Noesis Energy, the Texas-based startup providing matchmaking software for efficiency professionals, has raised another $30 million to finance projects using a shared savings model.
The fund builds off Noesis' earlier move into financing last May, when it partnered with four boutique firms offering services to project developers. It's part of a growing trend in the intelligent efficiency market to use IT to better monitor projects, aggregate them and attract larger pools of capital.
Noesis initially started as a portal where commercial and industrial building owners could list their facilities, use a virtual auditing tool to track their consumption and connect with energy services companies providing quotes on retrofits. However, through surveying customers about what prevents execution of projects, Noesis found that third-party financing was a missing element.
"Every time we talk to investors, we hear the same thing. The money is there. But it's the scale, the volume and ability to find the right deals quickly enough that's lacking. The key is connecting the opportunities to the money," said Noesis CEO Scott Harmon in an earlier interview.
Over the last year, Noesis has been eyeing successful models in the U.S.solarindustry, where third-party leases and power purchase agreements dominate. Harmon said that Clean Power Finance, which has formed a marketplace to bring financiers together with installers and distributors, represents the closest match to his company's emerging strategy. Since becoming a financing intermediary, Noesis has quoted $37 million in projects. It has not released how many of those projects have been closed or fully executed.
The new $30 million fund will support shared savings agreements for projects in the $500,000 to $3 million range. Shared savings are the efficiency market's equivalent to the power purchase agreement. The developer finances the entire retrofit upfront and then gets repaid based on a percentage of the savings. Assuming there is trust between the energy service company and the building owner, it can be an attractive way to finance a project off the balance sheet.
The shared savings model is sometimes used by energy service companies, but it has been limited to big firms that are able to raise debt on their own, provide a meaningful guarantee and establish trust with the customer due to its size. Noesis says that its brokering services can open new opportunities for mid-sized efficiency contractors, while providing better monitoring and verification capabilities with its software. The model, according to Noesis, will make smaller contractors into "virtual ESCOs."
Selling efficiency like an actual unit of energy historically has been very difficult. Many in the industry have criticized the complicated models predicting "deemed" energy savings, which can sometimes be off by double digits when compared to actual performance. But the growing availability of more abundant, higher-quality metering data, combined with software tools, is making it easier to track energy savings.
Noesis has also become a part of the Investor Confidence Project, an organization looking to bring performance and financing standards to the efficiency sector. Standards are another area where efficiency is learning from the solar industry.
“Noesis is leveraging the Investor Confidence Project protocols as a way to standardize their project development process in order to reduce transaction costs, and help deliver this new shared saving financing product to their software customers and the building owners they serve," said Matt Golden, senior finance consultant with the organization.
Noesis and other competitors are now realizing their software isn't just a better monitoring tool -- it's a way to convince investors they're putting money into something real.
After going quiet for eighteen months, SCIenergy has rereleased its own software tool for commercial buildings. The company's goal, said CEO Steve Gossett Jr., is to "create instrumentation around de-risking investment" in efficiency projects.
SCIenergy is now looking to pool money from investors and work with developers to set up "managed energy service agreements." Under that model, the development partners own the efficiency retrofit and get paid from the realized savings. The building owner simply pays for electricity based on historical utility bills and then takes ownership of the assets after they've been paid back at the end of the contract. The software, said Gossett, is what makes the approach scalable and potentially attractive to investors.
Another company called EnergyRM is doing something similar with a "metered energy efficiency transaction structure" (also known as a MEETS). By installing a meter at a customer site, EnergyRM tracks a building's energy consumption. It then brings an investor and developer on board to "rent" the building and install efficient equipment, paying the host a fee each month. The utility simply charges the building owner based on historical consumption and pays the project developer for the actual savings.
All of these models are examples of how new monitoring technologies -- along with some innovative thinking -- are making efficiency into a tangible, scalable resource. And if recent funding rounds are any indication, investors are taking notice.