ESPC M&V: What is it? What are the Options?

If your district is contemplating an Energy Savings Performance Contract (aka, GESA in PA) project, you may have heard the term “M&V” being tossed around. M&V is measurement and verification, and it is the process of quantifying the energy and cost savings resulting from improvements made to energy-consuming systems and equipment.

The goal of measurement and verification (M&V) in a performance-based contract is to determine the energy, water, and cost savings that result from the installation of efficiency measures within the contract.

The importance of M&V is to fulfill the obligations of the contract and demonstrate these cost savings as they justify the expense of the project and fund the ongoing debt service.

Benefits of M&V

Properly applied, M&V can achieve the following:

  • Appropriate allocation of the financial risks between the contractor and the customer
  • Accurately assess energy savings and continuation of savings for the term of the project
  • Provide assurance to the District as well as the Financier of the success of the project
  • Aid in monitoring ongoing equipment performance
  • Identify the potential of additional savings
  • Improve operations and maintenance (O&M)

Measuring Energy Savings

Two fundamental factors drive energy savings: performance and use.

  • Performance describes the rate at which energy is used to accomplish a specific task.
  • Use describes how much of the task is required, such as the number of operating hours during which a piece of equipment operates.


  • Lighting: Performance is the power required to provide a specific amount of light, and use is the operating hours per year.
  • HVAC, such as a chiller: Performance is defined as the energy required to provide a specific amount of cooling (which varies with load), whereas use is defined by the cooling load necessary to provide a comfortable environment for the building occupants.

Both performance and use factors need to be known to determine savings.

M&V Activities

M&V activities include site surveys, metering of energy and independent variables, engineering calculations, and reporting.

How these activities are applied to determine energy savings depends on the characteristics of the ECMs (energy conserving measures) being implemented and balancing accuracy in energy savings estimates with the variables used to arrive at these estimates.

M&V Methods

There are four industry-recognized options for measuring performance as defined by the Dept. of Energy; two options measure savings at the individual level and two measure it at the whole facility level.

The choice and use of a specific option is determined by the level of M&V rigor required to obtain the desired accuracy level in the savings determination and are dependent on the complexity of the project, the potential for changes in performance, each ECM’s savings value, and the project’s allocation of risk between the ESCO and the customer.

Individual Measurement Options

  • Option A – Retrofit Isolation Key Parameters:  Savings are determined by field measurement of a key parameter (variable in the estimate such as hours of operation).
  • Option B – Retrofit Isolation All Parameters:  Savings are determined by field measurement of all parameters of the system (measurement of all variables in the estimate such as electrical load of the equipment and hours of operation).

Whole-Building Measurement Options

  • Option C – Whole Facility:  Savings are determined by measuring energy use at the whole facility level usually through utility bills.
  • Option D – Calibrated Simulation:  Savings are determined through simulation of the energy use of the whole facility (i.e. Building Modeling Software).

Which M&V is Preferred?

Most school districts and municipalities consider Option C to be their best option. It ensures that risk is transferred to the ESCO for meeting the performance guarantee, and its low complexity regarding engineering calculations minimizes the cost of the ongoing M&V. However, some ESCOs will try to avoid this option, in preference for a more complex and therefore expensive M&V program placing more risk for meeting the guarantee on the customer.

Option C is also more reflective of the true impact of the project on the Utility and Operating budgets of the customer. Usually when the contract is executed, there is an internal transfer of funds from existing line items within the budget to cover some of the annual debt service for the project.


  • Department of Energy. Office of Energy Efficiency & Renewable Energy. November 2015 “M&V Guidelines: Measurement and Verification for Performance-Based Contracts Version 4.0”
  • Department of Energy, Office of Energy Efficiency & Renewable Energy. May 2021 “ESPC for Small Projects.”