Home energy efficiency audits and retrofits are known to pay themselves off in a couple of years, leaving homeowners enriched over time. Likewise, low-to-no-cost rooftopsolarfrom third-party installers and financiers such as SolarCity and Sunrun is, for many homeowners, a no-brainer.
But what’s good in aggregate is, on a house-to-house basis, quite complicated. Each home has different characteristics, making them better or worse targets for different solutions, ranging from insulation to whole-home HVAC overhauls -- not to mention solar. Any party looking to optimize the return on investing in home energy efficiency -- whether it be a utility offering rebates, a company offering a sale, or a government agency offering an incentive -- will need to have someone go to each home, meet with each family, and figure out each customers’ individual needs, to make each efficiency dollar count.
Next Step Living has taken a community organizing approach to this business challenge, and with gusto. Since its founding in 2008, the company has grown to 450 employees and has audited about 25,000 homes so far, by working with nonprofit groups, utilities and corporate customers. On Wednesday, the Boston-based startup announced it had raised $18.2 million from investors including VantagePoint Capital Partners, which led the round, and existing investors including Black Coral Capital and Mass Green Energy Fund.
Next Step Living has previously raised about $12 million, bringing the company’s total to just more than $30 million. That’s a lot of money for a startup in energy efficiency, particularly during what’s been a very slow year for green VC. The company also differs from many of the other software-focused startups that have gotten funding so far this year, in that it relies on lots of employees, as well as technology and business expertise, to grow to scale.
But CEO Geoff Chapin contends that people are a critical part of solving the home energy equation -- and that means well-trained and enthusiastic employees, as well as a network of community and nonprofit organizers eager to help spread the word.
“We believe that the relationship starts when you’re in someone’s home, and you have to be there to know what the home needs,” he said in a Wednesday interview. Right now the startup is auditing about 3,000 homes per month, he said, and for the third or so of customers who end up signing up for retrofits, energy savings can add up to 20 percent to 40 percent, he said.
The startup’s biggest single project is with the city of Boston and the Mass Save state efficiency program, where it has served about 6,000 homes so far. It also works in Maryland and Connecticut, and the new round of funding will help it expand to other states, including New Jersey and New York, according to the company's web site.
Most of its projects in the region tend to follow similar patterns, Chapin said -- “the solar is low-to-no-cost solar,” from providers including Sunrun, “and the heating systems are everything from high-efficiency gas furnaces to electric heat pumps" from Mitsubishi Electric.
Utilities already spend billions of dollars per year on residential efficiency programs that provide financial support for projects like these. That market is served by lots of local and regional energy auditors and contractors, as well as a host of larger companies, such as Ecova, Honeywell, Johnson Controls, Ameresco, Eaton and others, as well as the energy services branches of utilities like Con Edison and Florida Power & Light.
But while big commercial and industrial customers may get the full energy services treatment, most home utility efficiency programs today are simple installation rebates, Chapin noted. That means that anyone coming for an in-home visit is likely to be from an installer or vendor, rather than from an independent third party, he said. Energy auditors, who may be independent, usually don't stick around to help the homeowner do the actual retrofit, on the other hand.
Next Step Living essentially combines those two functions into one, and gets paid along the way by the parties involved. Often, that’s aided by rebates like the Mass Save program’s, which can significantly cut the $2,000 to $4,000 per home insulation and heating upgrades typical in the project, Chapin said. The startup also works with corporate clients, including Raytheon and Staples, to offer employees its home audit and retrofit services, along with various perks and payment plans the company may choose to offer.
Next Step Living has also built up its fair share of homegrown IT to manage the entire process, Chapin said. For example, the company has developed software that analyzes homes based on utility and property data to predict which ones will be the best targets for different combinations of projects, he said. We’ve seen a host of startups offering similar data analytics tools to help better direct efficiency spending, from the likes of FirstFuel and Retroficiency for commercial customers to startups like Bidgely, Opower or Recurve Software (bought by home energy startup Tendril) on the residential front.
Likewise, Next Step Living has collected data on the various local, state and federal government grants and tax breaks, utility rebates and pricing plans, and other financial incentives available for home retrofits in the state. Chapin knows his way around the nonprofit world -- he previously served as senior manager at the Bridgespan Group, a consultant to nonprofits and cities including San Francisco and the Packard Foundation, and has a long list of previous clients in public housing.
But Next Step Living isn’t tapping low-income utility customer funds or other such revenue streams for its services, he noted. Instead, the startup’s middle- and higher-income clients usually simply aren’t aware of how much efficiency and renewable energy can save them, he said. Likewise, many haven’t been told how much of it can be paid for via rebates, incentives or via programs like property assessed clean energy (PACE) or utility bill financing.
There’s certainly billions of dollars of energy efficiency savings potential out there in the residential sector, as studies from McKinsey and many others have proven over the years. For the most part, that’s good old-fashioned work like reinsulating the attic, replacing old windows, and getting rid of old refrigerators.
Still, there’s room for new technologies to make an even deeper impact. We’re seeing residential solar companies like SolarCity offering energy efficiency audits and retrofits as part of their services. Another development is home security providers like Vivint (acquired by Blackstone Group for $2 billion in September) selling third-party solar and home automation to their customers. Startup Alarm.com raised $136 million in September to boost its plans for home automation with energy-saving features such as lights linked to motion detectors and door locks and smart thermostats.
At the same time, home broadband providers like Comcast, Verizon and AT&T are starting to offer home automation and energy efficiency gear to residential customers. Then you’ve got the tens of millions of smart meters have been deployed around the country -- a few of them are starting to turn on their home area network (HAN) capabilities to connect customers to real-time energy data, beamed directly from the meter.
How all these technologies will end up working together to save energy and money is anyone’s guess. But it’s likely that somewhere along the way, a professional -- or perhaps a community volunteer -- will be called in to help set it all up.