New energy efficiency financing approach vies for grand prize in New York competition
Empower Equity is proposing to install energy efficient equipment for businesses as a subscription, with contracts running between five and 10 years.
The clean energy revolution is no longer a technical problem, so much as a question of economics.
With familiar technologies like wind, solar and energy storage, it is largely a matter of price — if you are willing to overbuild or pay, you can probably serve the load. For more nascent technologies, it is a question of determining scalability.
The New York State Energy Research and Development Authority's (NYSERDA) 76 West clean energy competition was announced in 2015 as a four-year initiative to fund development in the state's southern tier. Last week, finalists descended on Cornell University in Ithaca, N.Y., to pitch their ideas in a bid to win a $1 million grand prize.
One such idea? A subscription service for energy efficiency upgrades for businesses.
The event mixed a serious cadre of suit-wearing entrepreneurs alongside students in sandals who had remained on campus during the summer months. And the presentations highlighted a sector of the clean energy economy which is growing in importance: the folks who can make the money pencil out.
First move advantage?
Businesses often speak of a "first mover advantage," afforded to companies who stake claim to new technologies or markets. But in the energy space, where utilities and their regulators are often cautious and slow to adopt changes, the opposite can be true. So the recent wave of innovation in the energy sector, driven by maturing technologies, climate mandates and simple economics, has created something of an uncomfortable moment for utilities.
"For the first time in probably forever, utilities have to start taking risks in developing new business models, and they have to be prepared to fail," Navigant Principal Research Analyst, Stuart Ravens, told Utility Dive. "And then to move on and learn from those failures. Ravens called it a "first mover disadvantage."
"You can waste a lot of money doing R&D. It's sometimes better to let someone else do it and make a product out of it," he said.
"This clean energy nut we're trying to crack is a tough one, and just solar and storage will not get it done for us. ... it will take not just solar and wind but all sorts of wastewater treatment and technology to make the grid smarter and react better, for large customers and residential customers."
Technology and Market Program Manager, NYSERDA
The 76 West competition is one way New York is looking to tackle that problem. Nicholas Querques, NYSERDA's Technology to Market program manager, told Utility Dive that the competition aims to accomplish several goals — alongside helping New York reach a 40% reduction in greenhouse gas emissions by 2030, and 80% reduction by 2050.
"The capital intensity of these technologies and how long it takes them to get to market, those things from our perspective are the biggest barriers," Querques said. "This clean energy nut we're trying to crack is a tough one, and just solar and storage will not get it done for us. ... it will take not just solar and wind but all sorts of wastewater treatment and technology to make the grid smarter and react better, for large customers and residential customers."
As though to illustrate that point — though Querques said it was not a decision, but happenstance — there were no solar+storage projects or electric vehicle proposals, two hot topics of the clean energy space today, among the finalists. The competition is technology-agnostic, he said, and is focused on finding the best company.
More than 100 applicants entered the competition, which had been whittled down to a final 20 presenting at last week's event. Four will receive $250,000; one will receive $500,000; and a grand prize winner will receive $1 million.
The winners will be announced in September.
The projects cover a lot of ground and include: upcycling dairy waste, and methods to remove phosphorous from liquid manure; devices to make tractor trailers more efficient; external window upgrades; and new methods of financing for energy efficiency.
Overall, 76 West is a four-year, $20 million initiative, now in its third iteration. Each year, $2.5 million in prizes will be awarded, along with a like amount of investment to support innovation in the region. To qualify for the awards, companies from outside New York must commit to moving a significant portion of their business to the region. Businesses already located in New York, but in other parts of the state, would not be required to move.
Of the 20 finalists, 11 hail from New York state and several are from the immediate area. But there are also entrants from Ireland, Quebec, Texas, Tennessee and other states.
Importantly, said Querques, the competition awards are non-dilutive capital, requiring no equity sharing. It "increases their ability to find follow-on capital from investors after the fact," he said
Over two days, the judges heard 20 10-minute pitches, followed by a 10-minute Q&A. The questions were not about industry trends or outlooks, so much as the nuts and bolts of the business proposal.
The event was more akin to an episode of Shark Tank than a typical clean energy conference.
Houston-based Inovues pitched its "non-intrusive, external window upgrade technology." A majority of buildings in the United States are more than two decades old, and many have inefficient, even single-pane windows, CEO and Founder Anas Al Kassas told the judges.
"Building owners want to replace windows, but it could take 50 years due to high up-front costs, to recover the cost through energy savings, and to recover losses from business disruption," Al Kassas said.
The company's product is a 1-inch thick pane which attaches to the exterior of the window, meaning it is an addition rather than replacement, and can be installed quickly. It requires no drilling, instead using a construction adhesive.
The Inovue window upgrades will cost about 15% of what a replacement would run, offering a 90% shorter payback period, said Al Kassas. The company estimates a potential customer base of 4 million commercial buildings in the United States, creating a $5.5 billion annual market.
Among the questions Al Kassas fielded from the judges: Have you looked into the liability? What happens if an external window enhancement just ... falls?
(Answer: Insurance, and the adhesive is as strong as nails and not prone to catastrophic failure).
Energy efficiency subscription service
Empower Equity, based close by, in Ithaca, N.Y., told the panel it has developed a new model for funding energy efficiency upgrades — essentially, a rethinking of how equipment retrofits are paid for. Empower would offer to install energy efficient equipment for businesses as a subscription, with contracts running between five and 10 years.
Questions from the judges included: "Is this a privatized green revolving fund? Are you a financially-based services contractor? How do you see yourself?"
"We see ourselves as a service provider for energy efficiency," said Empower President and CFO Derek LaClair. "The closest [comparison] we see out there in the market is a waste management services contract. You don't pay up front for your dumpster."
Energy efficiency as a service. Rather than focusing on a return on investment of equipment or securitizing energy savings, LaClair and his partner, Empire CEO Herbert Dwyer, wants to offer a very simple proposition to a fairly specific business segment.
The company will focus on smaller projects, roughly from $30,000 to $2 million. It's a problematic area, said Dwyer: too small for an energy services company to take on, but often too much capital for a business to put up.
"The old models have been in place for a long time, and they haven't moved the needle very much," Dwyer told Utility Dive, after the pair made its presentation. And new FASB rules, requiring operating leases to be recorded on balance sheets, have stripped the efficiency sector of a tool for helping fund projects, he said. "That's gone. ... This model is what's left over for off-balance sheet" financing.
"We went into it with the assumption this was all based on ROI," he said. "However, we know what that's led to: low adoption of energy efficiency."
Empower would own the equipment, charging a set monthly fee. At the end of the contract, the customer would have three options: re-up on the contract, which could include equipment upgrades; buy out Empower on the equipment at market price; or decide to have Empower remove the equipment and go another direction.
That's the option Empower wants to avoid: "We want a customer for life," said Dwyer.
How to fund efficiency is a serious problem for the energy industry, particularly in a few specific segments. On the residential side, those segments tend to be low-income and multi-family buildings, customers who are disproportionately renters and have little incentive or funds to make upgrades. Small commercial businesses are also a problem, as they often do not want to tie up so much capital on improvements that take years to pay off.
"They have so many competing options for their capital, efficiency is not compelling enough, generally," said LaClair. "It's fixing something that's not broken, for 10% to 20% savings. ... The actual savings are nominal. That's why we really wanted to turn it around and talk about what the customer actually wants. Let's listen to that and think how we can use this pain point to create efficiency in energy."
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