On May 23, 2012, 30 people gathered in Appleton, Minnesota to participate in a Financing Energy-Saving Projects for Local Governments & Schools event co-hosted by the West Central Clean Energy Resource Team (WC CERT) and Upper Minnesota Valley Regional Development Commission (UMVRDC).
This forum was geared toward counties, cities, municipalities, school districts, townships, municipal utilities, and other local units of government to help them better understand the current tools available to finance energy efficiency and renewable energy projects. Toward that end, the forum kicked off with a quick overview of tools we’d cover.
Benchmarking: Sarah Steinman, a Minnesota GreenCorp Members serving with CERTs, gave a brief tutorial about the Buildings, Benchmarks, and Beyond, or B3, building energy tracking and management system available to all units of government in Minnesota. Sarah walked participants through how it works and how local governments can use this system to identify which buildings are most in need of energy improvements and upgrades.
State Financing Programs: Eric Rehm from the Minnesota Department of Commerce, Division of Energy Resources then kicked off the panel discussion with an introduction to two programs.
- Guaranteed Energy Savings Program – or GESP – a program of the Division of Energy Resources to provide technical, financial and contractual assistance to local units of government seeking support for using performance contracts to make deep building retrofits that are typically higher cost and have longer term paybacks.
- Public Buildings Enhanced Energy Efficiency Program – or PBEEEP – a program also housed at the Division of Energy Resources and geared toward smaller projects, newer buildings and improvements with paybacks of 3 – 10 years. Often these improvements include retro-commissioning and/or recommissioning.
Energy Service Companies: Our panelists, including Greg Ackerson from McKinstry and Keela Bakken from Harris Energy Services – both representing the Energy Services Coalition, then joined Eric for an energetic question and answer session with meeting participants about energy savings performance contracting and how that process works, how local units of government can use this mechanism to fund major energy efficiency improvements, and what the GESP program does to support those projects. Key points from the discussion are below:
- Performance contracting in an energy saving guarantee because the savings are guaranteed with $. That is, if your building(s) don’t meet their energy savings targets, the company will actually cut a check to make up for the difference.
- PBEEEP doesn’t use performance contracting but does look to use a model in which savings on energy bills are large enough to cover loan payments. The State is also working on a loan loss reserve fund to further support PBEEEP.
- Lighting is a common energy retrofit that has pretty fast (or short) paybacks (often ~4 yrs). When thinking about performance contracts, companies often talk about “leveraging” these sorts of improvements with short paybacks together with things that will cost more and have longer returns.
- Beyond energy savings, it’s also important to consider other benefits. For example, making necessary equipment upgrades, reducing repairs, and addressing comfort issues.
- GESP is there to review performance contracting numbers and contract terms and to serve as a neutral voice to help local governments navigate the process.
Hutchinson Case Study: John Paulson from the City of Hutchinson then walked attendees through the City’s most recent energy project for which they used an energy services performance contract. Hutchinson started with an audit of all of their buildings – their waste water treatment plan, fire department, parks, rec centers, city hall, etc. This initial detailed study of all 14 facilities cost $34,500 was bundled into their overall project.
With the study results in hand they developed a Master Facilities Plan to prioritize projects and improvements. In total, they could have embarked on a $10 million project if they’d included all of the potential efficiency improvements and added renewable energy systems, but they wanted to start off with something smaller. By developing the Master Facilities Plan they were able to identify projects the City could do on its own – like roofs – and were able to hone in on a city-wide lighting project to get their feet wet on using a performance contracting model.
Hutchinson settled on a $300,000 project to upgrade lighting in every building across the City and install variable frequency drives at the Wastewater Treatment Plant. The summaries provide many of the details of their project and the savings they are seeing today. Read the first and second summaries.
They estimated the project would have a simple payback of 5.9 years but with additional grant funds – including an Energy Efficiency Conservation Block Grant made possible by a grant from the U.S. Department of Energy and the Minnesota Department of Commerce through the American Recovery and Reinvestment Act of 2009 (ARRA) – they were able to bring the payback down to 3.1 years.
John shared a number of tips for others thinking about using an ESCO for a project:
- If you are new to this, ASK QUESTIONS. Use the State; advantage is they can help you vet proposals and contracts. Ask others who have used the contractor you’re thinking about. Ask about the stipulations in the contract.
- Decide how you want to measure operations and maintenance savings (or if you want to). It can take a lot of effort to measure this and you may spend more money to measure than you actually save.
- Ask about Administrative fees. For Hutchinson, this was a major concern; they wanted to know what administrative fees were included in the contract.
- Understand that this may be big shift to local leaders who have always used a low-bid process.
- Working with an ESCO is a partnership; you need to feel good about the folks with whom you’re working.
John also sent along a number of helpful resource documents including two from the Department of Energy that provide more details about what to expect with a performance contract: here and here. John also provided a pdf version of Minnesota Statute 471.345: Uniform Municipal Contracting Law.
Utility Programs: Lisa K. Fischer, Energy Services Representative, Missouri River Energy Services and Bill Klyve, Energy Management Representative, Otter Tail Power Company reviewed their utility rebate programs – both for local units of government and businesses and residences. Lisa Fischer’s presentation gives a good snapshot of their programs. You can also learn more about both programs at their websites: Missouri River Energy Services and Otter Tail Power Company (be sure to see the Minnesota section).
Property-Assessed Clean Energy: Before the forum closed we even squeezed in a quick discussion about Property Assessed Clean Energy – or PACE. A number of folks around the State were tracking PACE when the enabling legislation was first passed in 2010. At that point, most people were thinking about PACE as a tool to finance residential energy efficiency and renewable energy projects. While that process has run into obstacles, work continues in earnest to move PACE forward as a financing tool for commercial projects. Learn the basics in a great presentation from John Farrell and get updates on the status of commercial PACE and residential PACE. Also, learn more about the commercial PACE program that just began in Edina, MN, the first of its kind in the state.
See more photos from the event:
