A big return for building efficiency investment
Innovative business model flips the economic challenge of energy efficiency for buildings on its head
SCIenergy’s MESA service, an innovative combination of cloud-based energy management and energy efficiency financing that reduces energy use at commercial buildings and aligns the financial incentives for building owners and tenants.
In our feature on Honest Buildings, we noted that the building sector is responsible for nearly half of CO2 emissions (transportation is a third) and that 75 percent of the electricity produced in the U.S. is used to operate buildings. However, the economics of making buildings more efficient can be tricky. Improvements often require significant capital, and since the tenants – not the building owners – pay the energy bills and reap the savings from efficiency upgrades, building owners often lack the incentive to invest in energy-saving measures.
Enter Managed Energy Services Agreement (MESA), the innovative financing structure from Dallas-based SCIenergy, which provides building owners and managers a way to cut their energy usage without incurring high up-front costs. It does so by allowing an investor to agree to provide energy to a building at a price based on the building’s historical costs. The investor pays for energy efficiency upgrades and then uses the savings to provide a return on their investment.
Photo by: SCIenergy
“We think about energy efficiency as a source of energy, just like we think of coal, nuclear, oil, and renewables as sources of energy,” said Woolsey McKernon, managing director of SCIenergy. “Building operators are leaving billions of kilowatt-hours, and therefore millions of dollars, on the table because the expense is short-term and the payoff is long-term. We flip that model.”
“Tackling the energy challenge from the economic side of things is tough, because in many cases, saving energy dollars long-term requires up-front capital,” said Jim Marston, vice president of EDF’s energy program. “Services like SCIenergy’s MESA remove that cost barrier and allow customers to reduce their energy use and cost.”
Making this approach work requires a unique business model. Customers agree to purchase their electricity and gas from SCIenergy at a monthly cost based on their historical usage. SCIenergy then makes investments in system automation, energy management tools and other building improvements that are expected to save energy. SCIenergy uses the savings to finance their upfront investment at no cost to the property owner. If the savings are less than expected, SCIenergy absorbs the risk.
Photo by: SCIenergy
One SCIenergy customer, Corporate Office Properties Trust, is a real estate investment trust (REIT) that owns more than 20 million square feet of rentable office space, primarily in the Washington, D.C. area. SCIenergy applied its services and made $16 million in improvements to 26 office buildings, resulting in a 25 percent reduction in annual energy costs and more than an 11,000-ton reduction in energy-related CO2 emissions. In addition, there was an added benefit to tenants as well: the number of calls to building managers complaining about an office being too hot or too cold dropped 95 percent.
- What: SCIenergy’s MESA is an innovative combination of cloud-based energy management and energy efficiency financing that reduces energy use at commercial buildings and aligns the financial incentives for building owners and tenants.
- Where: SCIenergy in Dallas, TX
- Why it matters: Buildings represent a massive opportunity for reducing energy consumption. However, since most tenants (and not the building owner) pay their energy bills, owners do not have a financial incentive to invest in energy saving improvements.
Building operators are leaving billions of kilowatt-hours, and therefore millions of dollars, on the table because the expense is short-term and the payoff is long-term. We flip that model.Woolsey McKernon Managing Director, SCIenergy