Seattle Trying Innovative Financing Model for Building Efficiency

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Long-term Contract

At the center of MEETS is a long-term contract between a utility and an investor willing to pay for major energy efficiency upgrades in a building. The contract, called a metered energy efficiency purchase agreement or MEEPA, is modeled on the power purchase agreements that are the coin of the realm in the utility industry, and which routinely attract hundreds of millions of dollars of long-term capital financing from the world’s largest banks, insurance companies, and other financial players.

As the name implies, the MEEPA relies on an energy metering system, provided by EnergyRM, that measures actual energy use in a building—normalized for factors including weather and occupancy—before and after efficiency improvements are made. The metered savings are the difference between this “dynamic baseline” of energy usage and the actual energy usage after the improvements.

When a utility purchases power from a wind farm or power plant, it pays by the megawatt for the energy that is actually produced and delivered to the system. With a MEEPA, the utility pays for the amount of electricity it didn’t have to deliver thanks to the efficiency improvements—as measured by the meter, rather than estimated by a model. The utility is effectively purchasing “negawatts”—an energy industry neologism that is actually quite helpful in thinking about the economics of energy efficiency and conservation.

“We’re metering the energy efficiency just as if it’s generation,” Harmon says. “And we’re selling it to the utility just like it’s generation.”

Importantly, the entity selling efficiency to the utility in the MEEPA structure is the investor, not the building owner. The investor makes rental payments to the owner for use of the building as a host of the “efficiency generation,” much as a wind power company might pay a farmer to place a wind turbine on her land.

This structure gives the investor an incentive to maintain the improvements for the duration of the 20-year contract.

The upside for the building owner is a more comfortable, valuable building with no capital investment, and a new revenue stream, in the form of the rental payments from the investor.

The owner of the building still pays the electricity bill, which will be the same as it was before the energy efficiency improvements are made. The difference is the bill will now have two components: the amount of electricity actually used, and the amount of electricity saved, as measured by the energy efficiency meter.

That’s how the utility remains whole financially, despite delivering less electricity to the more efficient building.

For this pilot project, Seattle City Light will continue to collect 6 cents per kilowatt hour from the Bullitt Center for both the electricity it uses and the metered efficiency savings. It will pay the Bullitt Foundation, the investor in this example, 2.5 cents per kilowatt hour—an already-established rate for energy efficiency—plus the 6 cents per kilowatt hour of retail electricity revenue the utility is not losing because of the new transaction structure, Harmon says.

The utility can make up the 2.5 cent efficiency premium by selling the power it no longer has to deliver, thanks to the efficiency improvements, on the wholesale market, Harmon says.

Seattle City Light superintendent Jorge Carrasco calls the structure “one of the most innovative solutions I’ve seen.”

As a conservation-focused municipal utility in a progressive city with political leadership that is engaged on the issue of climate change, Seattle City Light (SCL) is an ideal test bed for MEETS. Its governing structure—with the city council serving as both its board of directors and its regulator—also makes it easier to try an experiment like this. Other utilities—and Harmon says he’s in “active conversations” with a half dozen others—would likewise need approval from their regulators to engage in this new kind of contract.

McGinn, right, and Hayes

(At this point, Seattle City Light leadership has signed off on the elements of the MEETS pilot project, and it has the support of Mayor Mike McGinn and City Councilmember Mike O’Brien, but it still must be formally approved by the city council.)

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3 responses to “Seattle Trying Innovative Financing Model for Building Efficiency”

  1. energysmartcolorado says:

    I’m not clear on the MEETS payment structure, under the Bullitt pilot do they receive 2.5 cents per kwh saved or 8.5 cents per kwh saved from SCL?

  2. doug says:

    spending of money for problems that don’t exist does not help anything except for lining the pockets of the green movement elites, cronies, and government officials;if it was such a good idea ,investors would be standing in line.this project will never pay for itself,but i’m sure a few have and are making a good living promoting these overpriced boondoggles.