If the baseline is wrong, every number that follows will be wrong too

In an Energy Savings Performance Contract (ESPC), everything revolves around savings — and savings are calculated against a baseline. During the Investment Grade Audit (IGA), this baseline is defined by analyzing historical consumption and facility conditions. It represents the “business-as-usual” scenario: what the facility would have consumed without efficiency measures.

But establishing this baseline is far from a simple calculation. It requires accounting for all relevant operating conditions, occupancy patterns, weather data, and equipment schedules. If done improperly, the baseline introduces discrepancies that surface later during the Measurement & Verification (M&V) period — causing disputes, mistrust, and financial exposure.


 

Problems faced
 

Incomplete data:
Missing or inconsistent utility bills and operational records lead to unreliable baselines.

Unaccounted variables:
Occupancy changes, seasonal effects, and equipment schedules may distort future savings calculations if not forecasted correctly.

Over-optimistic assumptions:
A baseline inflated beyond actual conditions creates the illusion of savings that cannot be sustained.

Disputes in M&V:
Clients and ESCOs often clash during verification because of unclear or inaccurate baselines.
 

Main Objectives

• Stress the importance of rigorous baseline development during IGA
• Highlight the need to account for all facility conditions and external drivers
• Show how accurate baselines feed directly into energy models that forecast savings under various operational scenarios
• Demonstrate how this accuracy prevents costly disputes and strengthens project bankability

Approach

A proper baseline establishment requires:

• Data collection: At least 12–36 months of utility bills, weather data, and facility operation log
• Normalization: Adjusting consumption data for weather and occupancy to remove anomalies
• Variable identification: Recognizing main consumption drivers (e.g., cooling degree days, production volume, operating hours)
• Energy modeling: Inputting the baseline into calibrated energy simulation tools, with forecasts for the main variables
• Stakeholder agreement: Both client and ESCO must formally agree on the baseline methodology before contract signature

Results

• Projects with robust baselines achieve transparent, defensible savings calculations, reducing disputes during M&V
• Accurate baselines allow better risk allocation in ESPCs, making projects more attractive to financiers
• Calibrated energy models provide realistic savings forecasts, enabling clients to plan operationally and financially with confidence
• Ultimately, the baseline transforms from a technical exercise into a contractual safeguard that underpins trust between client, ESCO, and financier

Conclusion

In short: a solid baseline is not just a starting point — it is the foundation of the entire ESPC. Without it, savings are uncertain, trust is fragile, and investment is at risk. With it, every party can move forward with clarity and confidence.