This May Be the Most Innovative Energy Efficiency Financing Tool Yet

The inventor of renewable energy credits has something else up his sleeve.

The renewable energy credit, or REC, is a staple in the retail energy sector. But fourteen years ago, when the tool was first being crafted, very few people understood its potential.

"I heard consistently that it couldn't be done. But then we closed our first transaction and we saw this huge shift in thinking from 'You can’t do that' to 'How did you do that?'" said Rob Harmon, who, as chief innovation officer at the Bonneville Environmental Foundation, helped create the first RECs in 1999.

Now Harmon, who is CEO at the Portland, Oregon-based company EnergyRM, believes he and his team have a tool for deploying energy efficiency that will be far more revolutionary.

Meet the MEETS, also known as the metered energy efficiency transaction structure. Think of it like a power purchase agreement for energy efficiency.

Harmon says the structure breaks down nearly every conceivable conflict between landlords, tenants, investors and utilities that stand in the way of deep efficiency retrofits.

Let's say a utility customer wants to invest in efficiency. A MEETS starts with a simple meter installed on that customer's building by EnergyRM to measure energy use and normalize the data. That provides the baseline for energy consumption.

Next, an investor is brought in to finance a project on the building. Much like a third-party solar lease, the investor "rents" the building for installation of energy-efficient equipment and compensates the owner with a monthly payment.

Once that energy-efficient equipment is operating, EnergyRM is able to measure the baseline consumption data against the efficiency savings, thus establishing the "metered energy efficiency."

The utility then charges the building owner for electricity based upon the baseline data, just as it normally would without the efficiency upgrade. (Again, the building owner is getting a monthly rental payment from the investor, rather than going through the utility.) The investor who owns the energy efficiency project gets paid a premium by the utility over a twenty-year contract for each kilowatt-hour of metered energy efficiency, or "negawatts," delivered.

The utility can then turn around and sell those energy reductions into the capacity markets or energy markets and get compensated for not having to build a new power plant.

So what does this mean?

It means the building owner -- who receives monthly rental payments from the investor, continues her same relationship with the utility and has a more valuable building -- theoretically has no disincentive to upgrade the facility.

It means the investor -- which has a stable twenty-year agreement with the utility based on performance -- has every incentive to maintain and deepen energy savings.

And it means the utility -- which gets fully compensated for the electricity sold to the building owner and can treat efficiency like a power purchase agreement for any other generation source -- is "made whole" by the structure.

"That's what's really important here. In this structure, the utility doesn't lose revenue," said Harmon. "Instead, it deepens the relationship with customers rather than getting revenue slowly eaten away. It enhances the utility's business model."

The structure is not just theoretical. This week, EnergyRM announced its first transaction -- a twenty-year agreement between Seattle City Light and the Bullitt Foundation to sell metered energy efficiency savings. EnergyRM was backed by Equilibrium Capital to scale the model.

"We've been in stealth working on this for two years. But I don't like to announce anything until I've done it. And here we are," said Harmon.

The team at EnergyRM spent the last couple of years consulting with financial experts, utilities and energy professionals who understand PPAs to help refine the idea. Harmon now believes they have a structure that will turn efficiency into a true resource that utilities can support.

"We think of this like a wind farm," explained Harmon. "You have an outside developer with outside capital who builds an energy yielding installation on a farmer's land and sells that output to the utility. That's what this is."

Under such an arrangement, the farmer's energy bill does not go down and he maintains the exact same relationship with the utility; instead, he simply gets lease payments. And the utility simply worries about procuring the electricity through a power purchase agreement, not figuring out how to compensate the landowner.

Harmon said the structure could result in about $40,000 a year for the Bullitt Foundation over the twenty-year contract. And if the project works, Seattle City Light says it will offer the structure to other customers and investors.

"So far, the people we've talked to get it. When we sat down with Seattle City Light, they immediately recognized how simple this is," said Harmon. "We've already gotten a lot of interest from other utilities."

Could MEETS soon be coming to a utility near you?