Paying for electricity in Puerto Rico can be expensive — very expensive.

That's why the Army is overhauling Fort Buchanan, Puerto Rico, with a series of wind turbines, thousands of solar panels and even a new irrigation system, saving the installation millions of dollars a year in energy costs.

But the new energy systems — from the 21,824 solar panels down to the new air conditioning and LED lighting — were all installed at no cost to the Army through an energy savings performance contract (ESPC).

Under an ESPC, a vendor pays the upfront costs of energy-saving or water-saving retrofits in exchange for payments from energy cost savings over time. If the building doesn't save energy, the contractor doesn't get paid, which gives all parties the motivation to make sure the technologies pay off.

ESPCs are an increasingly popular option for building upgrades and renewable energy, according to agency officials and energy contractors, who plan on investing hundreds of millions of dollars over the next few years.

Sidebar: 7 tips to develop ESPCs

In 2011 President Obama asked agencies to enter into $2 billion in ESPCs, citing the advantages of funding projects without using appropriated money. In 2014, he doubled that amount to $4 billion by the end of 2016.

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Since then the Army has awarded $756.9 million in projects — more than half of that in fiscal 2014 alone, according to Randy Smidt, the program manager for the Army's Energy Sustainability Program and its Alternative Financing Program.

ESPCs are instrumental in how the Army is able to finance energy-efficiency projects and even renewable energy projects such as solar panels and wind turbines — about 20 megawatts since 2011, Smidt said.

"In times of limited budgets we have really incorporated it into our infrastructure renewal programs and a lot of our investment on energy projects is through these alternative financing mechanisms," Smidt said.

The IRS facility will receive LED lighting fixtures, sensors controlling lighting levels, an energy-efficient chilled water plant, solar panel canopies and a solar thermal heating system.

Photo Credit: GSA

Randy Shed, energy and sustainability program manager for ESPCs at for the Army, stressed that ESPCs allow the Army to meet its various energy and environmental goals even as funds dwindle.

He said the Army has made ESPCs and other alternative financing vehicles a priority, and has set up program and budget support to coordinate between offices and manage contracts. The new Army Office of Energy Initiatives coordinates development of oversees all ESPCs and renewable energy projects across the service.

"We want to continue to build on a good thing. We have Army leadership support and just want to keep capitalizing on this," he said.

The General Services Administration beat its initial $175 million goal it set in 2011, and has set a second goal to award another $170 million in ESPCs by 2016.

The agency is combining its data-gathering efforts with its energy-efficiency expertise to dramatically cut energy use at its federal buildings, according to Kevin Kampschroer, the director of the Office of High-Performance Green Buildings at GSA.

He said agencies across government are moving toward using appropriated funding for building projects judiciously, while looking to ESPCs to help provide needed retrofits and upgrades.

The average government ESPC project cuts building energy use by about 38 percent, but GSA has had greater success — it has has achieved larger than 50 percent reductions through a heavy emphasis on using data to target high-priority areas, according to the agency.

"We have a lot of data about these buildings," Kampschroer said. "We can see what energy they consume and which ones are not performing as efficient as their counterparts in the same geographic and physical conditions."

He said the agency is also working to cut the overall contracting time from around 16 months to 12, and has boosted its ESPC-dedicated contracting staff to create a knowledge base for those projects within the agency.

Overall, GSA is on a mission to cut energy use across its portfolio, maintain its buildings and improve its energy-efficiency systems in the most cost-effective way possible, he said.

"I think that the value of what we have done here is that we have shown we can do deep energy retrofits and you can do it in a cost-effective way. You can save the government money over the long haul and you can improve building infrastructure," he said.

Other ESPCs include the IRS's New Carrollton Financial Services Center in Maryland, which is getting an energy-efficient chilled water plant, LED lights, solar canopies and a solar thermal heating system, according to GSA. The $43 million project will reduce energy use at the facility by 60 percent.

These types of large-scale projects, complete with renewable energy projects, just would not be possible without the widespread use of ESPCs. Agencies that are scrambling to cut costs have used these contracts as a key tool in the budgeting toolbox, according to Kevin Vaughn, the program manager for federal energy solutions at energy contractor Schneider Electric.

"The lack of appropriated funds is driving more and larger comprehensive ESPC projects with federal agencies. Nearly every agency that we are working with wants to make their project as comprehensive as possible," Vaughn said.

He said agencies are implementing so many ESPCs that some of the projects are in buildings that contain advanced metering, allowing agencies and the contractor to better pinpoint energy usage and possible savings before beginning a project.

He said increasingly agencies are putting together centralized management teams to handle ESPC projects, with the Army and GSA leading the way in dedicating permanent resources to the program.

"By providing a centralized set of resources for the different regions within GSA it provides a standard review process as well as contracting officers who don't need to learn how to craft the contract," Vaughn said.

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