Energy Savings Performance Contracts are Starting to Snowball

With funding frequently an issue in federal government data center consolidations, it’s no surprise that creative means of paying for these projects are getting more attention. Perhaps the most interesting alternative method – the Energy Savings Performance Contract (ESPC) – is really beginning to gain momentum.

For those new to the topic, the Department of Energy has utilized ESPCs since 1992, and though they were not established specifically for data center consolidation, in recent years they have increasingly been used to improve data center efficiency and enable consolidation in conjunction with larger energy efficiency initiatives. Through the use of an ESPC, agencies are able to initiate energy-savings projects, including data center improvements and consolidations, without dealing with the traditional budgetary process and its uncertainties.

In brief, here’s how it works: The ESPC is established between a federal agency and an authorized Energy Service Company (ESCO). The parties then draft a comprehensive energy-savings plan, and the ESCO secures the necessary funding. The ESCO guarantees that enough energy will be saved over the term of the contact (up to 25 years) to pay for the project. Any excess savings return to the agency.

Ironically, at least some of the momentum behind ESPCs can be attributed to one such contract proposal that has gotten stuck in bureaucratic mud. In 2010, the Department of Energy put out a pilot ESPC for a data center project and when all the numbers were crunched they produced a surprising result: The savings projected from reduced energy consumption were exceeded by the anticipated savings in Operations and Maintenance. This imbalance – a first in the 20-year history of ESPCs — caught the attention of the Office of Management and Budget (OMB) and the project was put on the back burner.

Multiple congressmen have written to the OMB in support of using ESPCs as a funding mechanism because they are a good deal for the taxpayer and a great use of energy-related savings in energy-intense facilities.

In the meantime, other agencies have taken notice of stalled example and are not waiting for DOE and OMB to square away their numbers: They are moving forward.

The DOE has another ESPC-funded project ready to go at a data center in Germantown, Md. Both the U.S. Navy and the U.S. Army are in the process of using the funding method as part of data center and building upgrades. The IRS just released an ESPC solicitation in July that includes a data center.

The reason these contracts are moving forward is that the savings are real, and while you can claim the Operations and Maintenance portion, it is the energy savings in particular that is the driving force.

That’s why these contracts are starting to snowball.

You can read more about ESPCs in APC by Schneider Electric white paper number 176, “Energy Savings Performance Contracts for Federal Data Center Consolidation.”

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