Good News About Super ESPCs in New ORNL Study

November 11, 2003

Energy Managers Can Use Study Results to Show Cost-Effectiveness of Financing Instead of Waiting for Appropriations

Using appropriated funds for an energy project is always less expensive than financing the same project with an interest-bearing loan–if other things are equal. However, appropriations may be slow to materialize or insufficient to fund priority energy projects. New life-cycle-cost (LCC) studies and methodologies in a report recently published by DOE's Oak Ridge National Laboratory (ORNL) can help federal energy managers evaluate when financing an energy project, and thereby putting energy savings into action sooner, is a better deal for the government than waiting for appropriations.

The authors of the report compared life-cycle costs of using energy savings performance contracts (ESPCs) and appropriations to implement a "typical project," defined as the average project implemented under the DOE Super ESPC program. The authors found that two of the primary factors in determining energy project life-cycle cost are process time (the time elapsed before the energy project is constructed and saving energy) and costs for surveys and studies required for requesting funding. To accommodate the wide variation in these factors across federal organizations and to allow agencies to customize the study to their own experience, the authors established parameters for the LCC comparisons. The study's results are expressed in LCC tables that compare the "average ESPC" to 288 appropriations cases having survey and study costs ranging from 4 to 26 percent of project cost, and process times ranging from 28 to 74 months.

The LCC tables provide a simple way for energy managers to decide whether financing or waiting for appropriations is the best business decision, in light of their own experience and judgment concerning their prospects for obtaining appropriations.

More Good News–Study Indicates Equipment Prices the Same for Super ESPC Projects as for Appropriations-Funded Energy Projects

ORNL's study also includes a rigorous analysis of equipment pricing, based on data for about $13 million worth of energy conservation measures (chiller replacements, lighting retrofits, and variable-frequency drives) from Super ESPC projects and about the same size sample from one agency's appropriations-funded projects. The results of this analysis indicate that contractors' pricing of equipment is essentially the same in Super ESPCs as in appropriations-funded, bid-to-spec energy projects. The Super ESPC prices comprised the entire delivery order award price, including mark-up, but not including interest paid during the term of the contract.

The authors of the report are preparing to broaden the scope of the equipment pricing study by applying the price analysis methods to more energy project data that is being provided by several additional agencies.

Agency staff who are interested in learning more or would like to apply the study's methods to their own energy projects can refer to the technical report, which details the methodology used to analyze and compare prices.

ORNL Report Available Online

Details of the study's methods and results are documented in the report ORNL/TM-2002/150, Evaluation of federal Energy Savings Performance Contracting–Methodology for Comparing Processes and Costs of ESPC and Appropriations-Funded Energy Projects, which is available at www.ornl.gov/femp/index.html, under the "Project Financing" heading.

For more information, please contact Tatiana Strajnic, FEMP's Super ESPC Program, at 202-586-9230, or tatiana.strajnic@ee.doe.gov.

Send any specific comments and suggestions about this study to Keith Kline of ORNL, KlineKl@ornl.gov. or 865-574-4230.