Performance contracts could be public solar’s silent financiers

Energy savings performance contracts are helping schools, hospitals, and municipalities adopt solar without upfront costs.

September 11, 2025 Phoebe Skok

Image: Wikimedia Commons / Spotlight Solar / CC SA 4.0

Energy savings performance contracts (ESPCs) have long enabled schools, hospitals and other public facilities to purchase efficiency upgrades without requiring new taxpayer money and staying budget neutral. Increasingly, they’re also being used for onsite solar.

ESPCs essentially allow facilities to trade operational expenses for capital expenses by turning the avoided utility costs into a financing mechanism that funds solar and energy efficiency efforts.

“For each facility pursuing an ESPC, you develop a scope of work in collaboration with your energy service company (ESCO) partner, justify it based on projected savings and payback and then move forward with implementation,” Timothy Unruh, the executive director of the National Association of Energy Service Companies (NAESCO), told pv magazine USA. Those savings then are used to repay the project loan.

He explained that unlike traditional renewable procurements, ESPCs begin with the selection of an ESCO partner based on qualifications and reputation with the project scope being developed collaboratively through the audit and design process.

“You can’t just bid based on low price,” Unruh said. Once the contract has been approved, the project commences construction; monitoring continues for years after the project flips on.

“You have to verify the savings,” he explained, “And you do that annually because there are national standards around measurement and verification.”

Solar is now a routine part of most ESPCs, though it wasn’t always. Still, Unruh emphasized that under the contract, solar functions like any other energy conservation measure alongside boilers, water systems or building envelope upgrades.

The bundling strengthens the financial case, as short-term savings and longer-term payback balance help balance the checkbook.

Flexibility is just the cherry on top. Power purchase agreements (PPAs) can be used within an ESPC, meaning public clients can choose between direct or third-party ownership.

Unruh also pointed out that solar-plus-storage is becoming more common.

“If you want to claim solar as being a resilience measure, you have to have storage,” Unruh explained, noting schools and military bases have been two early uptakers of hybrid systems or microgrids.

Still, ESPCs aren’t the right fit for every organization. Compared to standard procurements, ESPCs take more time to develop; it’s typically close to a year before the project gets off the ground.

“To do the amount of overhead, it becomes challenging for a project that’s smaller than two million dollars to still be profitable,” Unruh added. That’s why, he explained, you don’t often hear of ESPCs being used by single small facilities and what makes them more common for school districts or health campuses.

K-12 schools in particular make up one of the largest markets for ESPCs, as “many are underfunded” and are prime candidates for budget-neutral upgrades. Over Unruh’s career, he’s seen projects where solar came alongside lighting, roofing and even athletic field improvements.

He also pointed out that ESPCs can support broader community benefits, citing one contract that included HVAC repair training programs for incarcerated individuals, which ultimately led to lower recidivism rates.

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