 years
Guaranteed Annual Savings: $74,055.00
OutlineWho We Are
Energy Savings Performance Contracts (ESPCs) 101
What About Georgia?
Important Deal Terms
Financing
Georgia ESPC LegislationGuaranteed Energy Savings Performance Contracting Act of 2010
Governmental Units
State government agenciesColleges and universitiesCounties and municipalitiesPublic school districts
RFP process requiredContract for up to 20 years – solves the one year contract limit applicable to many GA gov. unitsESCO guarantees that cost savings or revenue increases will meet or exceed project cost within 20 years
Georgia ESPC Legislation“Energy conservation measure” means a program, or facility alteration, or technology upgrade designed to reduce energy, water, waste-water, or other consumption or operating costs. The term may include, without limitation:
Insulation, windows, doors, energy control systems, HVAC, lighting, water and sewer.Training program.A program to reduce energy costs through rate adjustments, load shifting to reduce peak demand, or use of alternative suppliers* as otherwise provided by law.Renewable generation systems owned by the governmental unit, such as solar photovoltaic, solar thermal, wind, and other technologies.*
* Must understand and comply with Georgia Territorial Electric Service Act of 1973 and Georgia Cogeneration and Distributed Generation Act of 2001. I have another presentation on these Acts if anyone would like a copy. The ESPC Act requires notice to utility providers of ESPCs.
Georgia ESPC LegislationSubject to GEFA approval, an improvement that is not technically
an energy conservation measure may be included in an ESPC if:(1) The total value of the improvement does not exceed 15 percent
of the total value of the ESPC; and(2) Either:
(A) The improvement is necessary to conform to a law, a rule, or an ordinance; or(B) An analysis within the ESPC demonstrates an economic advantage to the owner of including it as part of the ESPC, and the savings justification is documented by industry engineering standards
Georgia ESPC LegislationState Agency Joint action through GEFA
“State agency” - state agency, authority, board, bureau, commission, and department, including, without limitation, the Board of Regents of the University System of Georgia.
Joint action or speaking louder with one voice
Energy expertise
Georgia ESPC LegislationState Agency Joint action through GEFA
GEFA has been tasked with prequalifying Qualified ESCOs
GEFA to issue regs and policies necessary to carry out ESCO Act contracting and procurement procedures for State Agencies
GEFA to provide technical assistance to State Agencies
GEFA to develop model contractual and related documents for use by State Agencies.
State Agencies required to proposed contract or lease to GEFA for review and approval
Georgia ESPC LegislationGSFIC is authorized to establish certain financial criteria and policies related to State Agency ESPCs
No State Agency ESPCs may be entered into before GEFA and GSFIC regs and policies
Noncompliant ESPCs are “void and of no effect”
Georgia ESPC LegislationPayment and performance bond
State aid and appropriations not reduced
Verification required
Payment for multiyear ESPC work performed past year 1 shall be subject to appropriations by the General Assembly.
State Agencies have right to terminate without further obligation any multiyear ESPC, subject to termination provisions of the ESPC, if the State Agency determines that adequate funds will not be available for all of its payment obligations
OutlineWho We Are
Energy Savings Performance Contracts (ESPCs) 101
What About Georgia?
Important Deal Terms
Financing
Measuring Energy Savings
Savings guarantee has no value if savings are not or cannot be measured
Most complicated and important part of ESPC
Measurement and Verification (M&V) may be performed by ESCO or others
International Performance Measurement and Verification Protocol (IPMVP)
A – Retrofit isolationwith stipulated values
B – Retrofit isolation w/o stipulated values
C – Whole facility meter readings
Measuring Energy SavingsNormalizing for weather variations
“Degree days”Normalizing for electricity cost variations
“Cost only savings”Non-energy savings
Reduced operation and maintenance costs
Normalizing for changes in facility useNormalizing for modifications to facility
Subsequent energy conservation measures
Baseline Audit
Savings guarantee is only as good as the baseline audit
Preliminary auditInvestment-grade audit
Owner should collect accurate and complete data over several years
Practical effort to minimize ESCO “contingency”
Length of Guarantee Period
ESCOs charge more for longer guarantees
Long guarantees are difficult to enforce
M&V costs continue for duration of guarantee
OutlineWho We Are
Energy Savings Performance Contracts (ESPCs) 101
What About Georgia?
Important Deal Terms
Financing
Financing Option
ESCO financing – lease purchase or installment sale
Direct funding – independent project or as part of larger project
Public finance – tax-exempt bonds, tax-exempt lease obligations
Tax credits – some transactions permits sharing of ESCO tax savings
White tags – developing market to monetize energy efficiency credits for sale in states where permitted
OutlineWho We Are
Energy Savings Performance Contracts (ESPCs) 101
What About Georgia?
Financing
Take Aways
3 Points to RememberEffectiveness of ESPC depends on technical, financial and legal variables
ESPCs present complex issues that must be carefully negotiated and documented to properly allocate risk, responsibilities and achieve contract goals
See Chapter 11: “Energy Saving Performance Contracts” in Energy and Environmental Project Finance Law and Taxation (Oxford University Press 2010)
A&B can help you with all aspects of your projects
Thank you for your time and attention!
Peter K. Floyd, Esq. Alston & Bird, [email protected]
Georgia’s Constitutional Amendment 4 WorkshopWednesday, Feb. 23, 2011
The Maloof Auditorium, Decatur, Georgia
