Minnesota State introduces energy savings performance contracting pilot for campuses

Minnesota State trustees received an informational briefing on the system27s energy savings performance contracting program, also called a Guaranteed Energy Savings Program (GASP), an approach that finances energy and operational upgrades using guaranteed future savings rather than upfront legislative capital.

Associate Vice Chancellor Brian Swanson told the Finance and Facilities Committee that the system office began developing the program after trustees asked staff to explore alternative financing to address asset preservation without relying solely on legislative funding. System director for design and construction Ryan Rees outlined program mechanics, examples and pilot projects. "Energy savings performance contracting is a contract mechanism to leverage future energy savings to complete energy related projects," Rees said. He explained projects are financed and amortized up to 20 years and that contractors known as ESCOs (energy services companies) guarantee the projected savings.

The nut of the program, Rees said, is that annual payments on financed project costs are offset by energy- and operations-related savings. "If the actual realized savings are less than the guaranteed savings, the ESCO will cut a check for the difference," he said, describing the contractor guarantee as a form of risk transfer.

Rees described projects that typically fit the model (LED lighting, HVAC upgrades, building controls, solar and geothermal) and those that do not (roof replacements or architecture-driven remodels that lack sufficient energy savings to cover financing and administrative costs). He cautioned that some savings claimed by ESCOs27 pro formas, such as reduced maintenance labor when lights are replaced by LEDs, may not materialize as budgetary reductions because existing staff remain employed and shift to other priorities.

The system office has worked with procurement and general counsel on solicitation and contract templates, tax services on leveraging federal tax credits and rebates, and the Minnesota Climate Innovation Finance Authority (MNCIFA), the state27s green bank established in 2023, on financing options. Three campuses volunteered for pilot ESPC projects: Minnesota State College Southeast (LEDs, controls and potential solar), Winona State University (phase 2 of earlier projects, including fume hood valve replacements and an active energy management system) and Minnesota State University, Moorhead (audit and design phase moving toward implementation).

Winona State President Scott Olson (identified in the meeting as President Jans) described prior work at Winona, noting a roughly $12 million project that created the system27s largest solar array and helped reduce campus carbon and water use. Rees said two institutions had received $20.25 million in HEAPR funding for boiler replacements and were now considering geothermal under an ESPC model.

Trustees asked about common concerns: how projects are priced and guaranteed, the risk that an ESCO might overstate savings, and whether financing would constrain future campus budgets. Rees answered that contracts and guarantees must be scrutinized carefully and that campuses must understand and commit to the operating assumptions tied to guarantees. He added that financing terms up to 20 years can limit future flexibility and that some federal tax credits (notably a roughly 30% geothermal credit) are phasing and subject to change, which can affect project economics.

The committee took the item as informational; Chair Huebsch said no action was needed that day and that a related contract would come back to the board in November for review.

Ending: Rees and staff said the program is intended to supplement, not replace, HEAPR or legislative funding and to allow campuses to advance projects outside legislative cycles. Rees thanked participating campus project leads and system office staff and invited trustees to provide feedback before the November presentation on Moorhead27s project.