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Maximizing Value in an Energy Performance Contract

As an integrated architecture and engineering firm, CSArch supports Energy Performance Contracting (EPC) for public school districts, particularly for the potential to modernize building systems and realize long-term energy savings while limiting the use of capital bond funding. While EPCs allow school districts to complete energy savings projects with little or no up-front expenditures, knowing the common pitfalls and how to best avoid them is critical to a successful project.

The common problem with EPCs

All to often, EPCs are developed by contractors or equipment suppliers with little knowledge of the facilities, resulting in energy savings that are estimated or speculative. Common EPCs often proceed as though one building system has no influence over another. For example, a lighting company advocates for LED lighting, an HVAC company pushes for more efficient equipment, and a solar company only knows photovoltaics. So, who makes clear that the level of investment in one will directly affect the level of investment needed in the other, and who ensures all of these new systems work together?

The results of these EPCs are typically independently designed and implemented conservation measures without real measured savings to the benefit of the district. And if executed during the same time as a capital project, conflicts and coordination issues typically arise.

The CSArch approach

By leveraging CSArch to lead both capital projects and energy performance projects, our clients can maximize the benefit and value of each by reducing overall costs and minimizing conflict between projects. The CSArch preferred approach to an EPC is one where the scope is developed, designed, financed, implemented, measured and verified in close collaboration with a single energy services company (ESCO), a process sometimes called Integrated Energy Performance Contracting (IEPC).

A proper EPC avoids compartmentalization by taking a whole-building and/or district-wide approach. Our collaborative process with the district focuses on integrated, well-planned solution rather than one-for-one replacements. We ensure that all concurrent projects are in sync, optimize debt, and generate cash flows when necessary.

How we maximize value

1. Focus on deep engineering-driven retrofits 

We implement engineering-driven EPCs by partnering with companies that specialize in value optimization and offer in-house design capabilities that complement ours. This synergy maximizes energy savings for our clients.

2. Vendor neutrality is key to finding the best fit solution 

Our cost optimization approach stems from vendor neutrality; we work only with leading suppliers who best fit each client’s unique needs. Suppliers are introduced to the process only post-project concept and audit, and not when developing scope. This allows us complete flexibility in selecting the most appropriate equipment for each client’s unique needs, without constraints or vested interests.

3. Eliminate silos through integration 

One of the key principles to a successful EPC is the elimination of silos between design and construction. All stakeholders, including the construction team, are involved from the outset of the project to maintain aligned interests. Comprehensive designs and cost estimates are developed sooner and can be modified throughout the project for greater optimization, generating increased savings and overall financial performance.

4. Maximize cash flow and debt optimization 

We suggest only energy conservation measures that yield significant value. We develop projects focused on maximum financial efficiency—solutions that will address the client’s needs with the lowest construction dollars and highest energy savings.

5. Risk-free contracting benefits you, not the ESCO 

EPC contracts should be agile and customer-centric to take the risk away from our clients. If we don’t attain agreed upon financial or performance objectives on savings, costs or timeline, the ESCO pays the difference. We ensure that the performance metrics benefit the client and not the ESCO, generating maximum scope or cash flow depending on the client’s criteria.

6. Performance-based compensation equals higher savings 

Payment is tied to performance and actual energy savings. The possibility of achieving higher savings with lower construction costs inspires the project team to invest more time and effort and to be creative in designing the most efficient project possible. The resulting excess savings can be shared amongst the stakeholders.

7. Real energy savings measured through utility bills 

Post-implementation energy savings are measured and verified through savings in actual utility bills. The measured savings are used to develop our contractual guarantees. The result is a project that is contractually binding to an annual dollar amount, and not stipulated calculations. Ultimately, the utility meter is the judge.