STATE UPDATE: Energy Performance Contracts for Vehicles

Posted by Tom Plant on Jun 5, 2013 5:25:00 PM

electric vehicle charging policyAEE spearheaded a successful effort in the Colorado legislature this year to expand energy performance contracting for public agencies to fleet vehicles – a concept that could serve as a model for other states.  The legislation was conceived and drafted in cooperation with McKinstry and Schneider Electric, two companies actively engaged in energy performance contracts throughout the country.

Energy Performance Contracting is a tool frequently used by public bodies to finance capital improvements that save energy.  Using this tool, a portion of the operational savings is used to pay back the loan for the capital improvement.  The public body usually will contract with an energy service company (ESCO) after an audit demonstrates the forecasted savings.

For public bodies like cities, states, and universities, this can be an effective way to make capital investments when budgets are tight.  The investments have the added benefit of providing continued savings in operational budgets. 

Moreover, many states have adopted policies for their public agencies to reduce carbon emissions, cut fleet emissions, or convert a portion of their vehicle fleet to alternative fuels.  Energy Performance Contracting could provide a mechanism for accomplishing these objectives, bundling the purchase of fuel efficient and low-emitting vehicles with building retrofits like boiler replacement, lighting upgrades, and insulation improvements.

The legislation passed in Colorado expanded authority for the use of energy performance contracts to include fleet vehicle investments.  The logic was clear: Hybrid and electric vehicles are similar to building efficiency investments in that the costs are up front, but the savings come over time.  As an example:  assuming a gas price of $4/gallon, the cost to drive a 30 MPG vehicle 100 miles is  $13.33 while a Prius will cost $8.  A Honda CNG vehicle would cost $7.81 to drive 100 miles while a Nissan Leaf EV would cost $2.50.  Additionally, because electric vehicles have no engine – and as a result, no timing belts, spark plugs, oil changes – maintenance savings are also substantial. Just as the energy savings can pay off the loan for building retrofits, operational savings from advanced vehicles could pay off a loan for purchasing them.

Finally, with many states providing tax credits for electric vehicle purchases, having a third party that can benefit from the tax credit purchase the vehicle could be a way to increase the savings for a public entity.

Colorado’s statutory authorization defines eligibility for an energy performance contract.  The existing definitions referred to “utility bill savings” and “building upgrades.” SB 254 expanded the definitions to include fuel and operational savings, qualifying fleet vehicles for energy performance contracts. Having passed both House and Senate, the bill now awaits Gov. Hickenlooper’s signature.

For public agencies looking for ways to put more fuel efficient, electric, and natural gas vehicles into their vehicle fleets without a big upfront investment, expanded authority for energy performance contracts to include money-saving vehicle purchases could be one way to do it.

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Topics: State Policy