If you like saving taxpayer money — to the tune of $13.1 billion to date and counting – then you already love Energy Savings Performance Contracts or ESPCs.
ESPCs are a super deal for American taxpayers and federal agencies alike. But despite the impressive savings they have produced, ESPCs are not well known in the IT world.
The Department of Energy wants to change that.
ESPCs provide senior execs, budget scrutinizers and data center and facilities managers with a proven, viable, practical financing method for large projects — such as mandated data center consolidations (FDCCI) – when they don’t have the cash.
First ESPC for DOE Data Center
Managed by DOE’s Federal Energy Management Program (FEMP), 25 agencies have already used ESPCs to save $13.1 billion in energy costs in more than 570 projects nationwide. That translates into savings of 32.8 trillion Btu annually or enough to power a city with a population of 893,000.
Building on these successes, DOE is turning to an ESPC for its own data center consolidation, using its “Super ESPC Contract” to partner with Lockheed Martin on the first ESPC to be used exclusively for data center consolidation.
“The Department’s data center consolidation initiative is part of government-wide effort geared at ending unnecessary spending and saving taxpayers money,” said Jake Wooley DOE FEMP Program Manager for IT Sustainability.
ESPCs are already used extensively throughout the federal government, Wooley said in an interview last month.
But, “this ESPC–the first focused solely on data center and IT infrastructure–provides us with a unique contract vehicle for leveraging energy, operations and maintenance savings to achieve data center consolidation and IT transformation within the Department.”
Wooley further explained, “the Department is using this project as a proof of concept for utilizing this contract type to advance data center consolidation and IT infrastructure improvements.”
“What this does is allow management to make a major change to a facility and a capital investment in energy efficiency.”
How ESPCs Work
The Federal Energy Management Program manages the “Super ESPC Contract”, a DOE indefinite delivery/indefinite quantity type of contract, featuring 16 energy service companies (ESCOs). Each of these ESCOs – including Lockheed Martin – has already met rigid government qualifications to assist customers with energy conservation measures for their facility.
“If there is a major need (e.g. building a new or retrofitting a data center) the ESPC contract holders – not the government – obtains third party financing to make the needed capital investments.
The investment is paid off over time, based solely on the agency energy and operations and maintenance savings that have to be measured and verified,” Wooley explained.
“What this does is allow management to make a major change to a facility and a capital investment in energy efficiency.”
Contract terms up to 25 years are allowed according to DOE. ESPCs provide for a maximum individual contract value of $5 billion over the life of the contract, eliminate technology specific restrictions, and allow federal agencies to use these contracts in federal buildings nationally and internationally.
ESPCs are equally applicable to both new construction and retrofits. All projects are required to generate savings sufficient to cover annual financing cost and generate positive annual cash flow to the government after financing costs. Not until the projects are implemented and government is actually achieving the savings, does the repayment process begin.
Power Partnership Potential
Using the Super ESPC, “following an assessment and investment grade audit at the designated sites, Lockheed Martin will design and construct projects that meet the sites’ energy and IT needs and arrange financing to pay for them,” said Greg Caplan, senior manager for Energy Performance Contracting at Lockheed Martin, in a recent interview.
When completed, DOE will pay Lockheed Martin from the savings reduction in utility bills. Aggregate payments for Lockheed Martin and utilities cannot be more than DOE would have paid for utilities without an ESPC. Once the long term contract ends, agencies get all continuing cost savings.
“This is the first ever ESPC focused solely on reaching sustainability goals through improved IT practices,” said Caplan. “This is really a partnership, because the savings that could be potentially generated span the range of activities and measures from consolidation to modernization.”
Financing Transformation
Noting the intersection of the FDCCI, cloud computing and IT modernization policies, Caplan said DOE sees a potential to demonstrate to CIOs across government how to finance transformation and realize savings.
“These two trends and priorities — one being sustainability and energy reduction and the other data center consolidation — have been moving along mutually exclusive parallel paths for a couple of years,” explained Caplan.
“We have seen this opportunity now for a while; we were waiting for an agency to step up and demonstrate that these two imperatives can be integrated to achieve both goals and DOE has done it,” Caplan remarked. “DOE wanted not only to achieve its own objectives through this project, but set a precedent for CIOs across the government to build on.”
Lockheed Martin brings a track record to DOE having already consolidated data center operations and making energy efficient IT enhancements at the DOE’s Hanford, Washington site. The company has also aided utilities such as Pacific Gas & Electric and Con Edison be more energy efficient.
“Together we have proven that sustainable IT practices, such as data center consolidation, virtualization and cloud computing, can help federal agencies reach their sustainability goals and save money for citizens,” Caplan said.
He added the company is poised to apply their best practices across the department and the rest of government and has published a guide titled “Monetizing Energy Savings to Achieve DCC (data center consolidation) Objectives”.
Mid 2012 Implementation
Lockheed Martin is working with DOE to submit the preliminary assessment and have an investment grade audit before the end of 2011, “so we can be moving into implementation by mid-2012,” said Caplan.
His team has a lot to do. “What we do for any job is look at the full range of measures that we have implemented and we look at the actual infrastructure of the given customer to make recommendations,” Caplan explained. “In doing so we have extensive conversations with stakeholders to get their priorities so we can make the best recommendations.”
“Measurement and verification is a key contract requirement,” said Caplan. “The plan will be developed in cooperation with DOE as we compile the investment grade audit.”
One looming challenge is to reconcile the fact that many facilities upgrades have a long, long life cycle while IT does not. So technology needs to be aligned with operations and maintenance to get the energy savings needed to help pay off capital investments.
That’s why Wooley said DOE is going through this proof of concept to verify, identify challenges, and document lessons learned; the goal is to make this a repeatable process for other agencies to use.
“As this project progresses, we will continue to evaluate utilizing ESPCs and similar contract types for other IT infrastructure projects,” said Wooley.