Is energy efficiency market a tough nut to crack for startups?

Cleantech Forum – Insightful Answers to Insightful QuestionsCategory: smart gridIs energy efficiency market a tough nut to crack for startups?
1 Answers
proton Staff answered 2 years ago

To answer this question let’s first look at the customer value proposition offered by energy efficiency solutions. Energy Efficiency(EE) solutions can surface energy saving opportunities by identifying operational inefficiencies and correcting for them either automatically or alerting the facilities manager to take action resulting in reduced energy expenditure. So basically the value prop here is cost savings. Energy Efficiency solutions also offer incremental revenue generating opportunities by making the building ready to participate in demand response and other utility programs.
The Energy Efficiency Value Chain:
Installing sub-meters and collecting data from various assets in a facility is valuable because you cannot manage what you don’t measure. Even more valuable is presenting all of the data in an intuitive visualization and generating alerts based on some preset thresholds. Visuals and alarms are good but the customer also wants to run analytics across his/her portfolio of buildings and compare relative performance of various facilities. After the customer understands the consumption profile of his various facilities, he then would like to be able to write rules and set operational thresholds to manage the energy bill. For this he could rely on the facility/building managers within each building to take appropriate actions at different times or subscribe to a software technology solution that automatically takes action. Once the facility/portfolio manager becomes comfortable with the building performance he then looks for incremental revenue generating opportunities such as demand response without materially impacting day to day operations or tenant comfort. The below picture captures the EE Value Chain.

The Value Proposition of various new startups as well as established vendors trend along the following lines:


However there are as many barriers to adoption of EE technologies as there are drivers as outlined below:


HVAC and Lighting are the two biggest loads in typical commercial buildings with customers having more knowledge about lighting retrofits due to the maturity of that technology. LEDs and networked lights save money and people get it. HVAC optimization is more complex to understand because it involves algorithms, forecasting, tenant comfort and old assets. As a result adoption is slower. Typical Energy Conservation Measures and their payback is shown below:



One other important element of EE in general is that the per building savings due to an Energy Conservation Measure is not game changing or needle moving – It could be just a few thousand dollars or just under $20K per year. So the savings as a percentage of annual operational expense is low. Unless a solution sale is made at the Chief Sustainability Officer / Chief Financial Officer / Portfolio Manager level where the aggregate savings are large and the image of “Going Green” is valuable, one off sales to individual building managers is not profitable.

Finally from a startup and venture investments perspectives, the EE space hasn’t generated significant returns. Fewer than 5 IPOs in the last 5 years and mediocre exits make the EE space uninteresting. The IoT hype has brought another wave of new startups that want to connect everything and offer control-ability from mobile devices. Unless the enablement and deployment costs are significantly brought down in the sub $1K range, these startups too will struggle to scale.


What is your opinion about this space? Curious to hear your thoughts.