Residential Energy Savings and Performance Contracting: The Big Business Advantage | Environment

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Residential Energy Savings and Performance Contracting: The Big Business Advantage.

A collaborative effort may be just what we need to boost excitement into the minds of homeowners. Large companies use something called “Performance Contracts” to acquire financing for Energy Conservation Projects. A Performance Contract is usually provided by an ESCO, to a large business entity. Applying Performance Contracts the same way an (ESCO) Energy Service Company does to big-business, could be a worthy option. Performance Contracts are offered to municipalities, school districts, stadiums and other corporate entities; but not to private residential homeowners. Unfortunately, millions of energy savings dollars could have already realized, if Performance Contracting was extended outside Corporate America. Is this just another case of “The Big Business Advantage?”

To understand if there is an advantage, you need to know a little about what Performance Contracting (PC) is. Performance Contracts essentially guarantees “a minimum amount of energy savings” from the installation of energy efficient equipment and energy conservation strategies. Energy savings are derived from a detailed Energy Audit, which reveals where energy savings should be applied. The audit also reveals energy savings strategies along with a given “Pay Back time, for each strategy. The “Pay-back” demonstrates length of time it takes, to get a return on their investment. A simplified example of a Pay-back is; lighting retrofits will cost $6,000 and will save $2,000 annually. Therefore; the payback will be 3 Years ($6000/$2000) = 3, meaning, it will take 3 years to pay down the cost, the (4th year + )is “pure savings”.

There are many other advantages, such as energy monitoring. It is to the ESCO’s advantage to monitor the saving because they have “guaranteed” the savings. The ESCO also assumes responsibility with a “Promise” or “Guarantee”. The promise goes something like this; if Company X does not see X amount of savings during a given amount of time, we will pay you the difference! Furthermore, the cost/debt of the Energy Retrofit will be covered by future energy savings. To give you an example; company X is a Convention Center with badly needed equipment upgrades. Company X is also spending 20-30% more energy than necessary and for a Convention Center that could equate to millions of dollars of additional cost. However, Company X can’t afford the project from its current operating budget. See any similarities to homeowners? Fortunately, in enters the ESCO that can not only help secure financing, but, PM the installation, repair, service and track energy savings for the project. The icing on the cake for the Company X is the” Performance Guarantee”!


Energy Analyst or CEM’s are Energy Professionals educated in Energy Engineering



So, why is it good for Residential Markets?

o Financial cost is the main reason that most energy strategies are not done in the residential market.

o The effects of Global Warming from Green House Gases are largely dependent on how much pollutants humans make and how much energy we use. Energy-related carbon dioxide emissions, resulting from petroleum and natural gas, represent 82 percent of total U.S. human-made greenhouse gas emissions. When we reduce energy and pollutants, demand and supply is also reduced.

o A National Research Council study dated May 2001 stated, “Greenhouse gases are accumulating in Earth’s atmosphere as a result of human activities, causing surface air temperatures and sub-surface ocean temperatures to rise.

o According to (EIA) Energy Information Administration, statistics show that Residential Carbon Emissions for 2005, was 5,956,978,731. If we treat residential market like the business market we have a chance of saving a minimum of 15% Carbon Dioxide Emissions from our homes, only. The Presidents Global Climate Change Policy projects an 11% reduction in Carbon Dioxide, which is inclusive of all industries.

o Reducing our dependence on foreign oil. According to the (NRDC) Natural Resources Defense Council, we spend more than $200,000 dollars/ per minute -- $13 million per hour -- on foreign oil. This is $13 million dollars with Zero payback.

o An investment in consumer Performance Contract financing would result in a payback of 20-30% in energy cost. Savings that could go back into our pockets and trickle down to our economy.

o Finally, efforts have already been made towards Performance Contracts and the Residential market. The Department of Energy and HUD have put together a collaborative effort to make public housing more energy efficient. The collaborative effort, referred to as “Energy Performance Contracting for Public and Indian Housing” is a recipe book detailing the benefits and procedures of Performance Contracting. The Guide Book was originally printed in 1990, nearly 18 years ago.


In summary, Performance Contracts is a method used by big-business, to finance projects they would not normally have been able to finance. We have a national crisis, our economy is suffering, and homeowners are not in the position to make the most of energy retrofits, without some financial assistance. Efforts have already been made for the Public Housing Market, but what about private home owners? Certainly, the dynamics of Performance Contracting, and Financing would make this more attractive to the homeowner and level the playing field…once again.

About the Author

Nearly 10 years in the Energy Management Field. Led Michigan Schools, Wyandotte to become the 1st Energy Efficient School District and being awarded the prestigious ENERGY STAR label. Her specialties include Energy Management, Energy Conservation, Control Strategies and Risk Management. Natasha has nearly 10 years in the Energy Management and Building Automation & Controls Industry. Natasha started her career in Energy Engineering at Honeywell Inc. and later worked at Johnson Controls as an Energy Analyst and Performance Assurance Specialist. In 2002 Natasha Vassallo became a Certified Energy Manager (C.E.M). She holds a Batchelor of Science, in Facility Management with a Concentration in Construction Technology and a MBA from Lawrence Technological University. Natasha Vassallo enjoys writing, research and quality family time.

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