The PPESCO Process
Energy Performance Contract
The PPESCO embeds energy savings guarantees in the energy performance contracts it provides to the client. The energy saving guarantees made by the PPESCO are important to the client’s obtaining credit, because investors find such contractual assurance attractive. PPESCO mirrors the standard ESCO arrangement of guaranteeing 80% to 90% of the projected energy savings in a given year. According to models that were used to derive PPESCO economics, reserves to satisfy this risk can be built with 5% of the total project value—that is, $10,000 on a $200,000 project (see Resources page for downloadable risk-calculating models). In this scenario the energy savings guarantee is a low cost, low risk and high value element of the PPESCO offering.
The PPESCO’s long-term engagement with the client throughout the contract period mitigates the risk of energy savings underperformance. Variables outside of the PPESCO’s control are excluded from PPESCO’s performance guarantee and are articulated in the EPC. These variables are primarily fluctuations in fuel prices and risks from weather-related effects or events, and changes in building use. Given that the engagement between PPESCO and the client is long term, PPESCOs can expect that events and actions outside their control could possibly affect the projected term or savings. Some examples:
- Change of ownership. If, during the term of the energy contract, the building is sold and the new owner is not interested in the PPESCO project and its subsequent program of building energy monitoring, the contract might need to be terminated, with conditions for such termination included in the EPC.
- Other infrastructure investment. s the building owner makes improvements to infrastructure over time, these might distort—positively or negatively—the energy savings forecast, absent future unknown modifications. New baselines will need to be derived and agreed upon, with methods for doing so specified in the EPC.
Excluding the uncontrollable variables lowers a PPESCO’s need to pay out against its loan guarantees. Ongoing M&V, part of the bundle of services that PEPSCO provides, will enable early detection and swift correction of performance problems.