304 Energy Project Financing: Resources and Strategies for Success
2.3.3 Performance Risks
As discussed in Chapter 2.2, when an energy savings performance
contract is used, capturing the effect of “change” is particularly im-
portant. For example, consider which party estimated the savings and
which party carries the financial impact of. i) a change in operating
hours, ii) a change in weather, iii) a degradation in chiller efficiency, iv)
a change that requires compliance with new or existing standards, v) a
partial facility closure, vi) an expansion to a third production shift, vii)
quality of maintenance, etc. The financial impact of these changes can be
either positive or negative. The contract must be clear who wins or loses.
For example, an ESCO may not get credit for the savings created by
actions of the owner. Similarly an ESCO should not be required to cover
the higher costs incurred due to the owner’s increased or decreased us-
age outside the parameters of the project; e.g., a new computer lab or,
fewer shifts worked.
Energy savings estimates are usually based on an assumption that
the facility will operate on a predicted schedule, or load profile. Changes
to this schedule will affect project generated savings. Assignment of re-
sponsibility for these changes is a critical contract component. As well,
these are all risks that need to be evaluated by each party in advance
and accounted for using performance measurement as specified using
an appropriate M&V method. Often these are examined in detail after
implementation, when it is too late. For example, an executed contract
may stipulate that the owner is responsible for the operating hours of
a lighting system, and the ESCO is responsible for ensuring that the
system power draw is correct. For this contract, Option A M&V method
(as introduced in Chapter 3.4. 1) is appropriate. Cost avoidance is cal-
culated using a stipulated value for operating hours and the measured
change in the power draw of the lighting system.
Chapter 3
Basic Concepts and Methodology
3.1 INTRODUCTION
Energy or demand savings are determined by comparing mea-
sured energy use or demand before and after implementation of an