The green economy is more than quietly turning windmills and grand visions of new infrastructure; it is also construction boots on the ground in public buildings across the US.

With budget constraints looming on the mind of government officials at every level, the question of how to pay for mandated or wished-for infrastructure improvements that cut energy usage in public buildings has grown ever more pressing. The use of energy savings performance contracts may be part of the solution to that quandary.

The ESPC, a widely-used acronym in federal government circles, is “a budget-neutral solution to implement energy efficiency measures,” Executive Vice President of Business Development at Ameresco David Anderson told Breaking Energy. Ameresco focuses on retrofitting mostly government buildings, and has been expanding recently through acquisitions, taking on Arizona-based APS Energy Services from Pinnacle West Capital in a deal that closed in late August.

Public building owners have the advantage of long timelines but also face the challenge of budgets limited by annual appropriation procedures that do not always take into account the needs of capital investment in new energy-efficient water use, lighting or roofs and windows.

The ESPC process allows them to make a deal with lenders that covers those projects on a payout timeline as long as 20 years, with a guarantee from the ESPC contractor that the energy cost savings achieved will be substantial enough to cover the cost of paying down the debt over time.

Energy Efficiency In Action

Ameresco specializes in the kind of energy efficiency projects that entail what Anderson says is “essentially a construction contract” with the added element of an energy cost savings guarantee.

The firm starts its relationship with customers with an engineering audit that identifies the cost savings. Taking the guaranteed energy savings to the customer, it then goes out to the lending community to find a loan that can pay for the initial construction and retrofit work. After the work is done, the customer is responsible for servicing the loan, but the cost savings from the work result in savings large enough to service the loan using limited appropriation money.

Lighting and water conservation generate the most immediate savings, and the cost of upgrading that infrastructure can be paid back in as little as five years, Ameresco’s Anderson says. The longer-term loans allow for the installation of big-ticket items like HVAC systems and new roofs that municipalities, states and even federal agencies might have trouble paying for otherwise.

Financial incentives for renewable energy are “nice to have,” says Anderson, but “we don’t need the incentives to make these projects economically viable.”

“The efficiency savings are enough on their own.”

Crunch Time

The public-private model relies on a steady stream of interested lenders, and during the credit crunch that began in 2008 the availability of credit tightened and “slowed things down a lot,” Anderson says.

Ameresco “elected to be proactive” and went in search of new groups that could finance the projects; it found new equity-backed lenders and Anderson says the effort has been helpful in driving competition for lenders and cheaper rates for borrowers as the credit crisis has eased.

The long timelines that make ESPC contracting work ideal for the public sector make it a challenge to apply in the commercial sector, Anderson said, although industrial and retail buildings are a “huge” potential opportunity for companies like Ameresco.

For now, the company is doing well targeting its huge existing customer base, and Anderson says the goal is to grow by a scorching 15-20% annually, leaving out acquisitions that he says need to be “immediately accretive from day one.”