Ohio State University Service Concession
Context
- Ohio State University is a public owned and financed university based in Columbus, Ohio overseen by the Ohio Department of Higher Education.
- The University launched an unprecedented energy efficiency program to modernise the 490-building campus over approximately 2,000 acres. The objective is to meet the sustainability goal of 25% improvement in energy efficiency within 10 years. Achievement of this goal included the deployment of smart meters throughout the campus.
- The partnership operates the systems that heat, cool and distribute power to the university’s Columbus campus. The operator of these important functions is responsible for the resiliency and reliability of utilities for main campus. The university proposed the plan to receive the largest investment in its history by selling its energy.
Problem
- The university wanted to meet climate change objectives without burdening public budgets on upgrades to energy efficiency of existing assets, so they set out to find a way to effectively undertake the upgrades.
- The university was also looking for additional ways to maximise funding for the following initiatives under its strategic plan over and above the University’s existing student fee, endowment, and other revenue:
- Student financial aid to support access
- Compensation enhancements for faculty and staff to support competitiveness with academic peers; a portion of this will be tied to improvements in teaching effectiveness
- Classrooms, research labs and performance and arts spaces across disciplines (in combination with other sources of funding)
- A fund for future sustainability-related works
Improvement
- The university entered into a concession agreement with Ohio State Energy Partners (OSEP), a consortium comprising ENGIE North America and Axium Infrastructure, which provided a USD1.165 billion up-front lease payment to handle the University’s energy management including distribution, operating heating and cooling systems, optimisation and usage reduction, asset management, and network expansion over a 50-year concession period.
- The upfront lease payment would in turn be used by the University to fund various initiatives under its strategic plan.
- The concession agreement was outcome-focused with respect to the energy efficiency of its campus buildings over the concession period, providing the consortium with the flexibility to propose and develop capital improvements to deliver on these contractual requirements.
- The fee for the concession involves an Operations and Maintenance fee, an availability payment and a variable fee which covers capital investments. Performance targets involved meeting or exceeding the existing university standards and practices. There are 13 KPI’s over 8 different categories that include penalties in the event that standards are not met such as unplanned energy outages. Rewards are also built-in for exceeding the 25% energy efficiency targets and achieving this for under USD 250 million, which was the University’s cost estimate to achieve the targeted reduction.
- There are four components to the concession agreement:
- Operations: OSEP (Ohio State Energy Partners) will operate the systems that power, heat and cool Ohio State’s Columbus campus under a 50-year lease of the university’s energy assets.
- Sustainability: OSEP will propose, provide the capital funding for and implement energy conservation measures to improve Ohio State’s sustainability with a goal of improving the campus’s energy efficiency by 25% during the first 10 years of the agreement.
- Supply: OSEP will work to enhance the University’s effectiveness in the procurement process for electricity, natural gas and other energy sources. The university will continue to buy directly from providers and determine its priorities with respect to sources.
- Academic collaboration: OSEP will also fund and carry out a USD 150m commitment to support academics in specific areas requested by students, faculty and staff during the bidding process. Among these projects are a USD 50m research hub and support for scholarships, internships, faculty and students.
- Capital investments are developed to support the KPI targets and these projects are developed as part of a rolling five year plan by the concessionaire. These are then presented to the Ohio State University Energy Advisory Committee for approval. Approved projects are then financed and built by the concessionaire using a variety of delivery models including design and build, and design or build only.
- The concession agreement is a first in North America because of the integrated nature of its services and solutions to be delivered in order to achieve the university’s energy efficiency and operations objectives while supporting its academic mission.
Stakeholders
- Ohio State University (OSU)
- Concessionaire – Ohio State Energy Partners (OSEP), comprising ENGIE North America and Axium Infrastructure
Timeline
- June 2015 – Phase I: Request for Qualifications Completed — More than 100 companies were contacted, 44 responded, and 40 were deemed qualified to continue to Phase II.
- February 2016 – Phase II: Request for Information Completed — Ten multi-firm teams responded. The university allowed the six strongest teams to continue to Phase III.
- March 2017 – Phase III: Request for Proposals Completed — Three teams responded. Multiple reviews determined that OSEP, a consortium consisting of ENGIE North America and Axium Infrastructure, was the strongest proposal.
Results / impact
- To accomplish a 25% improvement in energy efficiency within 10 years, OSEP will propose, provide capital for and manage the installation of energy conservation measures across the campus. This agreement creates a dedicated funding source for those improvements while preserving the university's capital funding for other priorities. OSEP has already achieved a 10% saving in 4 years and is forecasting to achieve a 35% reduction in 10 years, 10% greater than the original target. This program has accelerated what would have otherwise taken OSU a significantly longer period of time, since the OESP is able to apply energy savings initiatives to 40-50 buildings a year.
- The partnership has converted a total of 107,000 indoor light fixtures and 1,700 outdoor light fixtures to energy-efficient LED technology over the past two years. It has also upgraded the energy systems in 14 buildings with a goal to improve their energy efficiency by more than 26% on average.
- Similar models have now been implemented at other American universities such as University of Iowa.
Key lessons learnt
- Private sector innovation can be achieved through having the right commercial mechanism and the output required. In this case the energy saving initiatives proposed are enabled by the agreement and approved on the basis of being value for money.
- The capital structuring also allows capital investments to be made without having to obtain further approvals through a revolving capex loan with a 5-year tenor.
- OSEP has acted as an enabler from OSU to improve energy efficiency achieve its zero carbon targets, unlocking funds to required by the University for academic programmes and research centres, and allowing the University to focus on education – its area of specialisation.
Useful links and related resources
Ohio State University story about project
Seould - Jemulpo Tunnel
Last Updated:
26 November 2021