By Timothy D. Unruh
Few events in recent history have been as formative for American society as the COVID-19 pandemic is proving to be. The novel coronavirus has already tragically claimed thousands of lives and the livelihoods of millions, threatening to undo the longest period of sustained economic growth the country has ever seen. And as time wears on its impacts are only worsening.
Even still, there are reasons for optimism. The Trump administration and Congress have undertaken extraordinary action to administer some sorely needed medicine. Among the government’s many prescriptions has been the $2 trillion federal stimulus package enacted in March. And while this may be enough to stymie the downturn in consumer and investor confidence, evidence is mounting that the reprieve may be short lived.
Yet, were policymakers to direct the focus of subsequent relief efforts toward overhauling the country’s deteriorating infrastructure, they would support countless new jobs and unlock countless more private investment opportunities for years to come.
The question remains, though, of how the government would pay for an infrastructure package large enough to stabilize the coronavirus’s disruptive effects. Moreover, how can the government make use of the private sector’s resources and expertise to leverage every stimulus dollar to its full extent?
Herein lies the value of energy service performance contracts (ESPCs), the standard financing model for energy efficiency and built infrastructure improvement products and services. This mechanism allows a business or institution to offset the life cycle costs associated with acquiring energy efficiency or pollution prevention services with the money saved by improved facility or building asset performance. This contracting model puts the onus of achieving energy savings upon the contractor, and virtually eliminates credit and performance risks for the procurer.
In other words, energy efficiency services can feasibly pay for themselves through performance contracting, yet, when leveraged with stimulus money, the result is more investment together than either would achieve alone.
While not a panacea, the importance of supporting an omnibus infrastructure bill cannot be overstated. A government-sponsored push for an improved built environment would engage numerous industries — including energy efficiency — that already employ millions and offer solutions to some of our most pressing infrastructural challenges. They key is that such support must include an incentive to capture and reinvest the savings — creating an infrastructure improvement approach significantly larger and more beneficial to the nation.
First and foremost, the energy efficiency industry is a job creation powerhouse that added more U.S. jobs in 2019 than any other energy sector. The production and installation of energy-saving products and the provision of services that reduce end-use energy consumption together employ upwards of 2.4 million Americans, according to the latest assessment by the National Association of State Energy Officials (NASEO) and Energy Futures Initiative (EFI).
Equally important are the macroscale benefits that a more robustly supported energy efficiency sector provides the U.S. economy. On the one hand, services offered by energy service companies (ESCOs) are designed to improve the cost-savings of major energy consumers, such as government agencies, manufacturers and healthcare, commercial property, and educational institutions.
Organizations that reduce their energy-related expenditures through performance contracting or otherwise will have more cash on hand to invest in improving or developing new products and services, entering new markets, and expanding their workforces. Increasing government support for certain energy efficiency programs will have a similar impact upon household energy consumers too. This is especially beneficial for low-income households, whose ability to afford energy-related expenditures will certainly be strained by the coronavirus disruption.
But a better supported energy efficiency industry does far more than improve an energy service customer’s operating margin. Lowering an entity’s energy consumption lowers its greenhouse gas emissions, too, an advantage that’s increasingly valued by investors, regulatory bodies, and consumers. And with conducive policy frameworks, the energy efficiency industry could contribute to a 50% reduction in U.S. energy use and greenhouse gas emissions, according to an analysis by the American Council for an Energy-Efficient Economy (ACEEE).
Today’s technology makes energy services capable of integrating our building infrastructure into a cleaner and more reliable electric grid, a pillar of a modern national infrastructure. Over the long-term, these and other upgrades to our building infrastructure will significantly improve our chances of mitigating the effects of global climate change.
To be sure, addressing the dual public health and economic crises caused by the coronavirus will be no short order. Moving forward, policymakers in Washington would do well to take note of the economic and environmental advantages of investing in energy efficient infrastructure and remember that, when it comes to building a cleaner, better functioning and more resilient economy, it’s best to start at the foundation.
Dr. Timothy D. Unruh is the Executive Director of the National Association of Energy Service Companies (NAESCO) and former Deputy Assistant Secretary of Renewable Power at the Energy Efficiency and Renewable Energy (EERE) Office of the U.S. Department of Energy.