Many happy returns
Because of the high cost of infrastructure improvements and limited revenue, many local governments fail to repair significant infrastructure problems in public buildings — including heating, ventilation and air conditioning (HVAC) equipment, water and steam distribution systems, and refrigeration systems. However, by adopting energy savings performance contracts (ESPC), local governments can save money and update antiquated and inefficient systems without tapping into capital funds.
To begin, city or county governments enter into a performance contract with an energy services company (ESCO), which identifies energy-saving improvements for a specific facility or facilities. The ESCO covers the costs for identifying, installing and, in some cases, operating and maintaining new or upgraded equipment. The contract requires no upfront capital expenditure. The ESCO guarantees that the energy improvements will generate enough savings to pay for the project financing, typically through a low-cost loan or bond. Some state and federal agencies offer grants for such projects.
Once the contract ends — generally after 10 to 20 years — all additional cost savings belong to the city. The new equipment will not need to be replaced for many years and operates much more efficiently than the original equipment. Energy costs and environmental effects are reduced through lower energy consumption and reduced emissions.
An ESPC not only covers the costs of energy-related improvements, but also can support infrastructure improvements. In 2003, the Newport News, Va., Public Schools Division recognized its aging facilities needed energy system and infrastructure improvements, such as lighting, windows and roofs. The division adopted an ESPC to make the necessary repairs. While tearing out the walls of one school to install new wiring and light fixtures, city officials also decided to install a fiber optic backbone, electronically linking schools and all of the city’s public buildings.
Henderson, Nev., recently entered into an ESPC that is replacing incandescent light bulbs with LED lights in the city’s buildings and in traffic signals. The new lights and a computer management system that shuts down city computers at night will reduce electricity costs for the systems by 65 percent. Additional modifications, including HVAC, plumbing and electrical improvements, are expected to save the city about $250,000 annually.
Local governments are using other methods for leveraging existing infrastructure assets. Many are tapping energy in landfills by building power generation facilities that convert methane gas from decomposing waste gas into electricity for use in public buildings or for sale to a local power provider. The government benefits through the sale of the landfill gas rights, creating a new revenue stream without capital expenditures. The revenues from a gas sales agreement cover the construction costs. Among those selling landfill gas rights are the Delaware Solid Waste Authority; Chicopee, Mass.; Jefferson City, Mo.; and Alameda and Palo Alto, Calif.
Local governments are finding ways to reduce energy consumption, improve energy infrastructure, create new revenue streams, and make capital improvements, all without tapping limited capital funds needed for other important community services.
The author is executive vice president for Framingham, Mass.-based Ameresco.