In the best of times, many would agree that for organizations with limited capital budgets and an interest in energy efficiency, an energy performance contract is a fundamentally sound idea. In researching an article for the April issue of Building Operating Management, however, I've found that there seem to be two schools of thought regarding energy performance contracts these days; "these days" specifically referring to this horrible economy we're all suffering through.
One theory is that because the economy is tanking, and facility budgets have likely been cut, plans on the table for energy upgrades and capital improvements may have to be scrapped. Therefore, an energy performance contract is a great way to still do the upgrades without any initial out-of-pocket expense or on-the-books debt.
Alternatively, because credit is scarce, and even ESCOs (those that don't self-fund performance contracts, anyway) are having trouble finding money, the terms of a performance contract may be less financially attractive for facility executives than they would have been in the past. Facility executives may be better served waiting out the recession before undertaking such a project.
So, I'm curious what My FN users think. Which side of the coin makes more sense to you? Have you looked into a performance contract in the last several months? Was it feasible? Please comment below.
This is a post from before I joined. I thought it was worth resurfacing.
Energy Performance Contracts would not exist if they were not profitable. The payback includes equipment cost, installation, credit in the investment for the term, and all the things the building owner gets "free"; probably a 40% ROI when there work well.
Most range from $1,500,000 to $5,000,000, not a lot of money even today for an ESCO.
What makes sense to me would be working as hard as possible to raise the capital and let the building owner keep all the money.
The other interesting function is the requirement for monitoring and maintaining the system through the course of the contract. Being legally bound to maintain is being legally bound to continue being efficient. I could live with that one for a long time.
I offer third party audits for ESCO proposals. If an Energy Performance Contract is your option of choice you really should have an independent audit. We are usually well under $.01 per square foot for the service.
Thank you, Bernie