Smart Energy Decisions – Views from the top: Ameresco and the evolution of performance contracting

SAKELLARIS: I’ve been in the energy business since 1969 when I started working for New England Electric, which was a local electric company. Originally, we did transmission and distribution studies, then moved on to the generation studies on what kind of power plants we were going to build. In 1979, with the energy crisis, we were trying to build two nuclear power plants. Guy Nichols, the CEO, approached me and asked, ‘George, does it make economic sense to promote conservation, energy management, cogeneration, and avoid the need to build these two nuclear power plants?’

We did linear programming and expanded the system to estimate what kind of generation, transmission lines, and distribution we would need, as well as the levelized per-unit cost to the ultimate customer. Basically, we came up with a U-shaped curve. If you put this on a scale, the cents per kWh is levelized and the optimal point was about 3%. We developed a strategy to reduce consumption by 15%. They didn’t build another power plant.

After we made the presentation to the Board, someone said, ‘If you don’t want to sell kilowatt-hours, why don’t you go sell energy efficiency?’ That’s exactly what we did – we started an energy efficiency company for New England Electric, the first created under a utility company. We set up the company and said, ‘We want to reduce your consumption of energy and add cogeneration and save you 20%.’ Nobody believed us. I went back to my Board and said, ‘Why don’t we put up the money and take a share of the savings?’ The first deal went to the Boston Mercantile Wharf building. Ed Fish was the owner. I had gone in with the proposal to change their boiler, change the old air conditioning system, and I wanted a 10-year deal in return for 60% of the savings. Ed asked, ‘What happens if it doesn’t work?’ I said, ‘You keep the boilers, we keep the chillers and I get fired!’  That’s how it started because back then nobody would finance all these deals, but little by little we convinced them. We underwrote the projects and took a share of the savings. In that way, we did the first performance contract in the country.