Energy Savings Performance Contracting

What Is an Energy Savings Performance Contract (ESPC)?

Energy savings performance contracting (ESPC) is a budget-neutral procurement and delivery structure where building upgrades are paid for from the future operational and energy savings those upgrades deliver. A qualified energy services provider designs and delivers the project, measures and verifies savings, and guarantees results. This allows organizations to tackle deferred maintenance and modernize building infrastructure without requiring large upfront capital expenditures.

While an ESPC is not a standalone financing mechanism, it is highly flexible. It can be paired with traditional capital, debt, PACE financing, and certain service-based models to further reduce upfront costs and lower performance risk.

ESPCs, also known as performance contracts, have been used successfully for decades in the public sector to enable critical infrastructure improvements and help improve energy efficiency in a guaranteed performance model.

How Does an Energy Savings Performance Contract Work?

When engaging in an ESPC, an organization generally contracts directly with a qualified ESCO, such as Trane. The ESCO can help the organization develop a tailored plan to meet its infrastructure, sustainability, or cost-savings goals. The process typically involves these steps:

• Audit and identification: The ESCO evaluates your current infrastructure and operating expenses to identify potential energy and operational savings opportunities.
• Design and implementation: The ESCO can work with you to design a tailored approach aligned with your business priorities and manage the installation of your building upgrades.
• Performance guarantees: The ESCO provides a performance guarantee for energy savings over a specified contract period.
• Repayment: Project costs can be repaid over time from these validated savings.

A project's scope can often be funded in two ways: first, by generating budget surpluses through reduced energy and operational costs; and second, by leveraging grants, incentives, and programs designed to reward efficiency improvements and sustainability.

Benefits of an Energy Savings Performance Contract

An ESPC can offer several benefits for organizations looking to update their facilities:

• Tackle Deferred Maintenance: Modernize aging infrastructure and equipment without competing for limited capital budgets.
• Transfer Performance Risk: Shift the financial and operational risk of energy upgrades to the ESCO, who contractually guarantees the projected energy savings over the life of the contract.
• Accelerate decarbonization and sustainability: An ESPC can help meet aggressive corporate ESG goals, comply with local carbon mandates, and reduce your building’s carbon footprint through high-efficiency equipment. 
• Simplify Project Delivery: The ESCO manages the entire lifecycle of the project, from the initial energy audit through design, installation, and long-term measurement and verification.

Choosing an Energy Service Company

Selecting the right provider can be a key factor for ESPC success. It can be highly beneficial to choose a provider that is an NAESCO-approved energy services provider, like Trane. This accreditation indicates that the firm has the track record to stand behind its performance guarantees.

Contact your local Trane expert to discover how we can help you start planning the funding of your infrastructure project.