Energy efficiency financing models for buildings could work for natural gas vehicles

Owners of large buildings who want to save money by improving energy efficiency first have to overcome a huge hurdle – the upfront costs of getting the work done. A similar hurdle exists for fleet managers considering switching to natural gas vehicles to save on fuel costs – high initial expenses for vehicles and infrastructure.

What if the same method being used to pay for more energy-efficient buildings could also be used to get cleaner alternative fuel vehicles on the road? A new report by C2ES makes the connection between a commonly used business arrangement in the building sector and its potential use in the deployment of natural gas in public and private vehicle fleets.

A proven way to increase energy efficiency in buildings, including the iconic Empire State Building, is with the help of a business known as an energy service company (ESCO). Typically, an ESCO helps arrange financing for the building upgrade and receives compensation over time as the building owner realizes the energy savings from the efficiency improvements.

An ESCO not only facilitates access to needed capital, but also helps building owners manage the risks of using new, unfamiliar technologies. ESCOs can help building owners identify opportunities and can provide performance guarantees that give building owners assurance of future energy savings.

So, what would an ESCO for natural gas vehicles and fueling infrastructure look like? A little different than an ESCO for buildings. For example, the savings for an ESCO in buildings is often measured in units of energy while an ESCO-like arrangement for a vehicle fleet would base its savings on the differential between natural gas and gasoline/diesel prices. The savings are based on fuel consumption, which fleet managers have experience predicting.

This idea is just now being explored by the natural gas and energy service industries. Our report, part of a two-year project funded by the U.S. Department of Energy’s Clean Cities Program in partnership with the National Association of State Energy Officials and others, details three case studies of ESCO-like arrangements for natural gas vehicles. These early experiences are promising, particularly for fleet managers who need turnkey solutions that can provide net savings from day one.

Among the services companies experienced with natural gas vehicles could provide to fleet managers are:

  • Identifying and evaluating project opportunities,
  • Providing performance guarantees that reduce project risk,
  • Managing the technology transition,
  • Providing alternatives to ownership of vehicles and refueling equipment,
  • Bundling vehicle projects into a broader energy project portfolio, and
  • Facilitating needed partnerships.

Applying the ESCO model to transportation projects can help break through market barriers, increase deployment of alternative fuel vehicles, and diversify the U.S. transportation fuel supply.