Dive Brief:

• Seattle City Light is now taking applications for an innovative energy efficiency pilot aimed at commercial buildings, and will pay for energy savings through 15- to 20-year power purchase agreements (PPA) that allow for deeper retrofits with longer payback periods.
• Applications are due March 31, and an initial tranche of 15 buildings will be accepted to the Energy Efficiency as a Service (EEaS) pilot. Eligible buildings need at least 50,000 square feet of space in the municipal utility's service territory and a plan to achieve reductions of 25% relative to their ​baseline electricity usage in the 12 months before efficiency projects are undertaken.
• The Seattle City Council last year unanimously approved the utility's request for a 30-building program ​based on the previous Metered Energy Efficiency Transaction Structure (MEETS) pilot developed at the city's Bullitt Center. The mechanism is designed to be a replicable transaction structure that can help address longstanding challenges to improving the efficiency of buildings anywhere.

Dive Insight:

Energy efficiency has traditionally been a tricky proposition for rented spaces, because it is utility-bill paying tenants who see the primary benefits while building owners make the largest investments. Add to that utilities' reticence to sell less energy, and the roster of split incentives has hamstrung cities trying to decarbonize commercial buildings

Seattle's EEaS pilot "solves a number of large problems utilities are desperate to solve," according to Rob Harmon, who leads the MEETS Accelerator Coalition and helped design both the initial MEETS pilot and the new iteration.

EEaS is "trying to address the split incentive between landlords and tenants, which destroys the economics for a very large number of retrofits," Harmon told Utility Dive. "The program is designed to get at measures with much longer-term paybacks, so we get deeper into the buildings."

Despite the modest size of the pilot, Seattle City Light says about 700 to 900 buildings meet the program's eligibility requirements.

“We see this new program as a value-added service for our commercial customers," Craig Smith, Seattle City Light's customer energy solutions director, told Utility Dive in an email. "The design allows them to purchase energy efficiency for their building as they would any other energy resource, at a similar price."

"We believe this is the first time that this unique model has been brought to market by any utility," Smith said.

Energy efficiency efforts in commercial spaces are typically limited to payback periods up to about two years, in part due to the short life of commercial leases, according to Eric Christensen, an energy attorney at the law firm Beveridge & Diamond, which is a member of the MEETS Accelerator Coalition. 

"The pilot is designed to create an easily-replicable transaction structure that would allow the financing of deeper energy retrofits," Christensen told Utility Dive. "It is designed to overcome an incentive problem that has crippled energy efficiency progress in the commercial sector."

The program uses a PPA to pay for "efficiency energy" in a range of about $0.074/kWh to $0.09/kWh, according to Christensen. The primary flow of funds would be the utility paying an “efficiency energy developer” for savings that are verified by an independent third-party auditor.

"By treating it that way, it becomes the equivalent of purchasing from a wind or solar farm," Christensen said.

The rate paid for energy savings by Seattle City Light to the efficiency developer would be about 7% below the retail rate, according to Harmon.  Savings are noted on customer bills as a service fee, based on the rate the building pays for electricity, so there is no overall impact on tenant expenditures.

"This needs to be framed as an energy transaction," Harmon said. "It is a commodity being purchased, an energy resource being bought — not a program of incentives being deployed."

Harmon also said there is room for growth in the program's scope. While the EEaS pilot will address the tenant-building owner split incentive, there are also misaligned incentives between current and future building owners and between institutions' capital expenditures and operating expenses.

Harmon said he expects utilities in other states will be paying close attention to the EEaS pilot and said he has already seen interest in New York, Hawaii, Ohio and Oregon.

"This is the first one, but we're in conversations with other folks," Harmon said. “Other utilities have been waiting to see what Seattle did after it kicked the tires of the first MEETS pilot."

While Harmon has some concern about the quick deadline for the first set of buildings and whether Seattle City Light can sign up participants that fast, he said work on some building retrofits will likely begin this year as a result of the program.

According to the utility, a second round solicitation for the next 15 buildings is planned in the next two years.