Category Archives: Efficient Building Systems

Acuity Continues Buying Spree With a Strategic Play for EldoLED

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Acuity Brands, one of the largest providers of lighting fixtures and controls in North America, acquired eldoLED (client registration required). EldoLED drivers and controllers provide light-emitting diode (LED) dimming and control of red/green/blue (RGB) LEDs for dynamic colors. It previously partnered with other Acuity Brands subsidiaries, including fixture suppliers Gotham, Mark Architectural Lighting, and Winona Lighting. This announcement follows closely behind Acuity’s recent acquisition (client registration required) of lighting controls specialist Adura Technologies (client registration required).

With this move, Acuity strengthens its position in LED controls – a strategic move to drive margins and compete head-to-head with vertically integrated competitors such as Philips and Osram. While these firms own LED control technology, Epistar instead licenses AC LED technology from Lynk Labs (client registration required), and Wyndsor Lighting (client registration required) offers modules with integrated controls via a partnership with Echelon (client registration required). Acuity’s interest mirrors the increased investments in controls since 2009 (see the report “Winning the Jump Ball: Sorting Winners and Losers in LEDs and Power Electronics” — client registration required). Clients should confirm access to LED sensor and controls technology before they are blocked out as the industry consolidates; Light Based Technologies (client registration required), Redwood Systems (client registration required), or Enlighted (client registration required) may provide an acquisition opportunity.

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Steven Chu steps down at U.S. Department of Energy, leaving a mixed legacy

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Last week brought the widely expected news that Steven Chu will be stepping down as Secretary of the U.S. Department of Energy (DOE). Chu has been a hero to scientists and clean energy advocates, but on his watch the DOE has made some questionable decisions, particularly from a commercialization and business standpoint. That said, Chu has also laid the groundwork for a strong legacy of energy innovation – if those initiatives produce results, he may justly be regarded as one of the most important DOE Secretaries since the department was created in 1977.

Unfortunately for Chu and DOE, the name “Solyndra” will appear in the first paragraph of most appraisals of his term – the DOE’s ill-fated $535 million loan guarantee (client registration required) to the Silicon Valley solar panel maker became a rallying cry for opposition to the Obama administration’s clean energy investments. Other recipients of DOE loan guarantees and other largesse, including A123 Systems (client registration required), Beacon Power (client registration required), EnerDel, and Abound Solar (client registration required), have also filed for bankruptcy. While there was a case for deploying government funds when private investors largely stopped lending during the financial crisis, the DOE loan guarantee program mixed investments in reliable projects, like solar power plants using established technologies, with funds for firms like Solyndra that faced steep technical and market risks. It was highly likely that several would fail, but DOE either underestimated the risks or wasn’t well prepared for the political fallout (or some combination of both), and arguably hurt the cause of government support for new energy technologies – previously a point of bipartisan consensus.

Chu’s DOE also showed commercial naïveté in its claim that it could help bring 1 million electric vehicles to U.S. roads by 2015 – and President Obama personally cited Chu’s assurances in defending the administration’s focus on electric vehicles. While the DOE target included plug-in hybrids (PHEVs) like the Chevy Volt, as well as all-electric vehicles (EVs), only around 250,000 such vehicles will realistically be in operation in the U.S by the end of 2015 (see the report “Small Batteries, Big Sales: The Unlikely Winners in the Electric Vehicle Market” — client registration required). Anemic sales to date of PH/EVs also belie such optimism, and just before Chu stepped aside, DOE began publicly backing away from the goal – suggesting that DOE’s EV enthusiasm may not have been the best use of its resources.

What’s more, DOE has largely been on the sidelines of the most important energy story of Obama’s first term – the phenomenal boom in domestic gas and oil production, driven by technologies like hydraulic fracturing. To some extent that’s only right – by the time the technology (which had benefitted from DOE support in decades past) was ready for prime time, the industry hardly needed further help from DOE. However, given the impact this production will have on the energy and climate picture in the U.S., and the remaining technology and policy needs to help access these resources safely and make the best use of them, it’s surprising how little focus they’ve received (barely meriting a mention in Chu’s review of his term in his resignation letter).

Despite these stumbles, history may well look kindly on Chu’s tenure, because programs he’s championed have the potential to create a generation of impactful new technologies and keep the U.S. a center of innovation in energy. Through the network of 46 Energy Frontier Research Centers, and especially the new Advanced Research Projects Agency – Energy (ARPA-E), the DOE is funding research on really novel technologies with a breadth, depth, and purpose beyond its previous basic science efforts. ARPA-E, in particular, is well-positioned to help fill a void left by venture capitalists that are (wisely, by their financial standards) increasingly reluctant to invest in early-stage energy technologies. If these programs help shepherd along impactful energy technologies that that come to the market over the next decade, they’ll have a greater impact than even a successful Solyndra would have, and will validate Chu’s initiatives.

Given the ups and downs of Chu’s tenure, who should Obama tap to replace him? Some favor another academic, like Shirley Jackson of Rensselaer Polytechnic Institute, or Ernest Moniz of the MIT Energy Initiative, to continue to build DOE’s innovation efforts. Others argue that DOE’s commercial blind spot argues for a businessperson like Duke Energy CEO Jim Rogers. While a course correction is needed, and energy business acumen at DOE would be welcome, a utility executive may not be the best steward of Chu’s innovation legacy (and may sit uneasily atop what’s still largely a scientific agency). A business leader with more innovation experience could serve admirably – GE CEO Jeff Immelt has been floated, though seems unlikely to serve. Otherwise, given the controversies DOE has weathered and the need to defend its budget in an era of sequestration and discretionary spending cuts, a more seasoned politician might also be a wise choice to follow Chu. Someone like former (moderate) Republican governor and EPA administrator Christie Todd Whitman or past North Dakota Senator Byron Dorgan could serve to consolidate Chu’s gains in long-term innovation, but would still be inclined to pivot the agency more toward the pressing issues of the day.

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Daikin acquires Goodman to become the world’s largest HVAC system manufacturer

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On August 29, Daikin Industries, a Japanese multinational air conditioner (A/C) manufacturing company, announced its acquisition of 100% of the stock of Goodman Global, the second largest HVAC products manufacturer in the U.S. market, for a total acquisition value of $3.7 billion from the private equity firm Hellman & Friedman. To realize this transaction, Daikin will leverage its $1.5 billion cash in pocket as well as issue a bond of about JPY50 billion (around $641 million), instead of raising money from the equity market. This transaction is still awaiting approval by the U.S. government and is expected to be finalized in the last quarter of 2012.

The negotiation between the two parties actually dates back to 2010, but Daikin suspended the process after the earthquake and tsunami that hit Japan in March 2011. This persistence on Daikin’s part indicates the high strategic importance of this $3.7 billion deal, allowing the company to expand its North American presence. On one hand, Daikin is able to obtain Goodman’s duct solutions, which will allow it to capture a considerable share in the world’s largest HVAC market — U.S., where Daikin’s ductless solutions are not popular yet. On the other hand, Daikin can absorb Goodman’s specialties in low-cost product manufacturing into its global operations. (The news elicited mixed feedback from Daikin’s shareholders, who worried about the impact of this new debt on its balance sheet in these uncertain times.)

Daikin’s acquisition of Goodman should be worrying news to the leading HVAC players in the U.S. market, such as Lennox, Carrier, and Trane. The deal will not only allow Daikin to sell its own ductless solutions into the U.S. market through Goodman’s distribution channel, but also improve Goodman’s products through Daikin’s competencies in energy saving and smart control. Moreover, Daikin will become the world largest HVAC systems manufacturer, giving it significant market muscle. Clients supplying the HVAC industry should closely monitor the progress of Daikin and Goodman, as well as the response of their key competitors.

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The Road to Accelerating On-Site Generation Technology Adoption Runs Through Internal Capex Reduction

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Diesel generators’ vice-like grip on the building on-site generation market is loosening as emerging technologies increase in scale and maturity, and Fortune 500 companies commit to more sustainable operations. High-capacity factor options, such as fuel cells, will generate much higher volumes of electricity and heat than other options like solar and wind. However, solar and wind have lower upfront costs, and generate energy more economically. Broadly, each technology has its shortcomings – and struggles in a “base” scenario without incentives.

Multiple looming factors make the prospect of on-site generation increasingly attractive to adopters whether for commercial, industrial or residential purposes. Chief among them? Taxes on carbon dioxide emissions, capital expenditure reductions for generation equipment, and rising energy prices. Broadly – though not always the case – the strongest determinant of improved economics is lowered equipment capital expenditure. Given the lack of scale for fuel cells and biomass boilers, in addition to the price free-fall in solar, added potential for cost reduction should provide optimism for potential adopters that selective decisions today will lead to business-positive economics. Even small wind,  which ranges from 2 kW to 40 kW in size, has potential from an economic perspective, although in the on-site aspect makes ‘not-in-my-backyard’ a quite literal adoption barrier. In fact, most emerging technology options can become viable within a short time frame, and for industry stakeholders, technology innovations remain critical. Those without a focus on cost reduction (or performance improvement at constant costs) will find themselves without a foothold in a market.

Plenty of bad decisions will still be made given that deployment of a viable technology in the right application and in the right geography are each required to drive adoption. Above all, executing on cost reduction is pivotal but, assuming this is delivered, developers and potential adopters should have confidence that selective decisions today will lead to business-positive economics tomorrow.

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Late-Stage Investments Show Maturity of Green Buildings

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After a cautious start, investments in green buildings technologies began to blossom post-2005. From 2000 through 2005, only 37 investments rounds were closed in the space, but from 2006 to present, the number of deals has soared by over 700%, with at least 140 startups netting a combined 295 venture investments – all told, since  2000, venture capitalists have invested $4.06 billion in technologies that improve the energy efficiency of buildings and homes.

Signals of the green building industry’s growth and maturation are evident in this week’s graphic, which appears in the recent Lux Research report (client registration required) in the Sustainable Building Materials and Efficient Building Systems Intelligence services. While there were only 4 late stage investments (Series D and above) from 2000 to 2005, since 2006 these late-stage investments have increased, showing the maturity of the field. In 2011 there were 15 late-stage investments totaling $445 million, nearly 50% of the total invested that year.

With an increasing number of late-stage investments and higher dollars per investment, the maturity of the industry is emerging. Increased investor confidence since the 2009 financial crisis has also led to a higher investment size increasing from an average of $10.51 million in 2010 to $14.90 million in 2011. Now, early investors are poised to look for exits from the first wave of successful green buildings start-ups.

Source: Lux Research report “Building a Green 21st Century: Tracking Venture Investments in Green Buildings to Uncover New Opportunities”

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Rolf Disch Trying to Find a Home for Net-Zero-Energy Design in Germany’s Residential Building Sector

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Recently, we spoke with Dr. Tobias Bube from Rolf Disch Architecture regarding the potential for net-zero-energy design in residential construction. Rolf Disch has been involved in net zero or “plus energy” architecture since 1994. The firm’s first building, Heliotrope in Freiburg, Germany is widely considered by a number of architects to be the first building in the world that produces more energy than it consumes.

Dr. Bube told us that the additional cost for constructing a net-zero-energy home is only 7% to 10% more than that for construction meeting the minimum energy efficiency standards required by codes in Germany, such as EnEV 2009. Dr. Bube added that net-zero-energy construction can reduce heating and cooling costs by 90% for a 100 m2 home, bringing the payback period for energy conservation technologies under 10 years.

Rolf Disch utilizes technologies such as daylighting, passive solar heating, insulation better than R 10/inch, and zoning in windows. It also uses solar photovoltaic (PV) energy for on-site generation and payback for the PV technologies is in excess of 20 years with the recent reduction in German feed-in tariffs (FiT) for solar. Over the years, Rolf Disch has faced difficulties convincing home builders and housing development companies to adopt net zero or plus energy design. Therefore, in 2003, the company decided to float its own housing development arm adopting plus-energy construction methods. It now serves as the main customer for the design firm. According to Dr. Bube, a significant slice of the German upper-middle class is prepared to pay a premium for plus-energy homes.

According to our estimate, over 300 net-zero-energy buildings (NZEB) have been constructed over the past 10 years, most of them being in the commercial and institutional sector. Low tolerance for high capital expenditures and long paybacks have both held back the adoption of NZEBs in the residential sector. But a combination of high electricity prices, strict building energy conservation codes have made Germany the first geography where NZEBs can potentially take root even in the residential segment. Investors interested in the NZEB space should follow the activities of major home builders and housing development companies in Germany.

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$2.3 Billion Acquisition of Elster Unlikely to Pay Off

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The Elster Group (Client registration required), a provider of products and services for
advanced metering infrastructure, was acquired late last month to the tune of $2.3 billion by Melrose PLC, a British buyout group. This price, $20.50 per share, is a substantial premium on Elster’s stock price, which has hovered around $15 per share over the previous six months, and is 49% more than the June 11, 2012 Elster stock price.

This move is one of the largest since Toshiba acquired Landis + Gyr (Client registration required) in May of 2011, coincidentally enough, also for $2.3 billion. Melrose, however, is putting itself at risk by paying such a hefty price for Elster, a smaller and less successful
smart grid company compared to Landis + Gyr (Client registration required). Additionally, much of the hype around smart meters has died down, with their global deployment slated to slow down over the next few years as the market becomes saturated by 2018 (see the report “The Data Revolution.” (Client registration required).

While Elster is a strong company that will continue to grow within the advanced metering infrastructure (AMI) market, it will hardly grow enough to make up for the 49% premium that Melrose paid for it. That said, rather than face up against these two well-funded players slated to dominate that space, investors should shy away from further smart meter or AMI investments that lack clear differentiators.

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Azbil’s JV with CECEP-ID Introduces a Potential Powerhouse for Building Energy Management Systems in the Chinese Market

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In March, Azbil Corporation signed a cooperation agreement with CECEP Industry Development Company (CECEP-ID), a subsidiary of China Energy Conservation and Environmental Protection Group (CECEP), to establish a joint venture in May. Azbil Corporation is a leading Japanese provider of building automation systems (BASs). CECEP is the only state-owned enterprise in China that focuses on energy savings and environmental protection. The JV – called CECEP Building Energy Management Company (CECEP-BEM) – will leverage CECEP’s marketing network to open new channels for Azbil’s BEMS in the Chinese market.

CECEP has total assets in excess of RMB 63.2 billion ($10.03 billion), making it the largest energy savings firm in China. Azbil already owns around 70% share of Japan’s BEMS market, and brings to the table significant experience in developing and implementing automation systems, along with key technologies for monitoring and controlling indoor environments.

China will retrofit 99% of its 400 billion ft² of existing building stock for energy efficiency in the coming decades. Plus, it is building an additional 20 billion ft² of building space annually. At present, the BEMS market in China is underdeveloped, fragmented, and has no major players with significant market share. Companies with cost-effective and efficiency-enabling technologies, resources to scale growth, and a strong Chinese network are expected to take the lion’s share of future BEMS market growth.

Based on this recipe for success, we think CECEP-BEM has a very bright future. Poised to enter a rapidly growing market, it will likely become one of the major BEMS suppliers in China over the next three years.

The cooperation between CECEP-ID and Azbil highlights two key takeaways for those watching the BEMS and related markets. First, building partnerships with domestic players in China is a straightforward and effective way to get access to the region’s market. Second, it signals the willingness of Chinese companies to collaborate with foreign developers with strong product offerings rather than wide global channels to market. Since Chinese companies tend to focus exclusively on domestic markets – where new construction fuels the majority of BEMS uptake – the technology value of potential partners trumps wide market access in almost every case. With those takeaways in mind, companies interested in tapping into the Chinese BEMS market’s growing potential should monitor the JV’s progress and seek to establish similar partnerships with strong Chinese technology developers, such as Beijing Tellhow (Client registration required) and Shenzhen Das.

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Big Growth in the Small Building Market: Advanced Sensors and Controls for Building Energy Management Systems

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Sensor and control technologies provide the intelligent backbone for building energy management systems (BEMSs) by enabling near-real-time connections between equipment, building subsystems, and analytical tools. To date, BEMS developers and integrators have almost exclusively targeted buildings above 50,000 ft² to optimize the return on investment. This is beginning to change, however, as a slew of advanced sensors and controls have emerged. Advanced technologies promise to significantly reduce the payback period for BEMSs, thereby opening new demand in the largely untapped small building market – the highest hanging but plumpest fruit in the global building stock.

This week’s graphic comes from a recent Lux Research report (Client registration required) that sizes market opportunities for both standard and advanced sensor and control technologies. Despite the proven benefits of standard sensors and controls, the advanced variety highlighted in this week’s graphic will experience the greatest market growth through 2020 as they proliferate in commercial buildings under 50,000 ft².

Specifically, the market for advanced sensors and controls will grow from a niche of $53.7 million to a massive $745 million by 2020, representing a CAGR of 38.9%.

In the U.S., controllers, and advanced occupancy and CO2 sensors will drive much of the new growth. At the expense standard occupancy sensors, the market for the advanced equivalent will grow from $15 million in 2012 to reach $145 million by 2020 at a strong CAGR of 32.8%.

Meanwhile, the market for advanced carbon dioxide sensors will expand from $10.3 million in 2012 to a towering $145.6 million in 2020 at a CAGR of 39.2%. Also notable, the market for energy harvesting devices grows from $2.2 million in 2012 at a CAGR of 48.5% to reach $51.5 million by 2020, and the market for conductive media technologies grows robustly from $3.6 million in 2012 to reach a staggering $174.2 million by 2020 at a CAGR of 62.7%.

Source: Lux Research report “Sensors and Controls for BEMS: Providing the Neural Network to Net-Zero Energy.”

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iControl Networks partnership with Time Warner Cable signals convergence in home energy management and security systems

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iControl Networks partnered recently with Time Warner Cable to develop the IntelligentHome home energy management and security system (HEMSS) for U.S. customers. The HEMSS will enable users to manage in-home appliances via wireless thermostats and lighting controls using a touch-screen control unit. Customers can also monitor, manage and control the system through a website or free mobile application. On the security side, IntelligentHome allows users to monitor their residences from abroad via preinstalled security cameras, and can be personalized to alert the user by email of any pre-prescribed events.

When we spoke to Redwood City, California-based iControl late last month, the company emphasized that its market research had indicated customers wanted an intelligent home management system that coupled both energy and security in one package. Through its partnership with Time Warner Cable, iControl opened a wide channel to market to test this hypothesis. If embraced by end-users, it could prove to be the new go-to differentiator for cable companies in 2012.

Clients should closely monitor happenings around two developing facets of the iControl/Time Warner Cable partnership. First, they should track the U.S. market’s adoption of the duo’s HEMSS offering, along with similar offerings from Comcast, Verizon, 4Home, and Ingersoll Rand. If strong, it could trigger a slew of similar product partnerships. Second, clients should watch for further convergence between the once disconnected security and energy management technology arenas, particularly as they manifest in home management systems that couple energy and security management in the same offering. Lux clients can look forward to a profile of iControl Networks in an upcoming issue of our biweekly Efficient Building Systems Journal.

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