Sign up for Savings

Oct. 1, 2002
Performance contracts provide education institutions a path to energy savings that minimizes financial risks.

As the economy forces education institutions to squeeze their budgets, administrators have to be alert to money-saving possibilities. One fertile source for savings that many schools have mined is the energy budget. Campuses with aging, inefficient equipment can save hundreds of thousands or even millions of dollars over many years by upgrading their lighting fixtures, heating and cooling systems, energy management controls and power generators.

Finance officials at schools can crunch the numbers and make a persuasive case that their institutions will save money in the long run by taking advantage of the improved efficiencies the latest equipment offers. But many schools don't have the millions needed upfront to carry out a comprehensive overhaul of energy systems on campus.

One solution? Performance contracting. It allows education institutions to get at potential energy savings by having someone else — an energy service company — front the money for improvements as part of a long-term contract. The school pays the company an annual fee, and the company guarantees that the savings generated through the energy upgrades will meet or exceed the fee.

Opportunity knocks

The National Association of Energy Service Companies estimates that companies are investing $1 billion to $1.2 billion a year on energy performance contracts. Much of that occurs on educational campuses. Schools, as well as other public facilities, are obvious candidates for performance contracts. Schools typically have large facilities, many of which have aged past their prime, and not much money they can spare for long-term investments.

Although many institutions have been using performance contracts for years to upgrade their energy systems, many more campuses could benefit. In recent years, most states have enacted legislation that allows schools and universities to use performance contracting, says Michael Arny, executive director of the Energy Services Coalition, a group based in Madison, Wis., that works to increase energy efficiency through use of performance contracts.

“There are lots of opportunities for performance contracting out there,” says Arny.

Since the economy has faltered in the last couple of years, performance contracting has generated more attention from education institutions.

“Any time tax revenues go down, there is an uptick in interest in performance contracting,” says Arny.

Many schools may not get into performance contracts because officials aren't familiar enough with how they work or they are stretched too thin even to pursue a contract. But Arny argues that maintaining the status quo is not truly a cost-free option.

“Waiting has a cost,” says Arny. “Every day a school waits means they have missed out on savings that can be used to upgrade their buildings.”

The University of Hawaii at Hilo and Hawaii Community College, which are on the same campus, ended the waiting several years ago and pursued an energy performance contract, the first energy-performance contract for state facilities in Hawaii. Some 50 buildings were retrofitted. The campus upgraded its lighting system, replaced its main chiller with a high-efficiency model, replaced its cooling tower, installed a building automation system to control air-conditioning, expanded its chilled-water loop to include more buildings, and replaced the chiller at the College of Agriculture Building.

In all, the energy service company provided $2.9 million in upfront improvements. Over the 10-year life of the contract, the schools expect to save $6.6 million in energy costs, as well as $200,000 a year in maintenance costs.

The University of Science and Arts of Oklahoma, Chickasa, Okla., decided earlier this year to enter into a performance contract to upgrade its facilities. It is the first college in Oklahoma to use performance contracting. The energy service company selected by the university promises to deliver energy savings of $298,000 a year — a one-third reduction in energy consumption, according to school officials.

The company will replace the university's chilled water plant and install a new boiler, energy efficient lighting, a campuswide energy management system, and water conservation retrofits. Air handling units will be replaced or converted.

Government help

The federal government and many states have established programs to help schools and other businesses by providing expertise or financial assistance to improve their energy operations.

At Niagara County Community College in Sanborn, N.Y., an energy performance contract is helping the school cut its costs by more than $350,000 a year. The school is benefiting from participating in New York Energy $mart Communities, a program of the New York State Energy Research and Development Authority (NYSERDA).

NYSERDA offers financial incentives to energy service companies and engineering firms that help municipal, industrial, and commercial utility customers to put energy-saving strategies into place.

The authority is providing the college $450,000 in aid to offset the cost of the $3.4 million contract, as well as technical expertise in identifying and carrying out the improvements.

An energy service company evaluated energy usage at the college and recommended several improvements. The campus received a high-performance chiller to improve heating and cooling in campus buildings, upgraded its lighting with compact fluorescent bulbs and installed high-efficiency motors with variable-speed drive to reduce energy consumption.

“The project will allow NCCC to focus its resources on other important institutional priorities,” says James Klyczek, interim president of the college. “In the end, the dollars from NCCC's future energy savings will be used to enhance the institution's already exceptional educational programs.”

A similar project at Dutchess Community College in Poughkeepsie, N.Y., is paying for updated and modified heating and cooling systems throughout the college. Energy upgrades will bring almost every building on campus under centralized, computerized environmental control, the school says. Over 15 years, the college will reduce it energy bills by $1.2 million.

“This will cut electric consumption by 50 percent at the time when generators are taxed — during air conditioning season,” says John Dunn, the college's dean of administration. “We'll be saving over 700,000 kilowatt hours per year.”

The performance contract calls for the energy service company to install computerized climate controls in eight campus buildings. In addition, the improvements will transform existing stand-alone control systems into a unified building and energy management system.

Students, Dunn says, “should notice a more evenly balanced environment for heating and cooling, with less fluctuations, especially between seasons.”

The upgrades also will allow Dutchess Community College to receive at least $308,000 in rebates from NYSERDA.

Kennedy, staff writer, can be reached at [email protected].



Kilowatt hours saved annually at University of Hawaii — Hilo from an energy performance contract.

▪ $6.6 MILLION

Projected savings in energy and other costs over 10-year term of performance contract, University of Hawaii — Hilo.

▪ $2.9 MILLION

Energy service company's upfront investment in energy-saving equipment, University of Hawaii — Hilo.

▪ $200,000

Annual savings in maintenance costs attributed to energy performance contract, University of Hawaii — Hilo.

Source: State of Hawaii

SIDEBAR: Will you benefit?

The Energy Services Coalition has compiled a list of factors that may indicate if your facilities will reduce consumption and realize savings through an energy performance contract.

An institution with more than 40,000 square feet of floor space or that spends more than $40,000 a year on energy bills is a likely candidate to profit from a performance contract, the council says.

The following factors make it even more likely that a campus will benefit:

  • Buildings and equipment are aging.

  • Facilities have recurring maintenance problems or high maintenance costs.

  • Workers complain about discomfort in the facilities.

  • The school has scarce budget resources.

  • The school's staff has insufficient expertise in energy management.

  • The maintenance staff has too many demands on its time.

  • Lighting and energy control systems have not been upgraded recently.

  • Energy-using equipment on campus is ready to be replaced.

About the Author

Mike Kennedy | Senior Editor

Mike Kennedy, senior editor, has written for AS&U on a wide range of educational issues since 1999.

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