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.