Looks like the competition in bundling building energy efficiency technology and financing in a single platform is heating up.
SCIEnergy, a startup with a combo software and energy services approach to building energy efficiency retrofits, has acquired Transcend Equity, a startup with an energy services financing model that takes upfront cost out of the equation for building owners who want energy retrofits. Financial terms of the acquisition were not disclosed.
Tuesday’s announcement also maintains Transcend’s existing arrangement with Japanese trading and investment giant Mitsui & Co., meaning the newly combined companies can expect hefty financial backing for the Managed Energy Services Agreement model that Transcend has developed.
In simple terms, Transcend takes the cost of efficiency retrofits off building owners’ balance sheets by setting up a contract whereby Transcend owns the project, pledges to pay utility bills for the customer, and pays itself and the customer back with the resulting energy savings. Transcend says it’s tested the model with two dozen buildings owned by an unnamed Maryland-based real estate investment trust.
If this sounds a lot like the Serious Capital financing model launched by rival startup Serious Energy, that’s because it is. Serious says that it has a billion dollars in projects in its financing pipeline, with pilot projects for a number of unnamed Fortune 500 institutional owners and universities, according to Claire Broido Johnson, a SunEdison co-founder and former Department of Energy efficiency advisor who joined Serious last year.
In fact, Serious and SCIEnergy are two pre-eminent West Coast building energy efficiency technology startups that are in pretty tight competition. Serious, which has raised $140 million in VC investment, has shifted from its faltering high-efficiency windows and building products business into building energy management and analysis software via its purchase of Valence Energy in 2008, and added building energy management systems with its acquisition of Agilewaves in November.
SCIEnergy, for its part, has raised about $24 million, and started out with software to analyze and manage building energy systems to prevent failures and drift in performance. It moved into on-the-ground project management last year with its merger with Atlanta-based energy services company Servidyne.
That competition between the two has gotten ugly at times. SCIEnergy saw several key executives, including founder John Pitcher, leave the company to join Serious last year, and has since sued the rival for alleged misappropriation of trade secrets. Serious denies the charges.
But in other ways, both companies are now on the same side. Both are now trying to get the commercial real estate industry to buy into their innovative, yet unfamiliar, models for jumpstarting no-money-down energy retrofits for a building sector that has traditionally struggled to invest in energy saving.
There’s certainly a massive potential market. Buildings account for nearly one-fifth of total U.S. energy consumption, or about $400 billion a year in energy costs, and up to 30 percent of that energy is wasted or used inefficiently.
Paying for efficiency retrofits through bill reductions isn’t a new idea, to be sure. So-called energy services contracts are common in the government, educational and institutional markets, and giants like Siemens, Chevron Energy Services, Honeywell, Johnson Controls and Schneider Electric and others doing billions of dollars of projects this way.
But the commercial sector has been a harder nut to crack. Commercial properties can’t float bonds to cover long-term project costs like schools or local and state governments can. But the key difference is that commercial property changes hands much more frequently, giving current owners a much shorter window to pay back their investment before they sell the building to someone else.
Taking retrofit projects off-balance-sheet could be a key way to solve that problem. We’re seeing other models that tackle the challenge, including property assessed clean energy (PACE) financing and schemes that allow project costs to be paid back via utility bills. San Francisco-based startup Metrus Energy works with energy services companies to finance projects in a similar fashion.
The Obama administration’s “Better Buildings Challenge,” which is asking private partnerships to develop $4 billion in energy efficiency projects, could be an early testing ground for financing models like these. Indeed, Serious Energy and Transcend equity each pledged to do $100 million apiece in Better Buildings Challenge projects.
Then again, Schneider Electric also said it would participate in the Better Buildings Challenge, and we can expect its fellow big energy services giants to join in. The big question for the likes of SCIEnergy and Transcend is whether or not they can stay ahead of those giants in innovating their way to bigger, as-yet-untapped markets.