Energy A Utility Can Count On

In the first half of this year, solar, wind, biomass, geothermal, and hydropower provided 55.7 percent of new installed US electrical generating capacity, according to Renewable Energy World, based on statistics from Federal Energy Regulatory Commission. 

What is missing from this list is energy efficiency.

In order for energy efficiency to be considered generation, it must be measurable: there has to be a way to measure the difference between what a building would use without efficiency upgrades or equipment, as compared to what it is using with efficiency upgrades or equipment. EnergyRM has a product — the DeltaMeter® — that is doing just that, and they are using their system to treat efficiency as utility-controlled generation in a zero carbon building in Seattle Washington.

The Delta Meter is part of EnergyRM’s X-View Framework™, a suite of products that enables full analysis, design, deployment, and management of energy efficiency, 

“We’re harvesting energy efficiency, but not delivering it to the owner, who doesn’t care, but to the utility because the utility does care,” said Robert Harmon, President of EnergyRM. 

With a meter, a public utility can count energy efficiency as generation: a watt saved is a watt earned. As Mr. Harmon says, “There’s no difference between extra kilowatts from solar or efficiency. Either way, there’s more units at the utility pole to sell.” 

Using EnergyRM’s meter to monetize energy efficiency has multiple benefits:

  • Since utilities are tightly regulated, even in so-called deregulated states, being able to meter efficiency means that the utility can report efficiency as a source to state Public Utility regulators. Being able to meter efficiency means they can treat it like any other generating asset — they can buy and sell the energy — and they can also invest in the generator: the green building. Monitoring also means they can predict and take steps to control the kinds of fluctuations that can make the grid cause brownouts and blackouts.
  • Energy efficiency developers can get the equivalent of a Power Purchase Agreement (PPA) whereby the utility pays for the efficiency. This makes the transaction profitable for investors and developers, along with being reliable for utilities.

Developing such a structure has been taken up by Bill Campbell, Partner and Co-Founder at Equilibrium Capital and Executive Chair of EnergyRM. In order to understand Mr. Campbell’s vision, it helps to have a general understanding of how alternative energy projects are financed now, and some of the problems for getting efficiency to scale.

Definition PPA:  A Power Purchase Agreement (PPA) is a contract between an electricity generator (the seller) and an electricity purchaser (the buyer). A PPA is the principal agreement that defines the revenue and credit quality of a generating project and is thus a key instrument of project finance. There are many forms of PPA in use today and they vary according to the needs of buyer, seller, and financing counter parties.

I: Residential

In solar and energy efficiency, one way that this has been done is through ESCOs, (Energy Service Companies) that finance the project, taking revenue from the energy savings reaped after installation. ESCOs can significantly lower the cost of installation because they are sophisticated in federal and local regulations and incentives. 
For the homeowner, savings on their energy bill can be either from energy efficiency, which lowers the amount of energy used, or sale of generated energy from wind, solar or geothermal back to the utility through a PPA. In the illustration, the rate payer pays their lowered energy bill plus a fee to the developer (green and orange bar). When the ESCO has been paid for their work, in this example, four years, the rate payer pays even less, as a result of the new equipment. (green bar only). 

II: Commercial 

If owners occupy a commercial building they may have an interest in reducing their rates long term. In the example (Method 1), such a building can use a model similar to residential customers, where upgrades are paid based on savings from energy bills. However, if the building owner does not pay the utility bills (the tenants do), or the project has a longer payback than building owners can tolerate, such plan is unlikely to work for several reasons:

  • The building owners are business people. They are likely to sell in 5-10 years, so they aren’t likely to be interested in the complexities of financing a project that may run for 25 years or more, and that may or may not appeal to a buyer.
  • The tenants are running law firms, or managing retail chains, or investing for clients. Even if they would like to see their utility bills lowered, they don’t have the resources in time, expertise or money to do anything about it. 
  • Finally, people don’t always keep their upgrades in tip top operating shape. Maintenance and innovation bring greater efficiencies, but they both can be expensive — and require persistence and expertise not easily available to management. 

To address these concerns in the rooftop solar world, innovative developers started separating the solar project from the time horizon of the building owner. The project isn’t owned by the building owner, it’s owned instead by investors and developers, who get paid by through a PPA from the utility, not from the building rate payers.

As Mr. Campbell says, “They are leasing space from the building to install solar or other generation.”

As can be seen from the diagram (Method 2), the building ratepayers pay what they would have without the upgrades, while the building owners receive a dividend in the form of a lease paid by the developer, and the developer gets paid by the utility.

This is easy to imagine with solar, where the developer is paid for delivered energy that is independent of how the building uses energy. For the developer, maintenance and technological improvements are returned as continued revenue, which is dependent on energy delivered by the project and metered by the utility. The owner has no financial impact from upgrades, other than increased value of property, which comes from the rent the developer pays along with greater comfort and productivity of a greener building. The value (including rent by developer as well as tenants) goes to new owner when the building is sold. 

With energy efficiency, it is harder to visualize, but in fact the reality is the same. With the DeltaMeter, the utility can ‘see’ how much energy is not being used as a result of upgrades, in relation to what would have been used if the upgrades had not been installed. The advantage for the building tenants is a more efficient building. As an example, Mr. Harmon said, “Take a building that is heating one side and cooling another. We can figure that out and we can fix that.” What this means is a better quality of life for the people working in the building. 

The way the meter works is to calculate a baseline — what the building would have used without upgrades — determined by historical data from energy bills, and then through a thermodynamic model of the building, daily information about weather and other factors. The patent for the technology behind the DeltaMeter includes Howard Reichmuth, EnergyRM’s Chief Technology Officer, who is a rocket scientist and co-author of the patent for the meter, along with Terry Egnor, Director, Measurement and Verification, and Mr. Campbell.

Metered Energy Efficiency

For all parties, it is a win-win-win-win: 

  • The building becomes more efficient and therefor more responsive to the tenant’s needs; 
  • The investors can use the cash flow from saved energy to manage their pension obligations or balance other, riskier investments; 
  • The utility has a way to support a more efficient, smart grid, system while profiting if the utility decides to be an investor; and
  • Developers can use the cash from investors to design and install more systems. 

Mr. Campbell concluded by noting that currently the only place “How much you can save” is the same as “How much the building can save” is in institutional buildings — owned by municipalities, universities, schools, hospitals, and the like. Knowing that they will own their building forever, they are on the leading edge of new approaches to energy efficiency. “The result of metered energy efficiency is that all buildings can use the same total value that only institutional buildings can use today.”

A major benefit of this approach is that maintenance and upgrades pay for themselves: the more efficient the system, the more developers and investors can earn. Making these kinds of savings available to all buildings is the beginning of a wave that will help keep US businesses competitive for years to come.