An Energy Savings Performance Contract (ESPC) is a public-private partnership between a facility owner and an energy service company (ESCO). It serves as a financial mechanism to pay for today’s facility upgrades with tomorrow’s energy savings, redirecting funds that public agencies currently spend on energy costs and maintaining outdated equipment into a payment stream for energy-efficient capital improvements.
ESPC is an established and proven procurement and financing mechanism authorized under federal law. Through legislation enacted in the early 1990s, Congress authorized federal agencies to use ESPCs to implement energy and infrastructure improvements without requiring upfront appropriations, with projects repaid through verified energy savings over time. The success of the federal program led many states to adopt their own ESPC legislation, providing state and local governments, K–12 schools, higher education institutions, hospitals, and other public entities with a proven framework to modernize aging infrastructure while minimizing reliance on taxpayer-funded capital budgets.
ESPC can be implemented as a standalone project or as a substantial part of a comprehensive building renovation project. Many ESPC projects are multi-phased.
*While Energy Savings Performance Contract (ESPC) is the most widely used term, some states use different names for the same or similar performance contracting model. Depending on the state, these programs may be referred to as Guaranteed Energy Savings Performance Contracts (GESPCs), Guaranteed Energy Savings Agreements (GESAs), Energy Savings Improvement Program (ESIP), or Energy Performance Contracts (EPCs). Although the terminology varies, these programs all use guaranteed energy savings to finance facility improvements.
Reducing Reliance on Taxpayer-Funded Capital
One of the key benefits of an ESPC is the ability to combine guaranteed energy and operational savings with a mix of available funding sources to maximize the scope and impact of a project. Depending on the project, this may include financing, bonds, grants, incentives, rebates, and other available funds.
By strategically leveraging these resources, public agencies can address critical infrastructure needs while minimizing or eliminating the need for additional taxpayer funding. This approach allows agencies to make needed improvements today while preserving limited public funds for other priorities.
Looking for more resources?
The U.S. Department of Energy (DOE) created the Energy Savings Performance Contracting (ESPC) Campaign with the support of the Energy Services Coalition (ESC) to help public agencies learn about and implement ESPCs. Through the campaign, the DOE offered free webinars and educational resources covering ESPC fundamentals, financing, procurement, and project implementation.
Here is a webinar that introduces Energy Savings Performance Contracting: Intro to ESPC - A High Value Tool for Public Agencies
Getting started with an Energy Savings Performance Contract is as simple as reaching out to an Energy Service Company. An ESCO can assess your facility's needs, explain the performance contracting process, identify potential energy conservation measures, and guide you through project development, financing, and implementation.