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• Introduction
• Assessing Renewable Energy Options
• Planning, Programming, & Budgeting
  • Planning
  • Programming
  • Budgeting
    • Estimating Costs
    • Life-Cycle Cost Analysis
    • Phasing Implementation
    • Project Funding
• Building Design
• Project Construction
• Commissioning
• Operations & Maintenance
• Training
• Outreach
• Resources
• Contacts

Renewable Energy Project Funding

Federal energy projects require funding to generate results. Agencies trying to stretch their capital budget for a construction project should investigate renewable energy project funding options outside the traditional appropriated budget process. Carefully matching available funding tools with specific project needs can make the difference between a stalled, unfunded renewable energy project and a successful project that generates energy and cost savings.

Federal agencies may be able to use tools to finance renewable energy facilities outside the capital budget appropriations process, including:

• Energy Savings Performance Contracts
• On-Site Renewable Power Purchase Agreements
• Utility Energy Services Contracts and Incentive Programs

In addition to these funding mechanisms, agencies may be able to leverage renewable energy certificates (RECs) from the project for additional revenue in some cases.

Energy Savings Performance Contracts

A Federal energy savings performance contract (ESPC) is an agreement between a Federal agency and an energy service company (ESCO) where the service company designs, purchases, and installs energy conservation measures at Federal facilities. The ESCO guarantees savings to the agency, and the agency makes payments to the ESCO based on savings from the energy measures. Payments cannot exceed the savings that the agency realizes from the implemented energy measures.

ESPCs can be designed solely for renewable energy projects or can combine renewable energy with energy efficiency measures to increase the savings-to-investment ratio.

One great advantage of a Federal ESPC contract is that it can have a term of up to 25 years. This is a valuable feature given the often high capital cost of renewable energy, allowing ample time for payments from savings to cover the expenses of financing and maintaining the renewable energy system. This is an advantage of ESPCs over on-site renewable power purchase agreements.

Federal ESPCs are available to all agencies and are typically only used for renovating existing buildings, so a major renovation would easily qualify. ESPCs can be used for new construction projects, but the Federal authority required to gain project eligibility is complicated. Specific information on using an ESPC to integrate renewable energy in Federal construction projects is available on the energy savings performance contract page.

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On-Site Renewable Power Purchase Agreements

An on-site renewable power purchase agreement (PPA) is an agreement where a renewable electricity system sited and installed at an agency facility is owned by a private company, such as a renewable energy developer. The agency agrees to purchase the power generated by the renewable energy system at on a competitive per kWh basis, and the developer is responsible for project design, production, and maintenance.

PPA projects are often more cost-effective than agency-owned projects when the developer can take advantage of tax credits and other incentives not available to the Federal agency. PPAs are an ideal approach to obtaining renewable energy because the agency pays only for energy generated from the renewable energy system. The various contracting authorities used for PPAs do not require guaranteed savings, as the ESPC authority does, and PPAs are not limited to existing buildings.

If an agency uses a PPA to integrate renewable energy into larger building construction projects, specific language needs to be added to the agreement that specifies coordination with the larger project. It is imperative that the renewable energy system design and installation are coordinated and compatible with the overall project.

Agencies also need to pay attention to the treatment of renewable energy certificates (RECs), as their ownership can affect the energy price as well as the agency's ability to meet Federal energy requirements. Because some RECs are more valuable than others, an agency can sometimes purchase less expensive RECs to replace project RECs sold to improve project cost effectiveness.

Despite the prevalence of PPAs in the private sector, this option faces several challenges for Federal agencies. Federal PPAs are generally limited to a 10-year term because of General Services Administration (GSA) utility contracting authority. However, there are two potential exceptions. The Western Area Power Administration can sign longer-term PPAs for Federal agencies in their service territory and the Department of Defense can sign up to a 30-year contract. Not all agencies can grant the necessary site access and land-use agreements necessary to the developer. Finally, not all state utility commissions or local utilities recognize this model.

Specific information on using a PPA to integrate renewable energy in Federal construction projects is available on the power purchase agreements page.

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Utility Energy Service Contracts and Incentive Programs

Agencies can use utility incentive programs for financing renewable energy projects. These programs can range from rebate programs to full project implementation programs that include financing, project management, and performance assurance – called utility energy service contracts (UESCs). UESCs are one mechanism that an agency and its utility can use for renewable energy projects.

A UESC does not have the same contracting requirements as an ESPC, so UESC authority can be used to finance renewables in new Federal construction as well as existing facilities. It also offers some flexibility in performance assurance. In a UESC, as in an ESPC, the agency pays for the project through avoided cost-savings from energy efficiency improvements or renewable energy generation.

This type of contract depends on the local utility, is not available from all utilities, and is not available to all projects or Federal facilities. Specific information on using a UESC to integrate renewable energy in Federal construction projects is available on the utility energy service contracts page.

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Contracting Issues with Renewable Energy

Beyond funding mechanisms, many contractual arrangements for renewable power projects are new to Federal agencies. Contracting issues with renewable power provides an overview of various agreements that may be involved with a power generation facility integrated into a construction project.

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