Use of Quantitative Uncertainty Analysis to Support M&V Decisions in ESPCs

Measurement and Verification (M&V) is a critical element of an Energy Savings Performance Contract (ESPC) - without M&V, there is no way to confirm that the projected savings in an ESPC are in fact being realized. For any given energy conservation measure in an ESPC, there are usually several M&V choices, which will vary in terms of measurement uncertainty, cost, and technical feasibility. Typically, M&V decisions are made almost solely based on engineering judgment and experience, with little, if any, quantitative uncertainty analysis (QUA). This paper describes the results of a pilot project initiated by the Department of Energy s Federal Energy Management Program to explore the use of Monte-Carlo simulation to assess savings uncertainty and thereby augment the M&V decision-making process in ESPCs. The intent was to use QUA selectively in combination with heuristic knowledge, in order to obtain quantitative estimates of the savings uncertainty without the burden of a comprehensive "bottoms-up" QUA. This approach was used to analyze the savings uncertainty in an ESPC for a large federal agency. The QUA was seamlessly integrated into the ESPC development process and the incremental effort was relatively small with user-friendly tools that are commercially available. As the case study illustrates, in some cases the QUA simply confirms intuitive or qualitative information, while in other cases, it provides insight that suggests revisiting the M&V plan. The case study also showed that M&V decisions should be informed by the portfolio risk diversification. By providing quantitative uncertainty information, QUA can effectively augment the M&V decision-making process as well as the overall ESPC financial analysis