This NASEO Program in a Box provides guidance for State and Territory Energy Offices (State Energy Offices) to develop or revamp Energy Savings Performance Contract (ESPC) programs aimed at helping K-12 schools make needed energy improvements to their facilities. ESPC is a form of public-private financing in which energy efficiency and other utility improvements to public buildings are paid for through a guarantee of energy, water, and other utility cost savings resulting from energy efficient technology upgrades. In the NASEO ESPC Program in a Box examples provided below, State Energy Offices utilize their ESPC programs to deliver technical assistance that provides school administrators and other key personnel with the resources they need to execute successful ESPC contracts with the private sector that result in more modern, energy- and cost-efficient classrooms and facilities – allowing for a portion of the utility bill savings to be used other school purposes – using little or no taxpayer funds.

Benefits and Challenges for Schools that Use ESPC

Schools that enter into ESPCs can:

Improve their buildings’ envelopes, equipment, and systems while also reducing energy use;
Reduce their energy, water, and sewer charge bills and use those savings alongside operations and maintenance savings to pay for additional improvements or other school priorities;
Improve the indoor air quality of the building and comfort of students, protecting health and delivering a better learning environment; and
Defer whole-building replacements and avoid emergency equipment replacements, saving the school district money in the long run.

Schools utilizing ESPC to make improvements may face several potential challenges. These challenges include:

ESPC agreements are often complex and require expert assistance and guidance from a third-party or an independent Owner’s Representative;
ESPC project utility cost savings measurement and verification is important to ensure that agreed-upon savings are realized, but these evaluations can be costly over time and may need to be developed in consultation with an independent advisor; and
Public building owner expectations and agreed-upon standards of use for the facility are important to clarify before finalizing an agreement.

Common Pitfalls and Mitigation Strategies for ESPC Contracts

There are several common pitfalls or misalignment of expectations for schools to avoid when entering into an ESPC, as well as mitigation strategies for each. These include:

Having a Project Scope that is Too Vague or Too Defined – Projects with scopes that are too vague or too defined risk overly restricting what ESCOs can do to improve the facility or introduce too much grey area to enable them to do more than what the building owner intended. To mitigate this risk, State Energy Offices reviewing contracts can proactively identify any risks that are inherent in any clarifications or exclusions to the scope description. They can also require the client school to sign off that they understand any clarifications or exclusions related to the scope of the project as well before signing the general contract.
Unexpected Costs – Construction, operations, or maintenance costs may exceed what was agreed to in the initial contract. The contract should have a clear and defined pathway for the school to recover those costs should they occur.
Performance Shortfalls or Delays – The school district may not end up receiving the amount of savings it was guaranteed in the ESPC contract. This can be due to faulty equipment, inaccurate operation of equipment, unexpected changes in assumed utility cost escalations, or other reasons. Measurement and verification of savings should ideally happen annually for the life of the contract to mitigate this risk and allow for the ESCO to fulfill the contract through installing additional energy efficiency measures, providing direct monetary remuneration, or a combination of both.
Contract Disputes – Either party may have issues with the contract and dispute provisions in it over its course. The contract should have a built-in resolution process to address disputes, and even a termination procedure should some or all of the contract need to be canceled by either party.

Properly structured, ESPCs can leverage taxpayer investments, conserve capital budgets, and pay for themselves through the energy and water bill savings guaranteed by the energy service companies (ESCOs) that develop and deliver those projects.

State Energy Office Programs Used to Develop this Program in a Box

Thank you to the Arkansas, New Mexico, and Virginia State Energy Offices who generously shared their experiences and expertise.

See the Arkansas Department of Energy and Environment’s (ADEE’s) Arkansas Energy Performance Contracting program here.

See the New Mexico Energy, Minerals, and Natural Resources Department’s (EMNRD’s) Energy Savings Performance Contracting program here.

Staff at the Arkansas Department of Energy and Environment provided information on their ESPC Program:

The Arkansas Department of Energy and Environment’s Arkansas Energy Performance Contracting program has overseen more than $400 million in energy savings for the state’s public sector since its establishment in 2013. After the program’s enabling statute was amended to allow K-12 schools to participate, the program has implemented nine ESPC contracts serving eight school districts as of 2025.

Staff at New Mexico’s Energy, Minerals, and Natural Resources Department provided information on their ESPC Program:

New Mexico’s Energy, Minerals, and Natural Resources Department’s ESPC program has approved 46 ESPC projects since 2013 resulting in over $345 million in investments. Six projects of the 46 approved have been for K-12 schools. The projects completed under this program have resulted in over $15.2 million in annual savings while reducing their utility consumption by an average of 29.4 percent.

Staff at the Virginia Department of Energy provided information on their ESPC Program:

The Virginia Department of Energy’s Energy Savings Performance Contracting program supported the financing of over $1.25 billion in energy savings since 2002. The program has overseen ESPC contracts in several different school districts since its inception. Currently, the program has executed 313 ESPC contracts for Virginia school districts, with 10 more pending.