The cheapest source of energy is the energy you never use. It’s a well-worn refrain in energy circles, but for decades the business case for chasing energy efficiency savings struggled to cut through in board meetings.
“The marketplace has largely ignored energy efficiency because of how difficult it is,” admits Arvin Vohra, co-CEO of US-based energy efficiency firm Redaptive.
This is partly down to the disconnect in traditional funding models – commercial landlords have scant incentive to invest in a property’s energy efficiency when it is the tenant who will benefit from lower energy bills. Meanwhile, pinpointing how much energy a particular action has saved in a building over the course of a week, month, or year, has historically been more of a guessing game than a data-driven science.
And often, energy teams in property management firms simply don’t have the manpower to oversee major retrofit projects, or the boardroom clout to demand the upfront capital investment such a project would demand. “Many real estate energy teams are understaffed relative to the size of large commercial customer’s utility bills,” Vohra explains. “They don’t have the human capital to execute on a portfolio-wide implementation of energy efficiency.”
But times are changing. Improvements to measurement technologies, falling equipment costs and innovative business models mean energy efficiency savings are becoming easier for firms to grasp. Energy-as-a-service models, such as GE’s Current, offer energy efficiency savings at no upfront cost. Major companies, such as UK supermarket giant Sainsbury’s, have jumped on board.
Meanwhile this week Current rival Redaptive announced it has raised $20m in its latest funding round, with investment led by CBRE, the world’s largest commercial real estate services and investment firm.
ENGIE New Ventures, the corporate venture capital arm of French utility Engie, also joined the round along with GXP Investments and Linse Capital.
Under Redaptive’s model, customers outsource the entire project, from design and installation to maintenance and monitoring. Customers pay nothing upfront and only pay for the energy they save. “We’re charging per kWh saved, and our customers are paying a rate per kWh saved that’s lower than their utility bill,” Vohra says. This payment is based on Redaptive’s measurement and verification system, he explains, which can “isolate the savings from the project that we implemented so the customer has full transparency into the savings they are achieving”.
To date the San Francisco-based company has secured around $200 million in aggregate contract value, generating approximately 423 million kWh of saved energy. Now, using the $20m in investment, it wants to expand its model internationally.
In particular, Redaptive hopes Engie will help it tap into the European market “more aggressively” – a strategy Engie appears very much on board with.
“In the past, a lack of capital and uncertainty over savings has plagued the energy efficiency industry,” says Hendrik Van Asbroeck, managing director of ENGIE New Ventures. “Today, Redaptive’s energy-as-a-service offering is removing these barriers. Our partnership with Redaptive and its data offerings, enables ENGIE clients to move forward with energy efficiency projects faster than on their own and with confidence. We are pleased to support the firm both financially and strategically to improve the energy performance of the world’s buildings.”
Energy efficiency is so often seen as a more difficult sell to tangible renewables projects. ‘Negawatts’ are, by their very nature, invisible – and therefore struggle to compete against glossy images of soaring wind turbines and shiny solar panels. But boosting energy efficiency rates in buildings around the world is not only essential for meeting the world’s climate targets, but a seriously compelling business offer.
It’s a message that, for Redaptive at least, seems to be finally getting the cut through it deserves. “Energy efficiency is finally sexy,” says Vohra. “We are a real player alongside solar, wind and fuel cells.”