Well, it’s that time of year again. We’re done with the Thanksgiving leftovers; we’re making our tour of office/friends’ holiday parties and VCs are posting their predictions for 2011.
Rather than regale you with a laundry list of predictions for the New Year, I’d like to focus your attention on one: energy efficiency. I believe that this is the year that we will really see cleantech companies which are focused on energy efficiency take off. We’re already seeing the groundwork being laid for this development. There have been some high profile deals of late (Accel and Kleiner investing in Opower) and we’re seeing a slew of acquisitions (EnerNOC bought Global Energy Partners just last week). More important than big funding rounds and small acquisitions (if they were big acquisitions, it wouldn’t be much of a prediction, would it?) is the change in sentiment we’re seeing, both from facilities managers for commercial projects and channels for residential.
Johnson Controls and the International Facilities Management Association (IFMA) released the results of a survey they conducted of over 1400 C-level execs, facilities managers and other executives in North America (here’s a good summary of the findings). The number-one reason (by far) that the respondents were interested in energy efficiency for their buildings was to save money. That’s great news. For there to be long-term success in energy efficiency in the commercial sector, it has to be about cost savings. We simply cannot rely on government/utility initiatives or “public image” to drive this market. This allows the commercial energy efficiency market to mirror the traditional IT sector (which has been great for venture capital).
So where are the opportunities in commercial energy efficiency? Obviously, we believe solid state lighting is one of them. We’re also huge believers in controlling HVAC. HVAC is the largest energy load in most commercial buildings, and through intelligent optimization in software, companies can see ~20% annual savings in their energy costs (a discussion for another day). The ability to do this with software also creates a tremendous opportunity for entrepreneurs, not only because it is a highly capital-efficient business model, but also because there isn’t a dominant company in this space (JCI, Honeywell and Siemens have building control systems, but they don’t have a software offering for HVAC optimization).
In addition to commercial energy efficiency, I also believe that residential energy efficiency is on the verge of breaking out. The major barrier to energy efficiency companies’ success in the residential space has been the channel, or more specifically, the lack of one. Without the support of the utilities, it is very difficult to succeed. I can’t use Google Powermeter (or another competing product) because I can’t get access to my smart meter data. The problem was best put to me by a member of a not-to-be-named utility in the Central Time Zone. Essentially, most utilities are looking for a one-size-fits-all solution, which, by definition, means that the only solutions likely to be deployed will service the lowest common denominator (someone that doesn’t care/doesn’t want to be bothered). His belief was that utilities need to get off their collective keisters and roll out multiple solutions to customers. Some people will want a very low-touch solution and others will want the whole shebang (in-home displays, web portals, controllable outlets, etc.), and still others will want something in between these two extremes. Luckily, utilities are starting to adopt programs, as OPOWER has demonstrated.
We’re also starting to see other service providers gaining interest in residential energy efficiency. With multiple paths to consumers, I think that OPOWER is just the beginning. There are 110 million households in the U.S. alone, and I'm pretty sure all of them would be more than happy to pay less for energy every month.
So will 2011 really be the Year of Energy Efficiency? We’ll have to wait about 12 months to find out. With commercial customers looking to energy efficiency as a way to reduce costs and new channels emerging for consumers to purchase residential products, I think the foundation for energy efficiency to take off is finally here. It should be an exciting year.
Mike Dauber is a vice president at Battery Ventures. You can contact him at twitter at @mdauber.