What is a Negawatt?
Emerging and innovative third-party financing options are enabling managers to use so-called negawatts for a retrofit. A negawatt is a measurable benefit of energy efficiency. It represents kilowatt-hours (kWh) of electricity and avoided therms of natural gas that facilities avoid either by increased efficiency or reduced consumption.
Since kWh and therms have a defined cost in terms of payments a hospital or other facility would otherwise make to the utility, the value of a negawatt is clear. The preeminent negawatts financing solution in the marketplace today is the efficiency services agreement (ESA). Under an ESA, a company makes no capital outlay on a project and is billed only for negawatts earned. The ESA structure is analogous to a power purchase agreement for solar photovoltaic systems. ESA payments are an operating expense and not a capital expense and are therefore off-balance sheet.
ESA providers measure a project's negawatts each period and bill customers on a price per unit of energy reduction — for example, dollars per avoided kWh or dollars per avoided therm. The ESA rate is generally set below that of current utility rates, enabling companies to earn savings from day one. Firms such as Metrus, which provides ESAs, also offer negawatts incentive programs for projects of a certain size.
The adage still holds: The cheapest kilowatt-hour is the one a facility does not consume. Now these negawatts have real value: Managers can put them to work to fund facility improvements.
Bob Hinkle is president and chief executive officer of Metrus Energy. An infographic entitled, Which Financing Vehicle Gets You on the Road to Energy Efficiency, is available for download on the Metrus Energy website. It outlines a series of financing options that maximize the benefits of large-scale efficiency retrofits and facility upgrades.