Pay-For-Performance: A Tool to Incentivize Ongoing Building Performance

Megan Hoye, LEED AP

Why this research is needed

Pay-for-performance is an incentive model that compensates building owners for energy performance over time, rather than one-time, upfront rebates for design or equipment installation. Under this model, building owners also have potential to receive a larger incentive than is traditional. While pay-for-performance pilots and programs are increasingly common on the coasts, this model has yet to be applied in Minnesota. Thus, there is no local precedent for the design of such an offering, including methods for baselining energy use and verifying performance. 

As Minnesota utilities face new challenges in achieving their 1.5% energy savings requirement, this research will explore barriers and new ways of  incentivizing whole-building performance; rewarding actual energy savings instead of deemed savings, and assess market acceptance and available technologies to make this successful. 

Project process and expected outcomes

For this study, researchers are conducting interviews with national experts as well as local stakeholders — namely developers, building owners and operators, and utilities — to assess whether pay-for-performance is a good fit for Minnesota’s commercial market. The resulting white paper will characterize key market segments that would be good candidates for participation, and discuss related benefits and risks.

The study will estimate the approach’s potential impacts, including capacity to find new, deeper savings or get at savings more cost-effectively. It will also explore the approach’s value as the utility industry considers the importance of moving toward a stronger performance-based model, with an emphasis on measuring energy savings. Lastly, the research will include a theoretical case study to illustrate the approach’s potential benefits and challenges from single-building and utility perspectives.

This project is supported by a grant from the Minnesota Department of Commerce, Division of Energy Resources through the Conservation Applied Research and Development (CARD) program, which is funded by Minnesota ratepayers.

Project Info



  • Determine if a commercial pay-for-performance incentive model is cost-effective for Minnesota, given our low energy costs and high thermal to electric energy loads.
  • Discuss/frame how this model could leverage existing/new programs that support high-efficiency design at new construction and renovation.
  • Understand the technical limitations/challenges for implementing this program, such as how to accurately baseline energy usage.

Examination of the barriers and opportunities associated with the commercial pay-for-performance incentive model, culminating in a white paper with no field research component.

Utility Implementation
The average building owner/operator will likely be more aware of their energy use which can help utilities provide more direct, personalized messaging and engagement with these customers.

Non-Energy Impacts
This program will help ensure that high-performance buildings are designed and operated as intended which could save energy, provide healthier indoor air quality; creating work environments that support productivity.

CEE Contact
Megan Hoye