Energy Performance Contracting for Alternative Fuel Vehicles

Energy Performance Contracting (EPC) is a financing mechanism used to pay for energy efficiency improvements all at once that are then paid back through annual energy savings. EPCs have been used to fund energy efficiency building improvements in universities, hospitals, prisons and other public facilities.

Extending this mechanism to acquisition of highly efficient and alternative fuel vehicles is an important and innovative use for performance contracting. These vehicles face the same issue as energy efficiency improvements for buildings – a higher capital cost, offset over time by savings in fuel and maintenance costs.

As an example:  assuming a gas price of $4/gallon, the fuel cost to drive an average new passenger car getting 30 mpg for a 11,000 miles in a year would be $1,450,  while a Prius or a Honda Civic  CNG will cost approximately $900.  The electricity cost for a Nissan Leaf EV would cost be about $200.  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 vehicles could pay off a loan for purchasing them.

According to the Colorado Electric Vehicle Infrastructure Project report, the annual maintenance costs of BEVs are estimated to be up to 50% less than ICE vehicles, for an annual savings of $244 for a vehicle driving 11,000 miles. Thus, for an EV approximately $1,500 per year per vehicle would be available in savings.

And, with a federal tax credit of up to $7,500 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.

Many states already require large public fleets to purchase alternative fuel or ultra low emission vehicles when new vehicles obtained.  An expanded role for performance contracting would create a useful option for agencies to finance this new requirement.

A similar change was made in Colorado statue in SB 2013-254.