To achieve efficiency improvements, water and wastewater utilities might be wise to consider performance contracting. A performance contract with an Energy Services Company (ESCO) can deliver much-needed operational efficiencies with manageable lifecycle costs and minimized risk.
The ESCO delivers the efficiency project under a progressive design-build approach. Benefiting from the efficiencies, the owner pays the ESCO for the improvements. In return, the ESCO provides a guarantee of operational savings, which are specified in the performance contract. If the savings fall short, the ESCO has to reimburse the owner. The intent of the performance contract is that the guaranteed savings generated will cover the debt service for the upgrades.
A Solution for Your Most Difficult Challenges
Performance contracting is not new. Yet its appeal is growing, particularly in the water and wastewater industry. It’s a potential solution allowing owners and operators to address their most pressing challenges: aging water and sewer infrastructure, capital program funding, management of operational costs, and response to regulatory requirements.
Potential water and wastewater performance contracts can cover a range of improvements, generating power, chemical, labor or maintenance savings. Example energy-conservation measures include:
- Adding renewable energy to the portfolio.
- Biosolids reduction.
- Digester gas-to-energy production (co-generation).
- Distribution system optimization.
- Demand-response programs.
- Water metering – non-revenue water reduction.
- Enhancing pumping efficiency (water distribution, wastewater collection).
- Reclaimed water.
- Wastewater treatment efficiency upgrades (e.g., blowers) and process upgrades or changes.
Energy savings performance contracting provides measurement and verification of project performance for the payback period of the contract. This is one way it limits risk. Another: owners are provided with an off-ramp at the feasibility stage if the business case does not work out.
Bridging Gaps
The key to success in working with an ESCO is establishing and maintaining clear expectations. In particular, understanding how the savings are calculated, how they are measured and verified, and exactly what is being guaranteed. If the contract is well structured and well understood, project savings can be greater than the debt service. This means the owner’s total budget does not have to increase.
Performance contracting with an ESCO targets significant savings at the water-energy nexus. It can help owners bridge the gaps between capital and operating costs, inefficient facilities and customer rates.
Subject Matter Expert
Mike Hanna: HannaKM@bv.com
