Nonresidential Performance Contracting Programs: Assessing the Market Transformation Dimension

Michael W. Rufo, XENERGY Inc.
Ralph Prahl, Prahl and Associates
David Sumi, PA Consulting Inc.

Keywords

Abstract

This paper assesses market transformation premises underlying several nonresidential efficiency programs that have strongly promoted performance contracting (PC) over other, simpler and more common methods of procuring energy-efficient equipment and services. We refer to these programs as PC-promoting programs, of which there are several nationally, including those in California, Colorado, New Jersey, New York, Texas, and Wisconsin. This paper looks across PC-promoting programs at several of the market transformation-related objectives of the programs and assesses whether the objectives are reasonable and likely to be achieved based on the history, economics, and current status of PC markets in the U.S. In this paper we do not assess the comparative value of this program model from a resource acquisition perspective.

This paper leverages both the authors’ own experience evaluating PC-promoting programs and a literature review of PC and related programs. We provide a brief overview of ESCOs and the history of PC, analyze PC within the context of energy efficiency services markets, summarize PC-promoting programs and evaluation findings, and present key findings and recommendations for program portfolio managers and policy makers. We find that the market for PC is mature but limited because of the underlying economics of the business model. We further find that there is limited evidence for the case that PC-promoting programs are likely to sustainably alter the underlying economics of PC and hence its market size. Our findings emphasize the importance of a balanced portfolio of nonresidential programs that does not overly favor the PC model as compared to simpler and more common means of procuring efficiency services. Specific recommendations for achieving the goals underlying PC-promoting and related programs are then provided.