Federal agencies reduce carbon emissions with energy savings performance contracts

As President Biden pursues a 100% clean-energy economy and net-zero emissions by 2050, federal agencies are cutting their carbon emissions by using energy savings performance contracts (ESPCs), a well-established and valuable funding mechanism to improve energy systems and infrastructure in federal government facilities.

The U.S. Department of Energy Federal Energy Management Program (FEMP) recently committed $13 million under its “Assisting Federal Facilities with Energy Conservation Technologies (AFFECT)” initiative, to drive infrastructure improvements at federal facilities that can be replicated across the country.

For example, in FY 2020 alone, federal agencies invested $842 million in energy efficiency and renewable energy improvements using DOE’s ESPC contract vehicle, which will result in approximately $1.7 billion in energy and water cost savings and will reduce annual greenhouse gas emissions by more than 106,100 metric tonnes carbon dioxide equivalent.

Proven funding mechanisms

Agencies can take advantage of these proven funding mechanisms, such as energy savings performance contracts, ESPC ENABLE and utility energy service contracts (UESCs) — to play a larger role in stimulating energy efficient and clean energy projects that directly address climate change mitigation to lower the federal carbon footprint and move toward a clean energy economy.

An ESPC allows federal agencies to procure facility improvements with no up-front capital cost to the government. Under an ESPC, an energy service company (ESCO) incurs the cost of — and obtains financing for — developing and implementing an energy project that meets the agency customer’s needs, and must guarantee cost savings, equipment performance and standards of service. The agency repays the ESCO over the term of the contract out of the cost savings resulting from the project, after which the government retains all savings. ESPCs may include all types of energy conservation measures (ECMs) such as lighting, appliances, renewable energy systems, heating and cooling systems, metering, and more. Similar to an ESPC, a utility energy service contract is another procurement approach federal agencies use to contract for a broad spectrum of energy management services with its serving utility.

By requiring projects to be part of privately financed performance contracts like ESPCs or UESCs, the AFFECT grants improve the ability of agencies to incorporate energy conservation measures into projects that would not otherwise be supported by project economics. For example, if an agency wants to include an ECM as part of its project that might have a longer payback than needed to fit the parameters of the ESPC, such as a battery storage and controls system, applying an AFFECT grant can help result in a reduced project term that then enables this type of ECM to be included.

ESPCs are often implemented as task orders awarded under DOE’s indefinite-delivery, indefinite-quantity (IDIQ) ESPCs. The DOE IDIQ ESPCs were established to streamline the ESPC process and make ESPC projects as practical and cost-effective for agencies as possible. DOE awarded these master IDIQ ESPCs to competing ESCOs that were best qualified to serve federal agencies under the contract terms and conditions. Since their inception in 1998, more than 430 projects have been awarded across the federal government under the DOE ESPC IDIQs.