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Efficiency Performance Contracting

iSU. Efficiency Performance Contracting. Reducing Wastes and Costs through Innovative Supply Contracts Energy Management Seminar November 13, 2008 Thomas J. Bierma , MBA, Ph.D., Environmental Health Program Illinois State University. iSU. Research since 1995.

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Efficiency Performance Contracting

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  1. iSU Efficiency Performance Contracting Reducing Wastes and Costs through Innovative Supply Contracts Energy Management Seminar November 13, 2008 Thomas J. Bierma, MBA, Ph.D., Environmental Health Program Illinois State University

  2. iSU Research since 1995 Change incentives for suppliers to pay for performance and savings rather than “stuff.” Does it work? Funded by the Illinois Sustainable Technology Center and the U.S. Environmental Protection Agency

  3. Manufacturing SME Typical Spend in Key Non-Core Areas Total spend: $0.5 – $2 million/yr Energy spend: $0.2 – $.9 million/yr

  4. Question… iSU How much could these costs be reduced by implementing projects with a payback period of…. 1 year? 2 years? 3 years? 4 years?

  5. Question… iSU Yet these opportunities go untapped year after year… Why?

  6. A Major Cause… iSU • Core Competence • “The key skills or knowledge needed to build and maintain a competitive edge.” (Quinn 1994). • These technologies lie outside the core competence of the business, so time and money go elsewhere.

  7. Question… iSU Since suppliers have this core competence… can we create incentives so suppliers apply that competence to increase customer efficiency rather than only sell them “stuff?”

  8. Answer… iSU For chemicals – Absolutely! Chemical Management Services (CMS)

  9. Answer… iSU For tooling – Absolutely! Tooling Management Contracts

  10. Answer… iSU For energy in the M.U.S.H market – Absolutely! ESCOs Energy savings performance contracts

  11. Question… iSU Can we learn from these examples to create a market in energy savings outside the M.U.S.H. market? (for the rest of us?)

  12. What the customer (energy user) wants iSU Savings and performance – not “stuff” Work with one, trusted supplier Pay for it out of savings – if possible

  13. What is the lowest-hanging fruit? iSU • Lighting • Waste heat recovery • Compressed air • Cooling • What else?

  14. iSU One supplier? • Can one supplier handle all these? • Would it require an alliance of suppliers? • Who would lead the alliance?

  15. iSU Financial Incentives • Two models • Pay-for-performance / Shared savings • Sole supplier with targets

  16. iSU Capital Financing? • Delta Institute, Chicago • non-profit, member of CCX • Will there be additional Federal incentives?

  17. iSU Discussion • We have not found working examples of this yet in our research. • Are there ideas about how to create it, or how to improve it?

  18. iSU Contacts Tom Bierma, Illinois State University • tbierma@ilstu.edu • 309/438-7121 Dan Marsch, Illinois STC • dmarsch@wmrc.uiuc.edu • 309/671-3196 ext. 202

  19. Hitachi Metals and DCT

  20. Engine production, coolant usage, and coolant waste haulage, Navistar, 1989-1996. Plus 93% reduction in engine head and block rework

  21. Coolant Usage, GM-EMD, 1994-1998

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