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Resources

 

Customer Economic Model

The client economic model is designed to be a first screening of possibilities, based on very little information about the client and project. These possibilities that would typically include core energy efficiency work such as insulation and air sealing as well as heating, cooling, ventilation, domestic hot water, lighting, refrigeration, and, of course, water efficiency and renewable installations. The general premise of the model is that the total capital requirement and the dollar value of the expected savings for a project can be roughly estimated from current utility bills. The economic value of the avoided energy costs that result from PPESCO work will provide the cash flow for debt service, source of annual payments of fees for ongoing monitoring systems and remaining positive cash flow of approx. 5% (+/-)for the client. Ideally, some immediate reduction in utility bills for the client is included as part of initial projection. Because energy prices will fluctuate and usage will vary due to weather and other operating conditions, the model focuses on savings in a “weather-normal” year.

This method of estimating potential project size is consistent with the PPESCO goal of achieving average savings of 30%. Accordingly, the PPESCO project’s investment in energy saving measures is going to be proportionally larger than an ESCO project would be, by virtue of installing all cost-effective improvements using a long-term horizon. A PPESCO entity should assume that a smaller pool of utility incentives will be available for building improvements with long paybacks, because some the project’s deeper and longer term measures may not have incentives available (utility supported incentives are most commonly available for short term, less deep energy savings measures such as lighting). Therefore, the PPESCO model assumes a conservative level of utility incentives. Finally, the PPESCO model assumes that 15-year financing will be necessary in order to obtain the desired level of positive cash flow for the client. Shorter term financing will enable a more limited level of cash flow.

The model describes a particular type or group of PPESCO projects, so there will be projects that do not fall within the ranges presented here. In particular, the smallest projects will likely be cost-effective only if the PPESCO is able to determine the necessary measures with an absolute minimum of evaluation work prior to the project going forward.

Download Customer Economic Model Worksheet (zip)
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The Project Financial Analysis Tool (PFAT)

  1. Overview

    • The PFAT takes as its inputs the results from building energy modeling and allows estimation of a package of costs and savings, taking account of current facility energy and water use and costs, the energy savings potential of individual and bundled measures, and project financing and construction costs; and to predict energy savings, utility cost savings, and financing payment amounts for the life of the project.
    • Cells that allow user inputs are blue.
    • Cells that do not need user input are beige.
    • The PFAT Tool requires some inputs that must be generated from an external energy auditing tool (eQuest, for example).
  2. Client and Project Information

    • This tab allows input for identifying and tracking a project.
  3. Rates

    • This tab allows input of utility rates for water, fuels (oil, natural gas, propane, cord wood, and wood pellets), and electricity. Utility rates and the rate structure should be confirmed before being entered. Data quality is extremely important and will determine the quality of the tool’s output. Rates for both consumption and demand (as appropriate) are needed for correct estimation of dollar savings.
  4. Normalized Baseline Consumption

    • This tab provides space to input weather-normalized utility data. The PFAT does not normalize data; that should be done by other building modeling tools or the auditor’s calculation. Normalized data can be taken from the audit tool and entered here.
    • This tab also allows the user to predict particular reductions in energy use in future years. For instance, if a facility owner were aware that a considerable amount of vacancy might occur in the near future because of a modernization project, this tab can estimate the reduction in energy consumption.
  5. ECM Input

    • The Energy Conservation Measures (ECM) tab is where the user can input the details associated with each individual energy-saving measure. Some of this measure-level information will come from the energy auditing tool. Other information will come from contractor estimates, facility managers, and efficiency program administrators.
    • If a measure is to be installed in multiples, and in similar locations with identical energy use profiles (like a lighting measure or a faucet aerator), it need only be entered as a line item once, with the “Quantity” column then used to identify the number of those measures to be installed.
  6. Cost Estimating

    • The Cost Estimation Calculator allows the user to estimate labor costs associated with engineering and design, construction management, measurement and verification, and continuous energy improvement. Users can identify staff, labor rates, hours / week on the job, travel costs, and other relevant variables.
    • The construction period interest calculator allows the user to input term length, interest rate, and the percent of the construction loan to be expensed each month.
  7. Ongoing Payment Plan

  8. A simple tab that allows a user to identify details around the client / PPESCO EPC.
  9. Upfront Project Costs

    • This tab allows the user to input specific details around the project financing and installation and development costs.
  10. Adjustment Factors and Constants

    • A tab with few entry requirements, all assumptions to be made by the PPESCO Project Manager.
    • Confidence Levels refers likely performance of particular measures, as designed.
    • Financial Assumptions include discount rate, inflation rate, and a real discount rate adjusted for inflation.
    • Utility Escalation Rates reflect assumptions of how fuel costs will change over time.
  11. Client Cash Flow

    • A report that offers the client a detailed view of the costs and savings estimates associated with a project.
  12. PPESCO Cash Flow

  13. A report that shows the PPESCO’s costs and savings estimates associated with a project.
Download the Project Financial Analysis Tool Worksheet (zip)
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Financial Worksheet

The PPESCO Financials spreadsheets offer an organization-level view of a PPESCO’s revenues and expenses, driven in large part by the effect of project and portfolio market growth strategies and other variables. This helps create what-if scenarios that portray the effects of these variables on operating income and operating (start-up) capital.

The NOTES tab lists critical variables to be entered, each of which can be customized by the user. Each variable is linked to its corresponding tab(s) in the spreadsheet. There are other user-defined elements that have been set to default values as a starting point. All user-defined variables (in light green) and defaults should be reviewed for applicability to each PPESCO organization.

A primary output of the workbook is a 6-year view of revenues and expenses, shown on the Income Summary with Portfolios tab. Below the Estimated Income Statement is an interactive graph showing both annual and cumulative income / loss for the organization as a whole, according to the applied assumptions.

The Input PPESCO tab has important information concerning the financial assumptions underlying the model. Similarly, the Market Characteristics tab features critical information related to sector, region, and building type assumptions. These should be carefully reviewed. Users can, and should, keep track here of all assumptions used in modeling.

Some pages require no user inputs and are thus locked to maintain user simplicity and calculating formula integrity.

Download the Financial Worksheet (zip)
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Guarantee Model

It is important for a PPESCO to be able to model projected energy savings for individual projects. This is necessary to ensure that the PPESCO is setting aside sufficient funds to cover a possible claim against a performance contract.

The PPESCO Guarantee Model shown here assigns probabilities to various scenarios, from the very real possibility that energy savings might exceed projections to the remote risk that energy use will actually increase after the energy work is completed.

The variables in the model are:

  • current energy use
  • projected energy use after the PPESCO’s work has been completed
  • the percentage of expected energy savings guaranteed in the EPC

In addition, the model allows users to add their own projections of the likelihood of different levels of energy savings.

In the example, the client’s current energy use is expressed as 100 units, and the projected energy use is 70 units, indicating an expectation of 30% savings. The PPESCO in this example is guaranteeing 80% of the projected savings.

The user then assigns probabilities to the seven ranges of energy savings shown in the example. Initially, the PPESCO will base its energy savings projections on standard energy models, using data from comparable projects and technologies. Over time, the PPESCO will be able to modify the projections when its own track record informs the data used in the model. The model then calculates the percentage of funds (based on the project size) that should be set aside annually to assure full coverage of any likely payouts on the EPC. The default project size is two times the current annual energy bill.

Finally, the model estimates the percentage of similarly characterized projects that might have an eligible claim for a payment from the EPC. In this example, the PPESCO annually sets aside 0.48% of the project size. It should be noted that in the example, it is anticipated that 10% of the projects might experience some shortfall large enough to warrant a payment from the PPESCO.

Download the Guarantee Model Worksheet(zip)
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Sample Draft Energy Performance Contract

The EPC is one of two typical contracts that the PPESCO enters into with the client. The other is the contract for building energy audit and project proposal. This template does not, and is not intended to, provide legal advice. Instead, this sample EPC is intended to provide a general guide of one possible way to structure a PPESCO energy performance contract. It contains provisions that might or might not be suitable for a particular application. This sample template cannot substitute for the advice of competent legal professionals. Any entity that seeks to enter into an EPC is advised to consult with a licensed attorney with expertise in energy performance contracts. A qualified attorney can provide advice relating to the particular circumstances and needs of the entity, the client, and the project. The advice should include contract provisions that might be dependent on the market sector and legal jurisdiction.

Sample Draft Energy Performance Contract (PDF)
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