September 2012

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Energy Efficiency Cleantech Solutions

What Happened? - Part 1

Chip Pieper
Chip Pieper,
VP Business Development
Ezenics, Inc.

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Most of us have noticed contraction in the adoption of energy efficiency related solutions of late. From venture capital firms focusing their investment strategy on sectors other than cleantech, to start-ups folding, to slow acceptance of larger controls companies' “state of the art” platform offerings, to acquisitions that fail to deliver significant value or differentiation in the market. Something seems to be going on in our industry. If companies were adopting solutions on a widespread-scale, we obviously wouldn’t be experiencing such a contraction. 

"People are shying away from cleantech, and it's clearly slowed down," said Pierre Lamond, a partner at Khosla Ventures. San Jose Mercury News

Rather than speculate what the root causes are that are impacting adoption, I believe it all boils down to decision-making. Why do companies buy or don’t buy?

Those of us, who provide solutions to the market with what we believe are strong value propositions, often prescribe on the basis of guesses and assumptions.  That is, we prescribe before we diagnose what the client’s true needs are and their criteria for making decisions.  Realizing that companies have to conduct their business with less resources (time, people, money) than they did previously, I thought it would be interesting to gain the perspective of both the providers of solutions and those who consume it, as it relates to energy efficiency cleantech adoptions.

In an effort to achieve decision-making nirvana, I felt it was necessary to interview at least 25 different people/companies across industries (big box retail, industrial manufacturing, hospitals, government, commercial real estate management, large software companies and a large insurance company with many real estate holdings) that “consumed” energy efficiency solutions. Everyone I spoke with had the ability to strongly influence or make decisions regarding adoption for their organization. As such, each interviewee was first asked one simple question to start the discussion, “What are the top three constraints or issues impacting your organization’s ability to adopt energy efficiency solutions?”

In addition, I also interviewed a number of “providers” of energy efficiency solutions to try and understand what they saw were the leading issues that slowed or even prevented the adoption of their solutions. The organizations represented were varied and included cleantech software companies, venture capital firms, controls/hardware manufacturesr, utilities, integration companies, and commissioning firms.

To be clear though, this was a qualitative study not quantitative. There’s absolutely NO scientific evidence that could be considered statistically significant. Matter of fact, everyone I interviewed had the ability to define energy efficiency solutions in their own words as it related to their company. Furthermore, rather than attempt to gain approval to use names of companies, individuals and quotes, I thought it would be more beneficial to have an open and honest discussion off the record. Thereby removing all doubt that this undertaking was indeed like a box of chocolates – you never know what you’re going to get. Nevertheless, what surfaced was telling and shared across verticals, as well as with both consumers and providers.

As I mentioned earlier, the first question asked was simple, “What are the top three constraints or issues impacting your organization’s ability to adopt energy efficiency cleantech solutions?” Even though each interviewee represented different verticals, there were similarities worth exploring. Here are the top seven most recurring issues or constraints that “consumers” experienced: 

1.    Lack of “qualified people” to either hire or outsource the business to.
2.    Experienced and qualified employees were seen as the difference maker in maximizing energy efficiency solution success. However, they need to be continuously skilled up/trained on these new solutions/technologies and this was viewed as a constraint.
3.    Some employees fear being displaced by technology and in certain cases, end up circumventing the solution and severely impacting its success.
4.    Energy costs are flat in most geographies.
5.    Lack of 3rd party validation or “case studies” supporting the proposed solution. Where has the solution worked and what were the results.
6.    The inability to deliver on promised results i.e. 20% Energy Savings! The perception was that much of what is being “sold” is just hype.
7.    Finally to my surprise, Life Cycle Costs were deemed more relevant in making the final decision than a two year ROI.

In the case qualified talent, many consumers felt providers could do a much better job of offering more competent technicians to deliver the necessary services. Even though virtually all consumers wanted to consider their providers as strategic partners and invite them into their “inner circle,” they often felt put off by the lack of professional expertise. Some even discontinued services on the basis of “misaligned resources.” Keep in mind; the majority of consumers I interviewed were from fortune 500 companies, large hospitals, and big government.

TechnologyNonetheless, “intelligent boots on the street” seems to be the consumer objective, when it comes to people and process. An “agile” motivated technician, who embraces technology, accepts change and welcomes the opportunity to be continuously educated on maximizing the business’ investments in energy efficiency solutions, appears to be the desired model. Isn’t that every employers wish? As it turns out, reality is quite different. An inability to attract qualified employees, and provide growth opportunities that map back to compensation and professional status seems to be a major constraint for the majority of consumers I spoke with. Contrast that occurrence with a “perceived” threat of energy efficiency technology solutions displacing current employees - you subsequently have opposing forces working against each other. 

IT GuyOne angle we could consider regarding talent is the convergence-taking place in our industry. According to consumers, IT is playing a much bigger role in the adoption of energy efficiency solutions and their involvement on multiple levels, certainly impacts decision-making. As such, let’s take a page out of their history book. Can you remember the IT guy back in the day? He sported a custom-made pocket protector, comb-over, high waters, and some “busted up” glasses. Furthermore, he had the office next to “Boiler Room Bob”. What happened? Where did the IT guy go?   

Though there were a few major “accelerants” that were responsible for IT’s transformation and ascendance to the C-Suite, one significant agent of change that propelled IT’s explosive growth in the 90s was compensation. Apart from the fascination and draw of high tech, what really attracted top talent was the opportunity to receive strong salaries, excellent growth potential, and of course “cashing-in” on the success of the business.  Unfortunately, the energy efficiency sector is pretty much devoid of these qualities. Apart from VC-backed cleantech start-ups, rarely do people run to this industry in an attempt to make serious coin and cash-out.

Even though the energy efficiency sector briefly experienced a similar transformational “accelerant” which attracted investment, talent, and growth potential, the sector has flattened out most recently. According to consumers, much of this is due to empty promises of “significant savings” and overblown hype. “Perceived Reality is Reality” has run its course. The consumer has spoken, they want proof that these solutions can surface the suggested value claimed by providers. 

Federal SupportThese empty claims of significant savings have not only contributed to the flattening of cleantech adoption, it has also led to many Venture Capital firms focusing their attention on other investment options, rather than cleantech. This is due primarily to start-ups overselling their solution, “empty promises,“ little returns or worse yet, little hope of any returns for their investors.  This all affects innovation, and its impact is systemic. Coupled with the fed’s reduction in cleantech incentives, stoking the business motivations for speculative growth are missing some of the accelerants they once had to propel their desire to transform a chronic industry problem into a cleantech solution.

As Rob Day mentions in his recent article in greentechmedia, "all of a sudden you have an OVER-hyped company that's overpromised and underdelivered and is out of money and burning through it like crazy."

To further complicate matters, 3rd party validation in the form of industry case studies plays a significant role in the decision-making process. If we’re talking about innovative energy efficiency technologies, providers better have some type of proof that their solution works, repeatedly, in a similar consumer enterprise environment. 

Many consumers I spoke with were pretty troubled with the lack of providers’ case studies in which a specific consumer was willing to state publically that a solution was effective in surfacing measurable value and were capable of a strong return on investment. Obviously, there are numerous innovative energy efficiency solutions available in the market, which have delivered significant value for consumers. Unfortunately, we just do not have enough “deep” case studies throughout the industry that enable the “enterprise consumer” to comfortably say yes to adoption on the basis of “claimed” energy savings alone.

Here’s the kicker though. One of the biggest obstacles “providers” stated as a constraint was, you guessed it, the consumers’ willingness to provide case studies. Very few consumers were willing to detail their experiences publically. Not only is “quality people” an issue in opposition, it turns out that 3rd party verification is as well. We’ll explore the later impasse in more detail in our next issue.

Additionally, the notion that consumer’s only buy on a two year ROI is misleading. Although every single consumer I spoke with all stated money was ALWAYS an issue, never ONCE did a two year ROI play “the dominant” decision-making criteria (as claimed by many providers). Life cycle costs were deemed much more relevant for this consumer sample.

Utility CostsCompounding matters even more was the issue of energy costs.  As my colleague Kelsey Haas mentioned in her article last month,  “in the last 5 years, electricity consumption charges have decreased, but demand charges have significantly risen in both cost and percentage of the monthly utility bill.  The increase in demand charges on the monthly utility bill is not always obvious to consumers as taxes and other line item charges that were once based on kWh are now based on the monthly peak kW instead.”

Reliable Controls Therefore as consumption charges have appeared to flatten, the relevance of efficiency solutions has taken on a new appearance. Those consumers that view energy as a low cost expense have eased off on their consideration for cleantech solutions that provide energy efficiency. However, those consumers that have experienced the pain associated with higher demand charges were taking measures to deploy services that addressed this opportunity.

Conversely, the issue of energy savings was rarely the “dominant decision-making driver” in adopting energy efficiency cleantech solutions. Although energy savings were certainly an objective, it appeared to be other more pressing consumer needs, which drove decisions such as comfort, maintenance, extending equipment life, labor, and process improvement. We’ll discuss this in more detail is next month’s Part 2 edition.

Even though there were many other points that consumers brought up in our discussions, the top seven mentioned above were clearly the most repeated constraints that I heard throughout my conversations. In next month’s installment we’ll explore what the prevailing sentiment is among the providers of energy efficiency solutions. What do they see are the constraints impacting the adoption of cleantech solutions on a more widespread scale? And finally, we’ll tie both consumers and providers together with what appear to be opportunities for “coming together” more effectively.

Please stay tuned.


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