The PPESCO Process
At the level of an individual project, the PPESCO plays several roles as project manager:
- Engaging and managing the client and the client’s expectations for technical services
- Working with financial partners to secure project capital
- Overseeing contractors hired to analyze, design, and install energy improvements
- Providing an energy performance contract to guarantee energy savings
PPESCOs must manage the relationships with contractors and other professional services. The project process involves the following sequence of activity.
- Energy audit
- Design and engineering
- Savings modeling
- PPESCO contracts
- General contracting (including installation of measures)
- Measurement and verification
It is important to note that even before preliminary analysis of a project, the PPESCO should secure a confidentiality agreement with the client, so that energy use records from local utilities can be obtained, and general understandings about exchanges of information are clear between the parties.
Re-allocating the value of saved energy to fund more mission work
For project economics to work, it is assumed that average minimum energy savings is 30% or more. The reduction in energy bills frees up cash that previously was needed (before the project) for energy bills. The reduced amount needed for energy now can be used to support the combination of: (1) debt payments to service the financing package; (2) annual service payments to the PPESCO of approximately 3% of the project cost to fund ongoing post-project monitoring and energy systems assistance; and (3) positive cash flow for the client of approximately 5% to 10%, which can be used at the client’s discretion for other non-energy operating or programming needs. This positive cash flow creates motivation for client engagement. An engaged client increases the chances that the project will be undertaken and completed.
It is important to capture this depth of savings by installing all cost-effective energy measures. This means that on-site renewable measures should also be installed where appropriate to achieve further cost reductions and carbon reductions. Because measures that result in deep and long-term energy savings frequently have a relatively high upfront cost, financing will need to be long term, ideally 15 years, with a typical minimum of 12 years. Securing capital from sources patient enough to accommodate this need, and matching capital sources to projects according to mutual interests and impact are the key to making these projects financially successful.
This is to ensure that the building owner can realize as much of the full depth of potential savings as practicable to service debt and support the owner’s projected positive cash flow. However, in some instances financing will not be available for as long as 15 years, nor at rates lower than 4%. The client economic analysis tool (see Resources) illustrates the impacts of term and rate, and their effects on the viability of a project.
In instances when a project achieves more savings than were forecast, additional positive cash flow is created for the owner. In such an event of surplus savings, the client benefits and can use this for mission purpose, for additional energy improvements, or to retire the debt service faster.