Energy Savings Performance Contracts

As discussed in ?Energy Saving Performance Contracts: Cash Flows for Water Sustainability [UIM November/December 2010, pp. 30-33],? sustainable infrastructure provides the quantity and quality of water necessary to meet present needs without affecting the needs of future generations. The water needs for future generations are in peril and cash flow to sustain water and wastewater infrastructure is imperative.
Without the infrastructure to support future water needs, communities, cities and possibly state populations will become unsustainable.

Part 2 of this article will explain the Energy Services Company (ESCO) Energy Savings Performance Contract (ESPC) process in detail. In addition, Energy Conservation Measures (ECMs) that can be utilized in the water and wastewater market will be introduced. Detailed discussions of renewable energy opportunities and specialized situations for water and wastewater vs. other markets will be discussed.


As discussed in Part 1, a municipality must be committed to energy efficiency and sustainability before engaging in an ESPC. The commitment should include an energy or sustainability action team. Because looking at operational efficiency to include energy, process, water and carbon efficiency are most of the major components for a sustainable infrastructure, the team really should be a sustainability action team. The team should be represented by key decision-makers for a municipality with the following suggested members:

  • Municipal Executive
  • Facility Operations/Engineering
  • Purchasing
  • Finance/Business Management
  • Dedicated Sustainability Manager
  • Third-Party Sustainability Expert (Optional)

The dedicated sustainability manager is a key individual for the municipality and should have the authority to implement sustainable measures that balance the triple bottom line ? environmental stewardship, social responsibility and economic prosperity. The third-party sustainability expert could be a trusted consulting engineering firm along with a trusted third-party energy company that focuses on municipal sustainability. The municipal executive typically is the decision-maker that presents information to the board or the legislative branch for the municipality. The operations/engineering manager may be one or two individuals that make key decisions concerning plant design and operations. Purchasing leadership is needed to ensure compliance with municipal purchasing procedures and local and state laws. Finance/business leadership brings the finance validation, necessary financial information or decisions to the team.

As discussed in Part 1, a workshop may need to be conducted with an ESCO so all team members can understand the ESPC process and any local or state laws regarding ESPCs. The next step in the process will be to qualify and/or choose an ESCO for potential work with the municipality. This could result in a Request for Qualification (RFQ) or a Request for Proposal (RFP) advertised to promote competition and to find the most qualified ESCO. The choosing of the most qualified ESCO should be completed by the sustainability action team. However, the third-party representative may be excluded in this part of the process.

When the qualified ESCO is chosen, an initial meeting should be conducted by the team with the ESCO. During the initial meeting all should develop the analysis schedule and deliverables, discuss areas and processes to be included/excluded if any, and create action items and the completion schedule. The next step is to conduct a preliminary audit of facilities to be covered with the ESPC and interview key personnel in operations to obtain information and data concerning day-to-day operational expenses and operation of processes. Once this audit is completed, it will be necessary to meet with the sustainability action team to discuss results and prepare for the more detailed investment grade audit.

The investment grade audit (IGA) is a detailed engineering analysis including design that will look at the full potential of any sustainability savings that can be funded by the ESPC and meet the payback schedule for any loan obtained for the complete project. Upon commencement of the IGA, the municipality commits to pursuing the ESPC and guarantees payback of the ESCO?s engineering investment if the ESPC does not proceed. In addition, the monitoring and verification (M&V) for the life of the ESPC is established and the guaranteed savings verified. The ESCO will then meet with the sustainability action team to finalize details of the ESPC. The ESPC is then signed and implementation of the contract begins.

With implementation of the ESPC, the ESCO assumes all responsibility of the project to include finance arrangements, design, construction, subcontracts and total construction management. The ESCO is responsible for the turn-key project and guarantees a maximum fixed price with no change orders. This approach allows for one source of responsibility of the project to the municipality. All project costs are funded by energy, process, water and carbon efficiency performance. Further, all project risks are assumed by the ESCO. Upon completion of the project, the monitoring and verification phase begins.

The monitoring and verification phase of the project verifies and monitors performance of the ESPC per the guaranteed performance, efficiency savings and operation of the plant. The performance is typically verified annually; however, verification can be set as desired during the negotiation of the ESPC. Please note that the terms need to be clearly established to set the annual M&V costs. Because the M&V phase will require detailed engineering analysis, any reviews more frequent than annual will cost more. In addition, third-party M&V may be required or desired to be completed by firms other than the ESCO. Again, this will typically create an additional M&V expense. A typical term for M&V is 10 to 25 years. During that time the ESCO tracks, measures, and guarantees performance, the municipality gains a trusted sustainability partner, and ongoing support for services.

Energy Conservation Measures for Water and Wastewater

There are a number of common energy conservation measures that can be implemented in both water and wastewater treatment facilities under an ESPC. For example, changing out motors with more energy efficient motors and managing HVAC and lighting loads are common ECMs. In addition, implementation or upgrading an existing SCADA system to monitor and control energy usage is common to both types of facilities. Power monitoring at process levels as well as pump system and operational efficiency are common. Further, demand monitoring, load shedding and cogeneration are additional measures.

Water Treatment

Water treatment plant energy usage will depend on the type of water used, surface or ground, the quality of the incoming water, the pumping requirements, and the processes used to treat the water. ESPC ECMs for water treatment plants are usually centered on pumping applications. Influent pumping stations for surface water, well pumps for ground water, high service pumps for effluent and booster pumps are examples of water treatment pump applications. A sample water treatment distribution of energy usage is as shown in Exhibit 1. Pumping is by far the largest consumer of energy for a water treatment facility. It has been reported that 87 percent of the energy consumed is for pumping. Other reports such as produced by the AWWA, estimate pump usage even higher. The opportunity and need also exists for management of energy consumption for specific processes and systems as well in water treatment plants.

National Electrical Manufacturers Association (NEMA) Premium or Energy Policy Act (EPAct) high-efficiency motors and variable frequency drive (VFD) applications are low-hanging fruit to review for pumping. Pump optimization with supervisory control and data acquisition (SCADA) systems or specific pump optimization software are additional items to consider with pumps. Further, proper maintenance and operation of the pumps will assist in maintaining the nameplate efficiencies of the motor, pump and overall pump system.

Additional opportunities for energy management with a smaller return are heating, ventilation and air conditioning (HVAC); high efficiency fixtures and lamps; and lighting monitoring and control. Supplying energy-efficient ballasts for plant fluorescent fixtures and ultraviolet (UV) disinfection or pretreatment systems is an opportunity to reduce energy. Further, water treatment plants have chemical feed systems that need to be properly controlled and monitored to maintain efficient operation of the plant. Providing storage to allow for pumping during low energy demand times for electric utilities and distributing the water by gravity during high demand times could assist with obtaining incentives or reduced rates.

Wastewater Treatment

The most opportunistic ESPC ECMs for wastewater treatment plants are primarily aeration and pumping applications. This includes aeration for activated sludge and aerobic digestion as well as return and waste activated sludge pumping. Further, lift and influent pump stations and any effluent pumping requirements can provide energy savings. A sample wastewater treatment distribution of energy usage is as shown in Exhibit 2. Aeration for activated sludge and nitrification processes is the largest consumer of energy for wastewater treatment facilities with pumping a distant second. It is estimated that 70 percent of the energy consumed is for processes and 16 percent is for pumping.

As with water treatment, NEMA Premium or EPAct high-efficiency motors and variable frequency drives are low-hanging fruit for better efficiency. Dissolved oxygen (DO) monitoring and control are critical for energy efficiency. The control of an aeration system includes adequately spaced and maintained DO sensors with properly sized blowers. The type of blower must also be evaluated for the application. For example, is the best blower a positive displacement, centrifugal with variable speed or single-speed centrifugal controlled with vanes, valves or VFDs?

Pump and blower optimization are also a consideration in wastewater applications. Knowing which pumps or blowers to use at what time and maintaining control over the requirement is extremely important.
Equalization basins could also be used to assist with pumping energy requirements. This is accomplished by shifting treatment to low energy demand times to save costs. Pump and blower systems should also be evaluated to determine the best efficiency and utilization of the information to load the most efficient system at the optimum time.

Another good opportunity for energy management in wastewater is solids handling and removal. Finding applications that can dewater sludge more efficiently will reduce sludge handling costs. Also, there are many different types of systems developed or being developed to use the sludge as a biofuel for cogeneration or peak shaving of demand. The methane produced by anaerobic digestion of the sludge can be used for cogeneration or heating requirements to save energy. Flaming or flaring off the excess gas after the sludge heating process typically wastes any methane gas that could be used to produce electricity. However, when generation of electricity or heating use is not utilized, flaring off the excess gas reduces GHGs.

Opportunities exist for wastewater treatment as with water treatment for low return investments. Low return investments include lighting and lighting control as well as HVAC applications. However, a greater opportunity exists for UV energy saving ballasts in wastewater because of the larger quantity and usage.

Two trends in wastewater that increase the consumption of energy are friction in piping increasing due to age of systems and more rigorous treatment requirements that cause tertiary treatment processes. Evaluation of both of these trends can gain energy-efficiency opportunities.

Renewable Energy Opportunities

Renewable energy opportunities can be implemented into an ESPC. Not only will renewable energy options reduce operational expenditures, it will also reduce carbon emissions. Utilizing solar power, micro hydro turbines, wind turbines and energy producing pressure reducing valves are some typical renewable energy opportunities available to both water and wastewater facilities. Gas turbines using methane and sludge burning processes can be additional opportunities for renewable energy in wastewater facilities. A very detailed study will need to be conducted during the IGA to determine if the life-cycle cost for any renewable energy option can be applied to the ESPC. Typically, with enough savings and available incentives, grants and loans, renewable energy options are more favorable.

Market Differences

According to the EPA, water and wastewater treatment utilizes 3 to 4 percent of the energy produced in the United States. With this amount of energy usage, there is a large amount of performance savings available. The other differences in the water/wastewater market are the aging infrastructures that influence U.S. sustainability. Without a sustainable water supply, U.S. cities will struggle to survive. Therefore, it is imperative to maintain our water and wastewater treatment facilities. In today?s financial environment, funds for capital improvement are smaller than needed as reported by the EPA gap analysis. ESPCs are good resources for infrastructure upgrades along with helping municipalities become more operationally efficient.

The successful history of ESPCs in the buildings, school and federal government sectors give credibility to the contract process. Buildings and schools typically utilize ESPCs to gain performance in lighting and HVAC systems. ESPCs for building and schools also cover complex boiler and chiller systems as well as building automation and controls. The experience with traditional ESPC markets could easily be transferred to water/wastewater. Further, active existing ESPCs could be expanded from municipal buildings to their water and wastewater facilities. Combining all of a municipality?s building assets with water and wastewater could also make the needed infrastructure upgrades a better investment. For example, using savings from lighting on a major building could fund better DO control for a wastewater plant to include higher efficiency blower implementation.


ESPCs are a good fit for the water and wastewater market. Commitment by the municipality to performance improvement and choosing the right ESCO are keys to successful implementation of an ESPC. Water and wastewater operations have many savings opportunities with the amount of energy used. To gain those savings, an investment must be made. Water and wastewater infrastructure age and the need for investment funds can be obtained with operational efficiencies. As stated before, to keep the cash flowing for water sustainability, implementing ESPCs with the right ESCO is critical for water needs for future generations.

Lee E. Ferrell, P.E., is a water and wastewater energy and process consultant for Schneider Electric. Ferrell has more than 25 years of industry experience and currently serves as the Vice Chairman for the AWWA Energy Management Committee. He has a bachelor of science degree in electrical engineering and a master of science degree in environmental engineering from Clemson University.

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Energy Savings Performance Contracts

Sustainable infrastructure provides the quantity and quality of water necessary to meet present needs without affecting the needs of future generations. More than ever, the water needs for future generations are in peril. Cash flow to sustain water and wastewater infrastructure has dwindled to a trickle as financial woes grip local, state and federal government agencies. The need for unemployment, educational, public safety, and other services has left precious few funds for water and wastewater infrastructure maintenance and upgrades. Changing weather patterns, unsustainable rate structures and fluctuating industry and residential populations are trends also negatively impacting our nation?s water and wastewater infrastructure. The complexity and gravity of the situation is further enhanced by aged infrastructure, more stringent environmental regulations and increased demand for treated water.

A conservative 2002 infrastructure gap analysis conducted by the Environmental Protection Agency (EPA) for clean and drinking water found a respective shortfall of $122 and $102 billion dollars for each up to the year 2022. Other independent organizations have estimated the gap for infrastructure upgrades to be even wider. For years local, state and federal government agencies have been using alternative finance arrangements such as Energy Savings Performance Contracts (ESPCs) to reduce operational expenditures while gaining capital expenditures for infrastructure upgrades for education, office buildings, courthouses and others. The government agencies partner with an Energy Services Company (ESCO) to fund the infrastructure upgrades with energy savings. For example, the U.S. Department of Energy (DOE) reports that more than 550 ESPC projects worth $3.6 billion have been awarded as of March 2010. This equates to an estimated $1.4 billion dollars savings in operational expenditures. Because of present conditions, better technologies and processes for the treatment of water and wastewater, ESPCs are now a very viable financial arrangement to keep the cash flowing to upgrade our water and wastewater infrastructure and reduce operational expenditures. Our heirs are depending on us for a sustainable water and wastewater infrastructure to support their needs for the future.

ESCO and ESPC Explanation

Before an explanation of an ESPC, ESCOs must be defined. The EPA defines an ESCO as a company that provides energy efficiency related services with energy savings performance contracting as a central part of its business. ESCOs can offer other services beyond energy efficiency offerings such as engineering, design, construction or manufacturing. However, they are only considered an ESCO if they offer energy efficiency as a major service offering and implement projects while assuming some performance risk during the economic life of the project. In addition, the EPA excludes companies in the ESCO definition that only provide on site or renewable energy services without including energy efficiency services.

Traditionally, ESCOs have been very successful in the existing buildings market segment to include K through 12 schools, institutions for higher education, hospitals, municipal buildings and others. The success for ESPCs with ESCOs in the building market segment is well documented. Attention now needs to focus on the energy intensive industrial market segment for energy efficiency and sustainability programs, none being more important than the water and wastewater market. The water and wastewater market is an industrial market segment that can consume up to and greater than a third of a municipality?s operating budget for energy alone. The water and wastewater market energy use is 3 to 4 percent of the energy usage in the United States and according to the EPA is 56 billion kWh equating to $4 billion annually in operational expenditures. The success for the buildings segment with ESPCs can be applied to an industrial market such as water and wastewater and result in a sustainable municipality.

An ESPC is a turnkey service that incorporates system design, construction and commissioning that provides comprehensive energy conservation measures to include energy efficiency, renewable energy and distributed generation opportunities that result in a guaranteed energy savings. The resulting savings for energy ultimately funds the improvements with guaranteed performance. In the event the savings are not achieved, the ESCO will pay the difference. In addition, the ESCO arranges the financing and finds the most flexible options for the customer. A typical ESCO portfolio of services will usually include the following:

  • Capital needs assessments
  • Energy / utility auditing and master planning
  • Comprehensive energy management strategy
  • Conversion to renewable energy sources
  • Project design/development/construction
  • Financing through guaranteed savings
  • Performance guarantees
  • Staff training
  • Monitoring and Verification of Savings

To understand a customer?s needs and how to define a successful partnership with an ESCO, a workshop for the decision-makers and stakeholders should be conducted with the ESCO to understand how the ESPC will work and the value it will bring. After the foundation of the ESPC is built with a workshop, a preliminary energy audit is conducted by the ESCO to identify potential savings and energy conservation measures (ECMs). The ESCO will then submit a proposal for an ESPC tailored to address specific needs for the customer.

For municipalities, specific procurement steps will have to qualify the ESCO to move to the next step of the ESPC. After the procurement step is accomplished, an investment grade audit is conducted. This is a very detailed audit that will provide a scope of work statement along with the project?s cost and the guaranteed energy savings. Once the ESPC is drafted and approved by all parties, the installation period begins. After installation of an ESPC, monitoring and verification is accomplished with a complete analysis and reporting of the project?s performance, energy use and savings. The monitoring and verification phase is conducted by the ESPC or a third party over the life of the contract or when terminated by the customer.

Exhibit 1 is a block diagram of an Energy Savings Performance Contract for a municipality. Energy is used by the wastewater treatment plant and in turn, money is paid to the Electric Utility for their services. The ESCO finds energy conservation measures and assists the municipality with finance arrangements. The up-front costs for the energy conservation measures are paid to the ESCO and the ECMs are implemented. The resulting savings then funds the payments for the loan. The ESCO guarantees the savings for the life of the contract.

Choosing the Right ESCO

The first step in executing a successful ESPC is choosing the right ESCO for a mutually synergistic partnership. An ESPC is often a 10- to 20-year relationship from contract development to monitoring and verification of guaranteed savings, as well as performance throughout the contract life cycle. Because of the long-term relationship with ESCOs for an ESPC, financial strength and viability are a critical attribute of the ESCO. Ideally, ESCOs should have a history of financial sustainability and strengths in the water and wastewater market. History of ESPC experience in all market segments is a key indicator of diverse financial strength and experience. For example, industrial experience will give the ESCO a wide variety of ECMs for processes that could be applied in water and wastewater. Boiler technology, complex processes and combined heat and power applications (cogeneration) are just a few.

Experience in the buildings market will demonstrate an ESCO?s ability to implement HVAC and lighting energy reduction techniques. Further, the buildings market requires substantial experience in cogeneration, emergency generator and renewable energy applications. The buildings market will also give ESCOs experience in obtaining LEED Building Certification. LEED Building Certification has been utilized in water and wastewater and will be in greater demand for future energy reduction projects.

The ESCO should be technically competent for recognition, development and implementation of conservation measures for water and wastewater. Typically, water and wastewater treatment plants need a substantial amount of electrical energy to conduct unit processes and operations. Aeration and pumping for wastewater treatment and pumping for water treatment are the main electrical energy users. Because water and wastewater are motor-rich environments, energy usage is not only a substantial operational cost; it also must be managed properly for use with complex motor control and monitoring for processes and pumping.
ESCOs must be well versed and have experience in power, automation, power monitoring and Supervisory Control and Data Acquisition (SCADA) systems. In addition, experience in security and other advanced software systems such as Manufacturing Execution Systems (MESs), Enterprise Resource Planning (ERP), advanced process control, optimization and reporting programs is essential. These systems are critical in obtaining substantial success and savings for a water and wastewater ESPC.

Trusted environmental engineering consultants should be part of the ESCO partnership for any ESPC for water and wastewater. Consultants are actively involved in process designs, master plans, capacity ratings and water quality for municipalities. ESCO/Consultant partnerships actively enhance the success of ESPCs in water and wastewater. Choosing ESCOs with strong Environmental Consultant relationships and partnerships should be a consideration. In addition, ESCOs with environmental engineers on staff will understand the complexity of water and wastewater more thoroughly. ESCO environmental experience will allow for a better liaison and coordination with Environmental Consultation Firms.

An ESPC for water and wastewater will require a substantial amount of retrofit and expansion experience for existing infrastructure. ESCOs with the ability to expand or retrofit multiple manufacturer?s process, electrical and automation equipment is very desirable. ECMs involving a confined space and the heavy investment in existing equipment may only be of a value in a retrofit in lieu of replacement opportunity.

Water and wastewater market national as well as global experience is also an attribute of a qualified ESCO for water and wastewater. The ability to pass best practices from one country, state or local municipality to another is instrumental in expanding energy savings information and measures over the water and wastewater market. Global and national experience can also be used as a barometer to measure financial stability and viability.

The Energy Efficiency Life Cycle

ESCOs implementing ESPCs in the water/wastewater market must understand electric utility rates and structures. Maximizing off-peak demand, as well as load monitoring and shifting opportunities, could provide needed funds for additional ECMs. Investigating utility rebates, as well as federal and state grants for energy-efficient operations, could secure additional funds. At the same time, it is crucial to establish an energy usage baseline. This is accomplished through an energy audit.

With that baseline established, the four-step energy efficiency life cycle begins. The next two steps are implementation of passive and active energy efficiency measures. Passive energy efficiency measures are those that are easy to implement without automation. Conversely, active energy efficiency measures require automation and optimization of processes. The final step is metering and monitoring to establish future efficiency goals and key performance indicators, thus making energy efficiency an ongoing process. Exhibit 2 is a diagram of the Energy Efficiency Life Cycle.


Energy Savings Performance Contracts for the water and wastewater market is complex. Energy Services Companies must be experienced and financially strong to execute a successful project. Experience in environmental engineering and working with environmental consultant firms is a must. Further, the ability to cross national and global markets is beneficial in understanding the complete market and allows ESCOs to understand the global and national water sustainability issues. To keep the cash flowing for water sustainability, implementing ESPCs with the right ESCO is critical for water needs for future generations.

EDITOR?S NOTE: This is the first in a two-part series. Part II ? ?Energy Savings Performance Contracts ? Cash Flows for Water Sustainability? will explain the ESCO ESPC process in detail.
In addition, ECMs that can be utilized in the water and wastewater market will be explained. Detailed discussions of renewable energy opportunities and specialized situations for water and wastewater versus other markets will be discussed.

Lee E. Ferrell, P.E., is a water and wastewater energy and process consultant for Schneider Electric.

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