You really don’t need to own your light bulbs. You don’t even need to lease them.
You just need the light that emanates from them.
That is the premise underlying a new crop of startups such as Skyline Innovations and Metrus Energy that hope to transform energy efficiency and building management through creative financing, service contracts and software.
These companies essentially retrofit commercial and industrial buildings. But rather than selling solar thermal hot water heaters or new networked lighting systems to the owners or tenants, Skyline and Metrus retain ownership of the equipment. They then charge a fee for the energy avoided -- measured in kilowatt hours or therms -- as a result of the retrofit. (Another name to watch in commercial retrofits: iReuse, which has racked up an impressive list of clients in a short time.)
“We guarantee a fixed percentage of savings,” says Zach Axelrod, a former GridPoint employee who is the founder and CEO of Skyline.
In virtually all cases, the fee will be less than the cost of the energy avoided. Under a lengthy 12-year contract, a customer might pay Metrus 9 cents per kilowatt hour for energy avoided in a jurisdiction where it costs 13 cents a kilowatt hour, said Metrus CEO Bob Hinkle. In a shorter contract, the price will be closer to 13 cents.
Maintenance costs are baked into the fees as well, so customers generally see secondary savings. New air conditioners and other appliances also increase the value of the property. More importantly, the structure of the deal paves the way for improvements that might not otherwise have occurred.
“The big issue is cost,” said Hinkle. “They will typically fund projects themselves if there is a one-year, or maybe a three-year, payback, but a lot of the real energy savings can take five to seven years.”
In many ways, these companies are bringing a financing mechanism to building management that companies such as SunEdison and SunRun have used to popularize solar panels. Without a hefty up-front bill for capital, solar looks a lot better. With the PACE program for commercial retrofits now in limbo, paying for energy efficiency through a service contract becomes even more attractive. The contracts offered by Skyline and Metrus, in fact, involve less bureaucracy than a PACE deal would.
But there are differences betwen the solar and building worlds. The solar companies can take advantage of federal and state tax credits that greatly reduce the cost of the equipment. The tax benefits also allow these companies to fund their projects and solar panel purchases through tax equity funds.
Energy efficiency retrofits don’t enjoy the same level of support. Solar thermal hot water systems can only qualify for state-level tax credits in Washington, D.C., California and a few other places, but they aren't universal, according to Axelrod. General efficiency retrofits for commercial buildings often fail to qualify for credits. (Efficiency loses out in the residential market, too—homeowners get a 30 percent tax credit, but only up to $1,500.)
As a result, Metrus and Skyline have to pay for the equipment with their own money, or enlist strategic partners in lease-back arrangements. The fact that these companies can turn a profit without the tax credits, however, shows how retrofits can be more cost-effective than PV panels.
Skyline right now concentrates on solar hot water systems, but will expand into offering a wide variety of efficiency services. The only service it may avoid is installing solar panels because of the cost of solar panels and the existing, crowded state of the market.
“Hot water is the Trojan Horse,” said Axelrod. “People care about heat and hot water. They don’t care about the source.”
The heart of Skyline’s business is a software application that explodes a potential customer’s utility bills and can attribute consumption to different appliances and/or fixtures. The data then helps the company determine whether an efficiency retrofit makes sense, which appliances to swap out, and how much to charge. The software also monitors the performance of the building over time. The risk Skyline assumes is that the customer's behavior will change over the length of the contract.
“It recreates what your utility bill would have been” if the retrofit had already taken place, Axelrod said.
So far, the company has completed seven projects and is in negotiations to take on several more. The typical customer might be an apartment complex or a mid-sized commercial building that consumes 2,000 to 3,000 gallons of hot water a day and does not have a facilities manager on site.
Metrus was incubated by CalCef, the organization set up in the wake of the state’s 2001 power crisis. The company has conducted a retrofit for defense contractor BAE Systems in New Hampshire, and more BAE contracts will likely follow. More deals are on the way, says Hinkle.
Metrus coordinates projects with Siemens; Siemens installs the equipment and often manages the building afterward. Metrus’ main role is to serve as the financing and procurement vehicle.
What works best? It depends on the building, but generally Metrus tries to mix short- and long-payoff tasks in one retrofit. Lighting and networking lights can have a rapid payoff, says Hinkle. A new chiller for an air conditioner, however, is a capital-intensive assignment that can require years to see a return. Combining short and long payoff projects can lead to a blended payoff of seven to ten years.
Interestingly, Metrus has yet to install LED lights in a building. Instead, the company is obtaining its savings in this realm by putting in lighting networks and more efficient versions of conventional lights. CalCef's angel fund also has an investment in Lumetric, which networks high-bay lights like you see in stadiums and warehouses. Once known as HID Labs, Lumetric’s technology can curb lighting energy consumption by up to 40 percent by strategically dimming lights. Hinkle didn’t say whether Metrus works with Lumetric, but you can imagine the two companies know each other.
What happens if a building gets sold? Do Metrus or Skyline ever have to call in the repo man? No. Generally, the contracts have an accelerated buy-out clause. The companies get a fee and title transfers to the new owner.