Guaranteed Energy Savings Program (GESP)
The Guaranteed Energy Savings Program (GESP) promotes awareness and implementation of energy efficient and renewable energy measures in public facilities to provide millions of dollars in annual energy savings in Minnesota. To do this, GESP supports you every step of the way.
GESP can help you:
- Solicit and award site-specific requests for proposals from pre-qualified Energy Service Companies (ESCOs) to perform Energy Savings Performance Contracting (ESPC) services
- Evaluate the technical and financial feasibility of ESCO proposals
- Negotiate and award work order contracts to pre-qualified ESCOs under the GESP Master Contract to implement energy conservation measures
- Offer project management oversight of ESPC projects
- Provide technical assistance to ensure the ESPC Measurement and Verification Plan is properly performed throughout the performance period of the contract
Download a fact sheet or a meeting sheet about GESP.
Watch a short webinar introduction to GESP
Energy Savings Performance Contracting (ESPC) is a performance-based procurement and financing mechanism that leverages maintenance, operations, and utilities savings achieved through the installation of energy efficiency and renewable energy measures, to finance the cost of the facility retrofit and renewal project, with no bonding or raising taxes.
Whether you’re a county, city, school district or any other form of local government, there are improvements that you can make to your facilities to save energy and save money.
| High-Potential Facilities:
|| Possible Projects:
GESP allows you to bundle projects so that low-hanging fruit can finance deeper retrofits without impacting your budget.
*Learn more about how to bundle projects, as well as the potential savings of different types of energy efficiency upgrades. Bundling projects in and between the types of facilities below is a benefit of GESP.
Need more ideas of energy efficiency upgrades or clean energy projects in Cities, Counties, or Schools to bundle? Check out the Local Government Energy Action blog posts.
Below are six steps for Guaranteed Energy Savings Program (GESP) participants and the estimated amount of time for each.
The process is then further detailed in the second graphic (click here to see larger version).
- GENERAL QUESTIONS:
- Is it debt free financing?
- Does it affect a local government’s bond rating?
- When does the energy saving guarantee start?
- Do energy costs generally go up or down during the construction process of energy conservation measures?
- What is the interest rate of the lease purchase agreement with GESP?
- Do local governments have to enter into a Lease Purchase Agreement to pay for the project?
- What are the maximum mark-ups and fees? What does this mean for the bidding process for local governments?
- THE INVESTMENT GRADE AUDIT:
- FACILITIES, UPGRADES & ENERGY CONSERVATION MEASURES:
- ECONOMIC DEVELOPMENT:
- MEASUREMENT & VERIFICATION/GUARANTEE:
General Program Questions
Is GESP a grant program?
No. GESP is state technical assistance on Energy Savings Performance Contracting, administered by the Department of Commerce Division of Energy Resources. At a high level, in an energy savings performance contract, the money used to pay for upgrades is repurposed from the existing operations and maintenance budgets as a result of the installation of more efficient equipment. The savings each year go towards paying for the contract over time, until the new equipment is paid off.
What kind of technical assistance is provided by the state?
When using the guaranteed energy savings program (GESP) for an energy savings performance contract:
- Energy Service Companies have been pre-qualified and vetted by the state to ensure they have the financial backing to provide a savings guarantee for a project:
- Ameresco, Inc.
- Chevron U.S.A. Inc.
- Consolidated Edison Solutions, Inc.
- Control Technology & Solutions LLC
- Harris Mechanical Contracting Company
- Johnson Controls, Inc.
- McKinstry Essention, Inc.
- Noresco, LLC
- Siemens Industry, Inc.
- Trane U.S. Inc.
- A Master Contract has been vetted by the Attorney General of the State of Minnesota.
- Site-Specific RFP & Contract Templates have been created to reduce the staff time required to go through an energy savings performance contract.
- Pricing is more transparent with open book pricing, and maximum markups are disclosed during the bid process.
- There is competitive bidding of trade work & equipment.
- There are measurement & verification guidelines to outline this process.
- There is third party M&V oversight.
- General project oversight and assistance is provided. For example, there is a sequence of meetings throughout the GESP project development process to pick the ESCO, decide on the projects to move forward with, and see how the process is going for the public institution.
Why would a local government use GESP?
A local government would use GESP for a variety of different reasons. Some include:
- Reduce overall operations and maintenance costs in your buildings
- Achieve a variety of upgrades in a turnkey fashion now as opposed to piecemail installations as resources allowed
- Your local government lacks financing for upgrades
- Attain a renewable energy system for the local government
- Progress in GreenStep Cities – GESP is Best Action 1 under Efficient Existing Public Buildings
How many GESP projects are there?
15 sites are currently under development, with about 290 buildings.
How long does it take to get started with the Guaranteed Energy Savings Program (GESP)?
The opportunity assessment and goal definition process to get started with GESP can take between 2-6 months.
Is it debt free financing?
No, it’s budget neutral. The agreements are set up so the (guaranteed) energy, operation and maintenance savings are used to pay the lease payment. You are basically trading dollars within your operating budget. This means it shouldn’t impact the entity’s operating budget, but a lease purchase would show up as a debt.
Does it affect a local government’s bond rating?
Making investments in infrastructure can actually help with a bond rating. By renewing your infrastructure you’re actually able to bring down operating costs and create long-term value.
When does the energy saving guarantee start?
In some cases the ESCO will perform M&V on the existing system/equipment to establish the baseline for a particular Energy Conservation Measure. In other cases the baseline is established based on calculation that match existing conditions to the utility bill. The first Guarantee Year begins after final completion and acceptance of the project. Therefore there are initial savings from the energy conservation measures that benefit the local government.
Do energy costs generally go up or down during the construction process of energy conservation measures?
During construction (i.e. installation of the Energy Conservation Measures), existing HVAC systems/equipment will be removed and modified/replaced with new more energy efficient systems/equipment. When existing equipment is removed it will stop consuming energy. When the new equipment is installed and operating, it will consume less energy than the equipment it replaced. Therefore, energy use will be reduced both during and after project construction.
What is the interest rate of the lease purchase agreement with GESP?
Lease purchase financing is competitively solicited by the energy service company on behalf of the State Institution . Currently, the interest rates of lease purchase agreements have been varying between 3-6% depending on several project dependent variables, for example one of which is the term of the lease.
Do local governments have to enter into a Lease Purchase Agreement to pay for the project?
No, a local government could pay for the energy savings performance contract by other means. However, a lease purchase agreement may allow the local government be able to attain more energy conservation measures/upgrades.
What are the maximum mark-ups and fees? What does this mean for the bidding process for local governments?
When each ESCo was qualified, they each included a maximum mark-up. When ESCos submit bids for projects they can bid no higher than the maximum mark-up set when they qualified, but they can bid lower. This allows for a more competitive bidding process when ESCos bid against each other for projects.
The Investment Grade Audit
What is the investment Grade Audit?
The investment Grade Audit is the audit of all the facilities in a GESP project the energy service company completes to determine the opportunities for the types of projects, costs, and paybacks of those projects that is completed during the Project Development Phase of GESP.
Who pays for the audit?
No payment is made until a decision is made as to whether to proceed with the project. If the project moves forward, the cost of the audit is included in the total project cost and financed with the project. If there are not enough opportunities to make a viable project then the ESCO walks away uncompensated. If there are sufficient opportunities but the local unit of government decides not to move forward on a project, the local unit of government must pay for the audit.
How much does the investment grade audit cost?
It typically costs $0.10 – $0.15 per audited square foot.
Facilities, Upgrades & Energy Conservation Measures
Can a new construction project be financed through the GESP process?
Yes, for the incremental cost of energy efficiency. The typical scenario when GESP is used in conjunction with new construction involves a building owner who wants to make their building more efficient, but they are either over budget and must “value engineer” the building to reduce the cost, or the original design did not include high efficiency systems and equipment to begin with and they would like to modify the design to include them but the cost is beyond their budget. In either case, the ESCO will use a building energy modeling software tool to first model the within budget building design to establish the baseline, then model the building with their proposed energy efficiency improvements. The difference between the energy consumption profile of the two models will determine the savings used to justify the GESP project for the difference in cost between the standard efficiency building design and the high efficiency building design. The cost difference would be funded with a lease purchase agreement. The savings to pay the lease payment would be the project difference in the projected cost of utilities between the two designs.
Can renewable energy studies be funded through the GESP process, or conducted during the IGA?
Solar, wind, geothermal, combined heat and power and other renewable strategies are evaluated along with all other Energy Conservation Measures as part of the GESP project. The type, use and location of the facility will affect which strategies will be the best to consider. The local government should specify the desire to evaluate different kinds of renewable energy technologies at the specific facilities in the Site Specific Request for Proposal.
Does the Guaranteed Energy Savings Program (GESP) create local jobs?
A GESP project involves a lot of sub-contracted tradework. The energy service company and local government evaluate criteria for pre-qualifying subcontractors to select for the work within the existing template developed by the Department of Commerce when completing a project with GESP. The tradework is then solicited through the local government’s typical/preferred process.
Measurement & Verification/Guarantee
How much would a city typically spend on M&V in a GESP contract?
The annual M&V fee is typically is 2% – 6% of the projects installation cost. This fee is rolled into the total cost of the project.
Who pays for the M&V?
The cost of the measurement & verification is included in the total project cost and financed with the project.
What type of information is needed to determine if GESP is a good fit for a local government?
The opportunity assessment involves a conversation about what kinds of public buildings the local government has, how much money the local government is spending on operations and maintenance on those buildings, the square footage of the buildings, and what kinds of energy conservation measures and upgrades the local government is interested in achieving in their buildings. Data entry of buildings into the B3 Energy Benchmarking System can help compile all this information in one place to frame to better frame the opportunity assessment.
What information is needed to draft a Joint Powers Agreement?
- Agency / Local Unit of Government proper name
- Agency / Local Unit of Government address
- Authorized Representative
- Phone number
- Email address
- Vendor ID # (State SWIFT #) – will be 10-digits
- FEIN # (Federal Tal ID #)
Learn more about GESP:
Get details & join the program:
- Official GESP website
- GESP fact sheet
- GESP meeting sheet
- GESP process sheet
- Opportunity assessment phase sheet
This project was made possible by a grant from the U.S. Department of Energy and the Minnesota Department of Commerce.