The Case for Energy Savings Performance Contracts in Your Data Center

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If you are the manager of a federal data center, you may be in varying stages of consolidating, but the progress might be dependent on your agency’s options for space and the mission it needs to support both now and in the future. Not to mention, the biggest consideration is often budget.

Energy Savings

Are you struggling with trying to answer: “How do I make what I know will be expensive changes in reducing a number of data centers into a single space? Or how do I optimize my space for maximum efficiency in the absence of a budget?” Here’s how energy savings performance contracts (ESPC) can be used for financing consolidation or any data center project.

To review, the Energy Policy Act of 1992 (EPACT 1992) authorized federal agencies to use private sector financing to implement energy conservation methods and energy efficiency technologies. Fast-forward to 2010 when Doug Bourgeois, then vice president and chief cloud executive with VMware, first suggested using an ESPC to fund Federal Data Center Consolidation Initiatives (FDCCI).

Simply put, an ESPC is a partnership between a federal agency and an energy service company (ESCO). The ESCO (like Schneider Electric) conducts a comprehensive energy audit for the federal facility, identifies areas of improvements, designs and constructs a project that meets the agency’s needs and arranges the necessary funding.

A third-party financier provides the up-front capital for the project and as energy savings accrue, those savings are paid to the financier until the financing agreement is complete. The ESCO guarantees energy cost savings sufficient to pay for the project over the term of the contract.

Other funding sources could include savings from reduced operational and maintenance costs or utility incentives and tax incentives. Also, when available, capital dollars may be used to fund an ESPC, either alone (where the agency keeps all of the energy savings accrued) or in conjunction with another funding source.

Case in Point

The Department of Energy (DOE) claims a “robust data center program.” More than 550 facility-related ESPC projects worth $3.6 billion were awarded to 25 federal agencies and organizations in 49 states and D.C. as of March 2010, according to DOE’s Federal Energy Management Program. The result being $11 billion savings in energy costs.

For a concrete view of the value of ESPCs, take a look at the precedent-setting case of the U.S. Coast Guard-Puerto Rico.

Spread across 200 buildings at three different sites in Puerto Rico, Schneider Electric constructed a comprehensive ESPC, including a 3 Megawatt solar photovoltaic project. Through a 23-year Energy Services Agreement, a third party owns the solar photovoltaic system and will sell the generated power to the Coast Guard at a rate below the price of utility power.

Cool roofs at each site will also be installed and there are plans to implement additional energy conversing measures (ECMs) in the near future. Other ECMs include lighting, roofing, water, and air conditioning units.

This was a first-of-its-kind Energy Services Agreement arranged within a federal ESPC and serves as an important example for energy efficiency projects within the market sector.

Compounded Value
For all ESPCs, any savings above the financing payments or those that accrue once the term is up remain with the agency as a cost reduction. So with no required up-front capital and guarantee of performance, this type of contract is not just a great alternative when meeting consolidation mandates, but also a great opportunity when upgrading aging facilities and equipment.

Whether you are still not sure if ESPCs are right for your agency or you are convinced and want to get started, see additional case studies, bulleted points of the value and implementation steps and an overview of the process in White Paper 176: “Energy Savings Performance Contracts for Federal Data Center Consolidation.”

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