In the United States, buildings themselves, plus the plug loads of their tenants, use 70 percent of all electricity and account for 40 percent of all carbon emissions. At least half that power is wasted, due to inefficiencies in the ways those buildings are designed, built and operated.

Even cities that are deeply committed to addressing climate change, increasing energy efficiency, and improving resiliency face big challenges in realizing their goals.

There is little financial incentive for developers to build anything that’s vastly more efficient than codes require. Academic arguments tied to carbon pricing, ecosystem services, and avoided externalities are persuasive to environmental policy scholars. However, most developers (and the banks that finance their buildings) care about the real-world bottom line—not about societal benefits that currently have no value in the marketplace.

For existing buildings, energy efficiency retrofits can be a non-starter. Utilities have tried for decades to incentivize efficiency improvements, with mixed results at best. The most commonly incentivized actions are known as “cream skimming”; they achieve the cheapest, easiest wins. For example, changing the lamps and installing insulation. This path of action leaves the deeper retrofit measures for future owners to deal with, or more likely, to ignore.

If I seem a bit skeptical about energy efficiency programs, it’s only because I’ve been working in the arena since the Carter Administration. I know the frustrations and challenges well.

This is exactly why I’m so excited about a pilot program we’re testing in Seattle. In my decades of work on energy efficiency, as director of the Illinois state energy office, teaching energy engineering at Stanford University, serving as director of National Renewable Energy Laboratory, this is the first model I’ve encountered that has serious potential to dramatically change the market for energy efficiency.

If we can bring this idea to scale, (a big “if,” admittedly) it has the potential to revolutionize the energy sector.

Introducing: MEETS

Just over two years ago, the City of Seattle pioneered a new approach to incentivize energy efficiency in new and existing buildings. Known as the Metered Energy Efficiency Transaction Structure – or MEETS – the program turns a building into a revenue-generating “energy efficiency power plant” by measuring the energy it does not use, and paying an investor for the value of that energy.

MEETS works a bit like a wind turbine on a farmer’s field. The investor, usually someone other than the farmer, gets paid for the energy generated by the turbine. As payment for housing the energy generating asset, the investor pays rent or provides other benefits to the farmer.

With MEETS, instead of a farm we invest in a building. And instead of a wind turbine, the investment focuses on deep retrofits like ultra-efficient heat recovery ventilation, smart windows, and multifunctional facades.

The investor has a contract with the utility to buy the energy savings achieved by installing the efficiency retrofits. The energy savings are recognized as real kilowatts that can be measured and sold to another customer. In our case, the initial contract with the utility will cover this agreement for the next 20 years.

The investor has an incentive to pursue all efficiency upgrades that will pay back in energy savings within the contract period. With a 20-year agreement, it makes sense to replace old windows, eliminate all uncontrolled air leaks, and install cutting-edge building management systems with thousands of sensors and microprocessors that communicate with the building’s “brain.”

The City of Seattle has been piloting MEETS with the Bullitt Center, a building developed and owned by the Bullitt Foundation, that uses 85 percent less energy than the average office building in Seattle. With an EUI of 12, the Bullitt Center is the most energy efficient office building in the country, and possibly the world.

To compensate the Bullitt Foundation for investments made in energy efficiency above and beyond what is required by Seattle’s rigorous energy code, our utility, Seattle City Light, measures our energy use, compares it to a baseline derived from other new commercial buildings with a similar tenant mix, and calculates our energy savings. This is made possible by new software that calculates the baseline in real time, called X-View Framework, developed by EnergyRM.

The Bullitt Foundation had the legal right to build a structure that uses five times more electricity, and the utility would have been legally obligated to supply all that additional power.  The new power would have come from expensive new sources. But the utility’s rates mix the new power in with cheap power from 50-year-old hydropower dams, hiding its “real” cost from consumers. Naturally, the utility would rather buy as little of this expensive new power as possible. So it is happy to pay for the power that the Bullitt Center saves from its deep investments in efficiency.

To give a sense of scale, each year Bullitt receives more than $50,000 from Seattle City Light for our energy savings. If the building continues to perform well, we will receive more than $1,000,000 over the life of the contract.

In contrast, under the City’s traditional efficiency incentive program, the Foundation would have received a one-time, up-front payment of $80,000 to make a handful of efficiency investments, regardless of how much energy was actually saved. The Foundation declined this up-front payment; we are only paid for the energy that we actually save.

MEETS From the Utility’s Perspective

There are a few key components that make this program attractive to Seattle City Light.

First, Bullitt’s tenants pay the same energy bills they would if they were located in a building built to code. To be clear, the utility receives the same revenue stream it would have had if the Bullitt Center were a conventional, inefficient structure. The tenants receive all the same or better energy services (winter warmth, summer comfort, ample light, fresh air, kitchen appliances, power for their computers, etc.) as they would in a code building. They are, in effect, buying energy services, not electricity.

Second, the Bullitt Center saves the most energy at precisely those times of year, and those times of day, when the utility experiences peak demand. Thus, our energy savings are displacing the most expensive power—electricity from peaking units—that the utility would otherwise have had to buy or produce.

MEETS is the only energy efficiency program yet proposed in which all parties are better off than they were before.

• The utility receives the same revenue stream and saves money, which is in the interest of all its other ratepayers.
• The Foundation gets a reasonable return on its deep energy-saving investments.
• The tenants enjoy a more comfortable, better lit, healthier building but don’t have to pay anything extra for these advantages.

A More Efficient Efficiency Program

MEETS eliminates the split incentives that bedevil other efficiency programs.

Developers typically sell buildings to investors soon after they are fully leased; with a time horizon of two or three years to sale, they have no incentive to make super-efficient buildings. Building owners typically pass all energy costs through to their tenants, so they gain no financial return from investments in deeper efficiency. Tenants won’t make deep investments in buildings that they don’t own. MEETS solves for all of these challenges.

Now that the Bullitt Center has proven the basic concept, Seattle City Light is expanding the pilot to more buildings. As an important indicator of MEETS’s potential, Unico, the firm that manages and maintains the Bullitt Center, has applied to Seattle City Light to let it employ MEETS at other buildings in its portfolio.

MEETS is ready to be brought to scale, immediately, around the world. It merely requires utilities, utility regulatory commissions, building owners, and tenants agree to get serious about the climate crisis, and embrace a new approach that simultaneously serves everyone’s interests.

For more information, visit www.MeetsCoalition.org.