NEMA EWS 1 2-2016 Use of Performance Contracts for Advancing Efficiency in Water Infrastructure.pdf

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1、NEMA Standards PublicationNational Electrical Manufacturers AssociationNEMA EWS 1.2-2016Use of Performance Contracts for Advancing Efficiency in Water Infrastructure 2016 National Electrical Manufacturers Association 1 Use of Performance Contracts for Advancing Efficiency in Water Infrastructure Com

2、panion document to Increasing Energy Efficiency in Urban Water Systems: Summary Report Energy service performance contracts (ESPCs) with energy service companies (ESCOs) have been used for two decades to promote energy-saving strategies and measures, mostly in the commercial and public building sect

3、ors.1 Water efficiency service companies (WESCOs) have been a much smaller sector serving water utilities. These companies bring together technical know-how, institutional knowledge about available funding and incentives, and risk-sharing to deliver customers operational savings (see Appendix D for

4、a general discussion). The latter two factors could be key to making this mechanism a useful means of increasing adoption of advanced electricity technologies in the water utility sector. Institutional Understanding of the Target Market First, we begin with an understanding of the structure and ince

5、ntives of water utilities. As discussed earlier, the vast majority of water utilities are municipally owned, either as divisions of cities and counties or as special districts. These organizations are driven by concern for public welfare and political support. They are not profit-driven, and cost re

6、ductions are of concern to the extent that those reductions translate to changes in rates. Often these utilities have large, long-lived capital investments in various facilities and relatively small operational costs, even compared to electric and natural gas utilities; however, energy costs are usu

7、ally a large portion of those operational costs. These utilities are almost always outside of state economic regulation and external incentives, the rationale being that local governments can best look out for the interests of their ratepayers. On the other hand, they face greater state and federal

8、health and environmental regulations. Penalties for regulatory non-compliance can be large. For this reason, a focus on low-cost service may become secondary. Because these are municipal entities, the governing boards tend to be conservative and risk-averse. Board members, particularly when composed

9、 of elected city or county officials, are less likely to be well informed about water management issues and, in particular, technology advancements. These utilities staffs are much smaller than those of investor-owned energy utilities but in line with municipal electric utilities. Most technical sta

10、ff are civil or mechanical engineers, as opposed to electrical engineers who might be familiar with new technologies. The procurement process for these water utilities can require more effort, as they are public agencies. As one observer pointed out, it is difficult to market to the water sector bec

11、ause even if 1 Appendix D contains a review of the characteristics and performance of the general energy services company sector. 2016 National Electrical Manufacturers Association 2 the operator knows that the manufacturer or pump is high quality, it is still necessary to go to bid, do cost compari

12、sons, etc., and, in the end, the decision is often made based on other factors. The most important things to original equipment manufacturers (OEMs) are first the lowest price and then reliability and lowest energy usage. It is a complex process of dealing with vendors; this really needs to change i

13、f taking a systems approach. As for the much smaller sector of investor-owned utilities, these companies are typically much smaller and often characterized by widely separated service areas. The investor-owned company is often effectively a collection of many smaller companies (sometimes called dist

14、ricts). The staff is usually “lean and mean,” focused on delivering water with the existing infrastructure, however inefficient it may be; these utilities do not often have substantial technical expertise, particularly in electrical issues. While these utilities are regulated by state public utiliti

15、es or public service commissions, such regulation is often overshadowed by electricity and natural gas. Either the regulatory staff can impose draconian requirements that ignore the capital requirements and revenue variability of the industry or the companies can pass along all of their costs with l

16、ittle oversight. Unfortunately, either situation can mute incentives for cost savings because either regulators take all of the savings for ratepayers without regard to long-term consequences or managers see little pressure to change current practices. These structures and incentives indicate a diff

17、erent set of objectives than for private and regulated investor-owned companies. Demonstrating the benefits of energy cost savings is more indirect. As indicated in the accompanying survey, payback periods likely have to be within the elected officials terms of office. Investor-owned water utilities

18、 may view energy savings as a potential risk to their revenue stream in certain states. For public utilities, focusing on how ratepayers may benefit with little or no risk may be the most persuasive approach. Each utility may be full of engineers, but those engineers typically will not be as familia

19、r with electrical technology and the benefits of upgrading existing equipment. Providing credible outside expertise may be an important element in gaining staff support. One manufacturing representative said procurement mechanisms tend to be a challenge; it is important to get both utility staff and

20、 vendors to feel comfortable with the new technologies and methods for procuring them. Considerations in Designing Energy Service Performance Programs The American Council for an Energy-Efficient Economy (ACEEE) and the Alliance for Water Efficiency (AWE) created a contest to find the most effective

21、 water-energy programs. Among the most relevant findings are that the most effective programs gained savings in both energy and water, they were partnerships and collaborations across multiple organizations, and they were part of broader long-term initiatives that integrated resources. Another impor

22、tant feature particularly important to using ESCOs is that the programs acted as “one-stop shops” for all relevant information. The challenges included gaining commitments and trust from partners, but 2016 National Electrical Manufacturers Association 3 clearly conveying information about the benefi

23、ts was key. Once the program started, maintaining support was a challenge. Finally, quantifying the amount of energy saved, including that outside of the water utility, was a problem. ESCOs can facilitate many of these functions by providing a full range of support services. Recognizing and integrat

24、ing the savings across both energy and water is critical, given the mission of the water utilities. This is akin to the standard ESCO project focused on commercial and public buildings. In that case, energy savings must be delivered while maintaining comfort and improving building functionality. ESC

25、Os will need to be able to track and access incentives for both energy and water savings, and to supply that information from a central place. As a corollary, ESCOs will need to be able to assist in negotiating the necessary collaborative efforts across multiple parties. The introduction of water ma

26、nagement adds a level of complexity that does not exist in a typical ESCO project. Energy savings usually can be measured as a separable indicator from other building functionsit is usually not an integral part of the buildings service delivery. This is not the case with water utilities. How energy

27、is used to move or process water can have an effect on the total water usage, and, conversely, water efficiency gains can have a direct impact on energy use. Improved water efficiency can lead to increased energy use. For example, pressurizing drip irrigation systems improves water efficiency but ca

28、n increase energy use if the previous system was primarily gravity fed. This can create complications in computing incentive targets in energy services performance contracts. A water utility may implement a water-saving measure that reduces overall costs but shifts some costs to the energy bill. Ens

29、uring that the contract covers overall cost savings to some degree can address this problem. A further complication is integrating more advanced technologies into an existing system. As one of the study participants said, retrofitted water-utility facilities are frequently not tooled and calibrated

30、properly to best integrate new equipment and, as a result, will not provide lab-tested efficiency performance. The challenge is educating product consumers to focus on overall energy savings rather than just simple efficiency measures. Another manufacturer representative who works with ESCOs said th

31、at facilities need to be retro-commissioned; software is needed to improve data management and support performance tracking. One manufacturer that has successfully implemented an ESCO in the water utility sector evaluates the integrated delivery system and considers the full train, including motor d

32、rive and pump and getting that train synchronized and tuned together. Still, end users are too often only looking at the efficiency of individual components of a system, rather than the entire system. Another factor adding complexity is that improved water efficiency can lead to reduced energy use u

33、pstream and outside of the water utilitys system boundaries. For example, an interregional water conveyance system is typically managed by a wholesale water agency. A retail utility may not fully realize the full financial savings from the upstream energy reductions because the wholesale utility may

34、 not pass them through. This external energy source is one example of where “hidden energy” is embedded in delivered water. Providing the appropriate incentives for 2016 National Electrical Manufacturers Association 4 the retail utility to fully realize energy savings may require the intervention of

35、 the serving electricity utility, regulatory commission, or state energy office. An ESCO, which is probably more familiar with these organizations and available programs, may be well positioned to assist a water utility looking for external incentive programs targeting these savings. Water utilities

36、 also face financing issues for smaller-scale projects and will want to rely on the ESCO to mitigate annual cost increases. As one observer put it, “All public financing decisions begin with maximizing the use of other peoples money.” The availability of federal, state, or regional financial incenti

37、ves as well as energy utility incentives can influence a water suppliers decision to participate. ESCOs should come prepared with a financing package that relies on outside grants and incentives to the extent possible (see Increasing Energy Efficiency in Urban Water Systems: Summary Report, section

38、3.2.2). Finally, risk sharing is an important consideration given the nature of the municipal utilities. As discussed above, a utility may be making trade-offs in water and energy savings, but it will want to push as much risk onto an ESCO as possible. An ESCO will want to assess how to develop a mo

39、dified version of the standard guaranteed savings contract that accounts for potential trade-offs. Integrating the combined energy and water cost savings, while an unusual aspect of ESPCs, is key to this objective. Developing metrics for savings contributions from different strategies and measures w

40、ill be important to formulating these contracts. Financing Methods Energy saving performance projects can be financed in a variety of ways. They are typically financed by third-party financial institutions. For a water utility, these financing options can move debt off its books while providing the

41、advantages of spreading costs over a longer period. That can mitigate the potential for short-term rate increases from upfront equipment purchases. Water suppliers are funded predominately through the rates they charge their customers for the water the agency delivers to them. Other types of funding

42、 can include taxes, local bonds, tap or connection fees, and special district fees.2 Often, ESCOs can help customers understand their financing options and arrange alternative financing. Although it is uncommon for public-sector customers such as water utilities, some large institutional customers t

43、hat have sufficient capital on hand may consider self-financing an energy-efficiency project. Self-financing allows customers to save on interest costs and keep the entire energy savings as a return on their investment. This may be a good option for entities that can draw on an endowment, capital bu

44、dget, funds for deferred maintenance, or reserve accounts for efficiency investments. One option, though, is to use enterprise fund reserves from other municipal entities to finance these measures. Such funds currently earn extremely low returns, 2 Helena Alegre and Srgio T. Coelho, “Infrastructure

45、Asset Management of Urban Water Systems,” in Water Supply System Analysis - Selected Topics, LNEC National Civil Engineering Laboratory, Lisbon, Portugal, http:/ 2012. 2016 National Electrical Manufacturers Association 5 and making this type of low-risk investment could be a useful revenue generator

46、 for a municipality; however, since third-party financing is more typical, this section focuses on some of the most common third-party financing vehicles. For all of these financing options, the borrowers payment obligation is not dependent on energy savings of the ESCO project. While the ESCO is ob

47、ligated to make up any shortfalls in energy savings to the customer, the energy savings guarantee is independent of the borrowers agreement with its lender. Tax-exempt lease-purchase agreement: Lease-purchase agreements have historically been the most popular financing arrangement. Under a lease-pur

48、chase agreement, the lessee purchases the energy-saving equipment provided under an ESCO contract through scheduled installments. At the end of the agreement, ownership of the equipment is transferred to the lessee. The major advantage of lease-purchase agreements is that they are often treated as o

49、ff-balance sheet transactions, depending on specific contract language. Rather than being treated as long-term debt obligations, which may require special approval for public agencies in particular, lease-purchase agreements can be treated as series of renewable, short-term lease payments. This moves the debt obligation off the books and improves the agencys position for debt rating. Public institutions and, in some cases, nonprofit institutions