colorado.gov/energy

Financing Energy Efficiency Retrofits with Performance Contracting

• Presented by: Conor Merrigan, LEED AP BD+C

Presentation Overview

• Governor’s Energy Office Overview

• Energy Performance Contracting Introduction

• National and State Perspectives

• How GEO Program Works

• Opportunities and Challenges

• New Markets

• Q & A

The Governor’s Energy Office (GEO) Mission

The Governor’s Energy Office promotes sustainable

economic development in Colorado through advancing

the state’s energy markets and industry to create jobs,

increase energy security, lower long term consumer

costs, and protect our environment.

Energy Markets Represent a Significant Opportunity for Colorado

MISSION

The Governor’s Energy Office promotes sustainable economic

development in Colorado through advancing the state’s energy market

and industry to create jobs, increase energy security, lower long term

consumer costs, and protect our environment.

Environment

Cost

Security

Jobs

Diversifying fuel types & geographic location & reducing

demand through resource efficiency reduces volatility &

increases reliability

Increased efficiency and maturation of renewable

energy and alternative fuels have resulted in new low

cost sources of energy

Tens of thousands of new jobs in the industry across

fuel types (emerging & legacy) & supply chain (R&D,

manufacturing, O&M)

Fuel consumption represents a major source of

emissions of local pollutants and greenhouse gases

Market Opportunities and Barriers in the Colorado Energy Sector

MISSION

The Governor’s nergy Office promotes sustainable economic

development in Colorado through advancing the state’s energy markets

and industry to create jobs, increase energy security, lower long term

consumer costs, and protect our environment.

Consumer Efficiency

Est. Colorado

Market Size

($ MM/yr)

Market Opportunities Market

Barriers

TBD* • Additional annual economic

consumer savings TBD FY12*

Natural Gas Production

Transportation Fuels

• Valuation by market makers /

regulators

• Consumer information

• Access to financing

$8,000 • 10% displacement of oil with

alternative fuels will keep

$8,077 mm / yr in Colorado

• Fueling infrastructure

• Economies of scale

• Price volatility concerns

• Accounting for externalities

$11,000 • Increased investment potential

in CO (amount TBD)

• Limited market demand and

export capacity

• Public perception driving

regulatory uncertainty

Power Generation (Export)

-$1,700

(CO is a net

importer)

• Displace imports (~10% of

consumption

• Export $1,000s CA, AZ, NV

energy markets)

• Transmission infrastructure

• Protectionist policies (CA)

Power Generation (In State)

$17,000 • Accelerate investment in new

technologies (driven by

environmental and security

factors)

• Full accounting of externalities

• Transmission infrastructure

• Technology maturity (eg clean coal,

solar)

GEO Promotes Policies that Support Private Sector Solutions

Societal Interest

Profit Opportunity

Why Buildings?

76% of all power plant generated electricity is used just to operate

buildings.

Buildings Account For Half Of All Greenhouse Gas Emissions.

Energy Performance Contracting

…Process through which energy efficiency

and capital improvements are funded (fully

or partially) by the energy and

maintenance cost savings generated by the

improvements themselves when the cost

savings are financed over a period of time.

When to pursue Energy Performance Contracting

Investigating an EPC generally makes sense if: • Your facilities have an average annual utility spend of over about $400,000 • Your have a single-owner scenario with a relatively uncomplicated lease arrangement • The Owner has an appetite for energy improvements and/or capital improvements AND • A willingness to accept a longer term finance period (7-10 years minimum)

Energy Performance Contracting

• A way to upgrade your facilities without dipping into your capital budget

• Use future energy and maintenance savings to pay for projects

Energy Performance Contracting

• Energy Savings Measures funded through guaranteed savings.

• Reallocate money already being spent in utility budget to

purchase efficiency and capital improvements

Energy Performance Contracting (Public)

• Financed through lease-purchase agreement (typical)

• Funds from multiple sources may be combined.

• Guaranteed cost savings pay lease-purchase

• Annual cost savings meet or exceed annual payments

Energy Performance Contracting (Public)

• Up to 25-year term depending on equipment lifetime

• Typical finance term between 12 and 15 years.

• Not impacted by TABOR (annually renewable & subject to

non-appropriations)

• Endorsed (strongly encouraged) by state legislature &

Governor

Potential Annual Energy $ Savings

Typical Facility Energy Savings Opportunity:

15% to 30% (or more)

Potential Energy Performance Contract

• Example:

• $500,000 annual utility expense

• 20% annual savings = $100,000

• 10 year tax-exempt lease purchase

• $100,000 X 10 years = $1,000,000

Fund nearly $1M in improvements today and pay it back over 10 years with funds previously budgeted to your utility company.

ESCO project investments tend to be concentrated in heavily populated states with supportive enabling policies; Colorado is a growing market.

Energy Performance Contracting Relative Activity of Other States

17

Energy Performance Contracting National outlook

Total Savings from the GEO EPC Program

Total Projects Costs $191,342,779

Total Cost Savings $44,471,181

Total Energy Savings 655,934 MMBtu or 192,189mWh

Total O&M cost savings $963,087

Total Energy Cost Savings $7,960,766

Average Term 11.4 months

Average Payback 15.5 years (from 3-52)

-Construction Completed Data from 1994 to Sept. 2011

Recent EPC Activity in Colorado

Total project

Cost Total Energy

Savings Total Cost

Savings

2008 $17,188,529 23,058 MMBtu or

6,756 mWh $495,339

2009 $10,853,789 33,988 MMBtu or

9,958 mWh $794,417

2010 $52,801,631 118,967 MMBtu or 34,857 mWh

$2,948,685

2011- So far.. $5,466,315 9,813 MMBtu or

2,875 mWh $220,919

Average (2008-2010)

$26,947,983 58,671 MMBtu or

17,191 mWh $1,114,191

-Based on date construction completed

• To simplify the process, and ensure the highest level of quality the GEO has pre-approved 14 ESCOs to implement performance contracts in Colorado

• The GEO will work with State, Higher Ed, Counties, Cities, K-12 Schools, and Special Districts to navigate the energy performance contracting process

• You and an energy service company (ESCO) enter an agreement that allows efficiency upgrades to be paid for with savings achieved through decreased energy consumption and maintenance costs

Energy Performance Contracting

GEO’s EPC Process

• GEO Pre-qualifies ESCOs • Simplifies the selection process

• Ensures highest level of quality

• Annual review and re-approval process

• Standardized process/procedures

• Standardized contract documents

• ESCOs under contract with GEO to use GEO contracts and processes

• On-going guidance/support from GEO

• Technical reviews of deliverables

GEO EPC Process

PARTNER WITH GEO

GEO will provide support throughout EPC process

STEP1 INTRODUCTORY STAGE

STEP 2 ESCO SELECTION STAGE

STEP 3 TECHNICAL ENERGY AUDIT STAGE

STEP 4 PERFORMANCE CONTRACTING STAGE

STEP 5 MONITORING & VERIFICATION STAGE

FAQ: What about the audit cost?

How much does an audit cost?

• ~$0.20 - $0.30 per square foot

• Process plants will be estimated separately

• Audit cost is disclosed as part of ESCo selection

When you sign an audit contract, you agree:

• If you go forward with EPC,

audit cost is rolled into package and is paid for through savings

• If you stop after the audit,

you pay for the audit then.

What does this mean for planning?

• Decide if you need to encumber funds for this possibility.

Case Studies in EPC State EPC Case Study

Department of Human Services, DYC Phase III Total energy retrofit on facilities with stringent operational requirements

Statistics

• Bottom Line: $9.9M project, $893K annual savings, 13 year term

• 708,668 SF, 12 Buildings

• 24 Energy Conservation Measures

• ESCO: Siemens

• Status: 1st year M&V to be complete within a month, construction complete in March 2010

• Estimated Cost Savings: $629K Energy/Water, $263 O&M

• Actual Cost Savings: About $25K better (preliminary)

• Not on balance sheet: $4.5M in avoided controlled maintenance costs

– Costs the state would not have recovered due to replacing aging equipment

• Annual Water Savings: 64,063,000 Gallons

• Annual Electric Savings: 4,231,087kWh

• Annual Gas Savings: 19,395 MMBtu

• Total Annual CO2 Savings: 8,332,704 lbs/ 4166 tons

• $300K Capital Contribution, $9.5M financed

• $90K Utility Rebates

K-12 EPC Case Study

Mesa County Valley 51, Phase I

Lighting and HVAC upgrades

Statistics

• Bottom Line: $4.1M Project, $383K annual savings, 15 year term

• 2,702,842 SF, 51 Buildings

• 17 Energy Conservation Measures

• ESCO: Trane

• Status: M&V on Phase I, Construction complete November 2010, $4.5M Phase II also complete, Phase III just completed, Phase IV(Solar) current

• Estimated Cost Savings: $358K Energy, $25K O&M

• Actual Cost Savings: exceeding estimated

• Annual Electric Savings: 3,528,488kWh

• Annual Electric Demand Savings: 15,576kWh

• Annual Gas Savings: 163 Therms

• Total Annual CO2 Savings: 6,644,425 lbs/ 3322 tons

• $100K Capital Contribution, $3.5M Financed

• $510K in Utility Rebates (part of $804K in total rebates, the largest check to date written by Xcel)

Colorado School Districts using EPC

• Adams 14 • Arriba-Flagler • Boulder Valley • Calhan • Campo • Cheraw • Clear Creek • Colorado Springs • DeBeque • Dolores RE-4A • Eads

• Lone Star • Las Animas • Mancos • Manitou Springs •Manzanola • Mapleton • Mesa County • Moffat County • Monte Vista • Montezuma-Cortez • CSDB • Plainview

•Platte Canyon •Platte Valley • Pritchett • Pueblo 60 • Pueblo 70 •Roaring Fork • S. Conejos • S. Routt • Stratton • Summit • Salida R-32 • Sierra Grande

•Eaton • Elizabeth • Gilpin County •Haxtun • Hayden • Holly • Julesburg •Karval •Kiowa •Kit Carson •Lake County • Lewis Palmer

• South Routt • Springfield • Stratton • Thompson • Walsh • Weld Re-1 • West End • Widefield • Wiggins • Windsor • Woodlin • Yuma

Colorado Cities and Towns using EPC

• Arvada • Aspen • Boulder • Breckenridge •Colorado Springs • Commerce City • Cortez • Crested Butte

• Grand Junction • La Jara • Lafayette • Littleton • Longmont • Manitou Springs • Meeker • Montrose

• Pueblo • Rifle • Salida • Silverthorne • Steamboat Springs • Westminster • Windsor

• Durango • Englewood • Florence • Fort Collins • Fowler • Frisco •Glenwood Springs • Golden

• Arapahoe County • Bent County • Chaffee County • Cheyenne County • Clear Creek County • Custer County • Delta County • Eagle County • El Paso County • Elbert County

• Freemont County • Garfield County • Gilpin County • Gunnison County • Jefferson County • Kit Carson County • La Plata County • Lincoln County • Mesa County •Moffat County

• Montezuma County • Montrose County • Otero County • Ouray County • Prowers County • Pueblo County • Rio Blanco County • Routt County • Sedgwick County •Washington County

Colorado Counties using EPC

• Human Services • Corrections • Transportation • Natural Resources, State Parks • Education • Personnel and Administration, Capital Complex

• Revenue • Wildlife • Agriculture • Public Health and Environment

Colorado State Departments using EPC

• UC Boulder – Housing • UC Colorado Springs • UC Denver • CSU – Ft. Collins • CSU – Pueblo • School of Mines • Adams State College

• Mesa State College • Western State College • Arapahoe CC • Colorado Northwest CC • Fort Lewis CC • Lamar CC • Pikes Peak CC

• Red Rocks CC • Northeastern JC • Northern Colorado • Trinidad State JC • Colorado Community College Systems

Colorado Higher Education using EPC

Opportunities and Challenges for EPC Opportunities • Cyclical; aging projects

become new projects • Innovative technologies • Growth industry • Underserved markets in

Colorado- Industrial, Commercial, Wastewater/Water Treatment, Housing Authorities, Private Sector, Special Districts, fleets, more. …

Challenges • Program Funding • Payback Term • Primary market saturation in 5-10 years • Finance

• Public: TABOR (or son of TABOR) • Private: IRR, ROI, etc.

Private Sector EPC

• DOE funding opportunity awarded in October

– $600,000 over 2 years, est. 10 private sector public projects

– Buy down cost of TEA and guide clients through process in exchange for identifying market barriers

– 5 pilots identified for first year, next 5 to be competitively selected

Find out more…

Governor’s Energy Office website www.colorado.gov/energy

Energy Efficiency - Commercial Buildings

Program - Performance Contracting

•Sample documents & contracts

•Case studies

•List of pre-approved ESCos

Support from the GEO

EPC information and support:

• Conor Merrigan, GEO’s Commercial Energy

Efficiency Manager-303.866.3965

conor.merrigan@state.co.us

The GEO’s Community Energy Coordinators (17)

www.colorado.gov/energy > Local Community > CECs

colorado.gov/energy

Questions?