Richard Boothman, director, North American sales, commercial products group, Modine Mfg. Co., agreed that an ESCO, in some cases, makes a business decision easier to make. “This is especially true for schools, where dollars are harder and harder to come by for building improvements in today’s political climate.”

Boothman added that ESCOs have a bigger part in today’s business climate, particularly in the school and education market. The reason for this is because school districts don’t have to seek more public funding to make the upgrades, he said.

“By installing more efficient equipment, schools can simply transfer money they save on energy into payments for new equipment. The reason this helps a school is because that money for energy use is already budgeted for the use and operation of existing equipment.”

He gave an example of how the financing of an ESCO project might work for a school: “A school that has $500,000 budgeted for energy can install new equipment that will cost $300,000 to operate. That $200,000 in annual savings can now be moved over to pay for the new equipment and, at the end of the day, the budget hasn’t increased. Over a 10-year period, a $2 million renovation on a typical elementary school could pay for itself within the life cycle of the equipment and return money to the district.”

ESCOs can provide services to governmental facilities, commercial buildings, and other edifices.

Jennifer Stentz, vice president and general manager, energy solutions, Johnson Controls Inc., remarked that the resulting energy savings is guaranteed. Maintenance is being delayed, she pointed out, because “building owners and operators don’t have the capital dollars available to make necessary upgrades.”

ESCOs are able to offer all of this because of their expertise. “ESCOs have the technology, energy engineering, financing expertise, and talent at local and national levels to help a customer use the building assets to achieve his or her mission,” said Jason Bingham, vice president for energy services and controls, Trane North America.

Energy and Beyond

Arthur Woolverton, senior marketing manager, energy and environmental solutions for the Americas, Honeywell Building Solutions, said when the performance contracting model originated, the focus was on reducing “electricity and operational expenses by replacing old and inefficient equipment in facilities.”

According to Bingham, when ESCOs began, they concentrated on changing lights in a building, and, from the savings of the lights, paying for other necessary projects.

While improvements to a building’s lights are still examined, other areas such as HVAC are also analyzed today.

Now, ESCOs have to give value, ensuring not only energy savings, but also energy-efficiency gains that can be documented using tools, such as Energy Star Portfolio and Leadership in Energy and Environmental Design (LEED), in order to receive a label that can raise the building’s asset value, said Erbe. “However, with the evolution of the bEQ (ASHRAE Building Energy Quotient), or other similar efforts, the need for determining the energy, sustainability, and other types of metrics to be carried on the label — with measurement and verification to support it — will be required over time. Every owner will want to participate in order to increase the building’s value in both the tenant- and owner-occupied real estate market.”

The Oxford (Mississippi) School District High School is one building that, because of upgrades, might become one of the first high schools in the state to be LEED-certified. The district “used the money saved from energy-efficiency upgrades to fund an integrated technology environment where building systems communicate with learning tools to improve the safety, productivity, and comfort of students and teachers,” said Stentz. The building has since been deemed a “smart building,” as the security and fire alarm systems communicate; TVs, computers, and hand-held devices are connected through a network; and school clocks are synchronized, she added.

The company converged systems into a single network, lowering the district’s initial construction costs and decreasing its operations and utility expenses, said Stentz.

“The innovation was funded by upgrades to the facility’s heating, air conditioning, lighting, and building management systems, which will save the district $6 million in energy and operational costs over the next 15 years. The high school is powered by a modular central energy plant, which kept construction costs below average and will keep ongoing maintenance costs to a minimum.”

Today, legislative mandates to lower carbon emissions are additional motivators for building owners and operators to take action to increase energy efficiency, said Stentz.

ESCOs are helping managers and owners achieve a high level of performance by going beyond changes to a single structure, expanding its scope to the entire grounds or campus and surrounding infrastructures, such as parking lots, central plants, and data centers.

Boothman called this a good trend as variables of an improvement plan can be examined and changes to be made over a three- to four-year timeframe can be prioritized.

Woolverton agreed, adding that ESCOs develop ways to improve a facility’s operations and infrastructure and optimize its energy supply and demand. They take a more holistic approach in “managing costs through traditional conservation measures while improving the integration of supply and demand,” he said. “The end goals are energy efficiency and sustainability, as well as energy resiliency and security.”

Other types of work beyond efficiency upgrades that ESCOs are engaged in, according to Woolverton, are installation of onsite generation equipment, which increases energy reliability and allows for fuel-source selection; adding controls that allow buildings to communicate with the electrical grid and adjust energy use according to system-wide grid demands; and creating strategies to lower a building’s water usage and enhance public water and wastewater infrastructure.

Into the Future

What does the future hold for the industry? Bingham said that ESCOs need to have a longer view of working with the facility owner and operator than they do now. “ESCOs need to move from a project-only basis to a long-term services approach that partners with customers to ensure results happen and are sustained over time.”

ESCOs continue to evolve, offering new services to meet the needs of building owners and operators.

Woolverton predicts ESCOs will evolve to include “cloud technology to aggregate and analyze meter data; performance guarantees that include more than energy efficiency; financing tools like power purchase agreements, public-private partnerships, and design, build, own, operate, and maintain (DBOOM); and venture capital funding for green technology.”

Stentz agreed that cloud computing as well as machine-to-machine communications will play a part in the ESCO industry of the future. Cloud computing will be used to gather, analyze, and share data, and machines proactively diagnosing and scheduling maintenance, which will prevent failures, ensure runtimes, and expedite necessary service from ESCOs and HVAC contractors when needed with the appropriate supplies to quickly address challenges.

Woolverton pointed out some good news for HVAC contractors when it comes to ESCO work. He said, “ESCO projects represent a significant opportunity for HVAC contractors. According to the National Association of Energy Service Companies, every $10 million in guaranteed efficiency upgrades creates or sustains 40 jobs for installers and related service providers. The companies that understand how their expertise ties into new trends and today’s changing landscape will have a competitive advantage.”

Publication date: 6/2/2014 

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