Opportunities in Energy Efficiency
Google’s recent $3.2 billion dollar acquisition of Nest and Opower’s rumored IPO has brought much deserved public attention to home energy efficiency sector. While the team at Catalyst believes in the continued growth prospects of the sector, we feel that companies offering commercial and industrial energy efficiency solutions provide a substantial under-the-radar opportunity for growth investors as well.
In America’s real estate obsessed consciousness, commercial and industrial buildings rank far behind suburban mansions, country cottages and city penthouse apartments. Large office towers may be the exception to the rule, but the actual buildings that house the majority of our workforce, shops and goods are generic structures designed by people who rarely make the pages of Architectural Digest. But commercial buildings use energy, lots of it.
The biggest uses of energy for an average 2,000 square foot house are the heating, ventilation and air conditioning systems (“HVAC”) and basic kitchen appliances that receive modest usage. In the Midwest region of US, the energy bill averages $300 per month for the average household. In comparison, a 1,500 square foot restaurant in the same region has an average monthly bill is well over $1,200 per month or four times the 2,000 square foot house, while the total number of connected endpoints is 6-10 times higher. These restaurants have the equivalent of 3-4 sets of kitchen appliances, walk-in fridges / freezers, and ice machines. The dishwashers are running nonstop, while the HVAC is taxed by the heat radiating from the appliances and the constant foot traffic in and out of the building. It is no wonder why their average energy bill is so much higher than the average household.
The example above could be a small business, which as a group spend $20 billion annually on energy costs according to the U.S. Small Business Administration or it could easily be one of the more than
1,600 Denny’s across the United States. On an even larger scale, imagine the energy costs required to power the estimated 4 billion cubic feet of refrigerated warehouses alone.
Amazingly, just 20% of the approximately 5,400,000 commercial buildings and 10% of the approximately 530,000 industrial buildings currently have building management systems (“BMS”) according to a 2011 report from the Continental Automated Buildings Association. This low penetration rate combined with rising energy costs forms the basis for Navigant’s estimate that the market for BMS will double by 2020 to more than $5.6 billion. The software-specific component of BMS is expected to triple to $2.8 billion. Perhaps someday soon, innovative companies like BuildingIQ, FirstFuel and EnTouch Controls will bring commercial and industrial energy efficiency to equal footing with its more popular cousin.