Use of Quantitative Uncertainty Analysis to Support M&VDecisions in ESPCs

Measurement and Verification (M&V) is a critical elementof an Energy Savings Performance Contract (ESPC) - without M&V, thereisno way to confirm that the projected savings in an ESPC are in factbeing realized. For any given energy conservation measure in an ESPC,there are usually several M&V choices, which will vary in terms ofmeasurement uncertainty, cost, and technical feasibility. Typically,M&V decisions are made almost solely based on engineering judgmentand experience, with little, if any, quantitative uncertainty analysis(QUA). This paper describes the results of a pilot project initiated bythe Department of Energy s Federal Energy Management Program to explorethe use of Monte-Carlo simulation to assess savings uncertainty andthereby augment the M&V decision-making process in ESPCs. The intentwas to use QUA selectively in combination with heuristic knowledge, inorder to obtain quantitative estimates of the savings uncertainty withoutthe burden of a comprehensive "bottoms-up" QUA. This approach was used toanalyze the savings uncertainty in an ESPC for a large federal agency.The QUA was seamlessly integrated into the ESPC development process andthe incremental effort was relatively small with user-friendly tools thatare commercially available. As the case study illustrates, in some casesthe QUA simply confirms intuitive or qualitative information, while inother cases, it provides insight that suggests revisiting the M&Vplan. The case study also showed that M&V decisions should beinformed by the portfolio risk diversification. By providing quantitativeuncertainty information, QUA can effectively augment the M&Vdecision-making process as well as the overall ESPC financialanalysis