Todd Jarvis, President of Servidyne, and Ben Taube, Executive Director of the Southeast Energy Efficiency Alliance, discuss the importance of performance contracting and the need for good energy legislation.
Ben Lack: Ben, I’d like to get an idea from you, you know. How is the existing policies that are in place, how is that affecting Todd’s business and being able to go do what he is wanting to do and are there things that are coming into place soon that can make him go out there and have an easier time at going and finding new clients?
Ben Taube: Sure. Working on policy efforts across the region, the goal is the change the market. Really it’s to enable the market to do what it’s been doing but to make it a bigger, broader perspective. And really to engage companies from an economic standpoint to be the champion behind policy change.
What we’re going to do, we can get it T’d up, but we need the economics to drive it, and that’s what we’ve been working on. For instance, we have a ballot initiative here in Georgia that’ll happen on election day. And what does that accomplish? Well, it’s to accomplish an opportunity for state agencies across Georgia to be able to enter into performance contracts. So really using companies like Servidyne to come in and help them solve energy issues. Get old equipment out. But it had to go through a ballot initiative because the policies historically wouldn’t allow state to state to indebt itself for over 12 months. And in order to accomplish any type of comprehensive energy program, you’ve got to look at the financing. You got to look at long-term financing. So taking a cautious perspective like that has been significant. Passing tax incentives and it can be renewable or efficiency, coupled with federal incentives on top of using state dollars has been a mover in this market as well. We’ve seen a lot of lighting projects happen because of these additional incentives.
Ben Lack: Tell me what a performance contract is.
Ben Taube: So in basic terms, it’s enabling a business owner to enter into a long-term contract with a company to retrofit mechanical systems, lighting systems, water systems, other systems in the building and pay back through your savings. So a percentage of your savings would go back towards paying for the cost of the capital equipment.
Todd Jarvis: There is so much confidence in the value that could be provided through energy efficiency measures, that financial institutions now will actually monetize that, and you can anticipate and predict… You can map out that those savings will occur. So if you’re looking at a significant business or any business and you define how the existing operation or equipment affects that business and you install new equipment and when you install the new equipment, you’re going to reduce the need to use more energy. So that translates into financial savings. A financial institution can become comfortable with that and those are predictable savings. So you can actually back into a model that those can be financed over a period of time. It’s another business opportunity. It’s another opportunity for local businesses or for other economic stimulus to actually guarantee those types of operations. So it’s very encouraging that Georgia is looking at that here. Other states in the Southeast actually encourage performance contracting, and we’re excited and optimistic that it will also go through here in Georgia.
There are financial institutions that are interested in participating in this specific area, willing to put their capital at play in a specific organization and align with the proper technically, competent, incredible organization that can actually work with a business and identify what those opportunities are, document it and then actually install and implement affected change. These business are willing to finance them. And it could put a building or business owner at a place where all I need to do is be open-minded and enter into a obligation with a financial entity that they can improve the capital structure and the equipment in their facility at really no cost to themselves. Instead of the money going through the typical chains, just going through the utility, they’re actually going to pay that money to a point that it will repay for the capital upgrades.
Ben Taube: The additional benefit, on top of all of this, you’ve got your environmental energy benefits and a way to finance it. But you have a quality assurance component. You know that going through that period in a contract, you’re going to see performance. You’re going to see it continuing every year, every quarter, how that building’s performing. You’re going to gauge against what your audit found, where your equipment should be performing against. And there’s other ways to tweak an opportunity if something’s not saving where it should be, you can always go back at where the perspective should be.
Todd Jarvis: And if I could add also that in our economy today, it seems as though there’s not going to quite be all the new construction over the next ten years than, perhaps, we’ve had over the last ten years. And so there’s an opportunity of really of focusing on the existing buildings and that’s where performance contracting can be an opportunity for someone to take advantage of installing new equipment, getting technologically advanced systems put into their building that are more energy efficient and simply cost less to operate.
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