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FULL REPORT
The Intelligent Building: Networks, Controls, and Efficiency
AGRION LLC | 5 Third Street, Suite 520 | San Francisco, CA | Tel: 415-882-4615 | www.agrion.org
Speakers:
Adura Technologies, Zach Gentry, Chief Strategy Officer, Co-Founder
BuildingIQ, Mike Zimmerman, CEO
Echelon, Steve Nguyen, Director Corporate Marketing
Optimum Energy , Nathan Rothman, Founder & Chairman of the Board
Serious Materials, Kevin Surace, CEO
Moderator:
AltaTerra Research, Don Bray, President
Table of Contents INTRODUCTION 2
BUILDING AUTOMATION AND MANAGEMENT SYSTEMS 3
Open Platforms and IP Convergence 3
ROI 4
Continious Commissioning 4
DEMAND RESPONSE 4
Standards 5
Government Regulations 5
Facilities Management and IT 6
Utilities 7
Controls and Energy Performance 8
New and Retrofitted Buildings 8
THE FINANCIAL CASE 10
Capital Investment and ROIs 10
ESCOs (Energy Service Company) 11
PACE, Green Leases, and Incentives for Multi-Tenant Buildings 11
Tax Credits 12
BUSINESS MODELS, OPPORTUNITIES, AND THE MARKET 13
The Incumbents 13
Merqers and Acquisitions 14
Remote Operation and Running a Building 14
The Extent of System Inter-Operability 15
CLOSING STATEMENTS: PROJECT EXAMPLES 16
Q&A SESSION 19
FULL REPORT
The Intelligent Building: Networks, Controls, and Efficiency
AGRION LLC | 5 Third Street, Suite 520 | San Francisco, CA | Tel: 415-882-4615 | www.agrion.org
Global Markets 19
Real Time Pricing 20
Competing Products 21
Methodologies for Verification 22
Utilities Competition and Data Privacy 23
International Financing Mechanisms and Ratings 23
Base Lining 24
INTRODUCTION
Don Bray (AltaTerra Research): Hello and thank you for joining us. For those of you who do not know AltaTerra,
we are a market research and consulting firm based in Palo Alto. We are focused on efficiency and clean energy
solutions, specifically for the commercial business marketplace. The concept of building energy efficiency is hot. It is
very hot right now and I think it is so for a lot of reasons. To kick us off, though, I tried to think of three top reasons.
Firstly, energy efficiency pays. There are good business cases out there for building owners in this zone. A famous
example is the Empire State Building project that Jones Lang LaSalle has done, where they got a 38% energy
savings. That is $4.5 million dollars a year. So there are real opportunities for building owners. Secondly, this is a
big market. Energy consumption in building is 40% of all energy consumption. There is a $200 billion dollar a year
spent on energy in the US alone, so there is a big addressable space. Thirdly, why is this hot? This is a great Silicon
Valley type problem. New information technologies, hardware, software, networking, and new materials technologies
have real promise to reach buildings as they are built and certainly as they are operated.
We have an outstanding panel with us today that represent five different companies that are coming at this space
from some different directions. So they will give us a good range of perspectives. What I am going to do is introduce
these folks with one line about their companies, so we are not going to do a long series of introductions here. I think
what they are doing will come out in the course of the conversation.
Beginning on the far left we have Mike Zimmerman, who is CEO at BuildingIQ. BuildingIQ offers an application
software solution that runs on top of the building management control system to optimize HVAC operation. Secondly,
we have Zach Gentry. Zach is the chief strategy officer and co-founder of Adura Technologies. Adura is about
lighting and specifically lighting solutions for commercial buildings using wireless mesh network based control
technology.
Next we have Steve Nguyen, who is the Director of Marketing for Echelon. Echelon's LonWorks Infrastructure
products enable networking among thousands of third party devices, connecting them to each other, to the grid and
to the internet. So with Echelon, think intelligent connectivity. Kevin Surace is next and he is the CEO of Serious
Materials. Serious develops energy efficient building products, such as drywall and window systems. Also, they
recently launched Serious Energy Manager, which is a software solution for energy monitoring and management.
Last but not least, we have Nathan Rothmanwho is President and CEO of Optimum Energy. Optimum is in the
business of integrated intelligent control systems to improve efficiency in HVAC systems.
FULL REPORT
The Intelligent Building: Networks, Controls, and Efficiency
AGRION LLC | 5 Third Street, Suite 520 | San Francisco, CA | Tel: 415-882-4615 | www.agrion.org
In terms of a stage setting question to kick us off, building automation has been around for awhile and there are
some established players. But, there is a lot of new activity in the space now. So I think the question we can start
with is what trends have really shaped this space over the last 10 years. Nathan, would you start us off with that?
BUILDING AUTOMATION AND MANAGEMENT SYSTEMS
Nathan Rothman (Optimum Energy): There has been a lot going on. I think first off all, we have to look at
sensor technology and the incredible changes that have happened in that area over the past 5-10 years, which have
been driven by the industrial applications. Sensors and actuators are two areas where there have been tremendous
improvements. When you go beyond that you go into what has been happening for the last 10 years, which has
been a common protocol in building automation systems. Before that it was all proprietary. It was a Siemens, a
Johnson's, or any of the other building automation systems.
Ten to fifteen years ago, Echelon with their Lon System and BACnet, which is an Ashrae sponsored protocol,
developed these open platforms and enabled different companies to build different applications that could interface
with these proprietary systems. It has been an opening up of that for the people in the industry. That is a major
trend and a major change in the industry. That enables companies like ours to build applications that sit on top of
building automation systems. It enables companies like Kevin's, which build energy monitoring systems, to come in
on top of any system in the building and pull out the data. It enables lighting companies to go in and interface with
the building automation systems, which control HVAC, security, fire, lighting, etc. That, with sensors and actuators,
really have been one of the biggest changes we have seen.
The one other thing that we see happening now are the real world and the IT world converging. We see the giants
as I call them -- the IBMs, the Microsofts, the Ciscos -- all of a sudden realizing that there is this big opportunity
and this is all going to come together in this big cloud or network in the sky. Those are the big changes that I see
coming.
Open Platforms and IP Convergence
Steve Nguyen (Echelon): I just had a meeting last week with Honeywell, Johnson Controls, Schneider, and
Distech Controls. Arguably they constitute four out of the top six building control companies in the world. They all
nodded their head in agreement that if you are not doing an open system today, then you are not doing a building
system anymore. The chances or opportunity to bring out a new system based on proprietary technology is virtually
zero. They see the entire world moving towards open platforms now.
Open is defined in the eye of the beholder, of course. The idea of IP convergence is a big debating point, and a big
issue of contention amongst everybody, relating to how far IP is going to go in a building system. The general
consensus in the industry is that it has a place, but determining how far IP can go into a building will depend on what
the incumbent system is, although everybody will integrate with IP at some level and at the very least at the software
level. From our perspective of looking at the industry, the whole smart grid space, energy analytics, and intelligent
buildings are all converging.
IP is a way to make that happen, but it is also driving a lot of the understanding of what intelligent building can and
cannot do. It is making people question the idea of open versus integrated, the idea of how you do demand response
and what value it brings to you, and where you save energy and where the value proposition is. It is forcing a
conversation as to what a building automation system is how intelligent does it need to be to bring value to the
FULL REPORT
The Intelligent Building: Networks, Controls, and Efficiency
AGRION LLC | 5 Third Street, Suite 520 | San Francisco, CA | Tel: 415-882-4615 | www.agrion.org
owner, and what impact does it have on the tenants themselves. So the conversation has really opened up, thanks to
the smart grid and the holistic view of energy management.
Don Bray (AltaTerra Research): I guess I will ask the panel if anyone disagrees with the fact that the future is
open in this space.
Kevin Surace (Serious Materials): I think that has been written at this point. Of course Cisco has a mediator and
Echelon has their system. We are partners with both.
ROI
To go back to your first question, I think that the big change is what has happened over the last few years in driving
an ROI. Everything that we have talked about for green, whatever green means to you, for the last 5-10 years is
really shifting. It is shifting partly because of the economy. The economy continues to be down and tough.
Technology that delivers no ROI but is Green, is interesting, but you are not going to sell any. You are just not going
to sell any. With all due respect to so of you in the room who may be trying to do something green, if it is not "$$$"
green, then you are not going to sell anything.
The ROI, I think, is the news here. It is that we have technology that goes back to what Nathan was talking about.
We have got sensor technology that has gotten cheap enough to where it starts to be interesting. What is
interesting? Interesting is an ROI that is 1-3 years. That is what interesting is. When you start to get to those
numbers, building owners start to ask how they can participate in that.
Continious Commissioning
Then you get to the next step, which I think we are going to talk a little bit about, which is continuous commissioning.
But, the idea of commissioning a building once is really quite passé. That said, there are 5 million buildings in the US
of which 4.99 million have been not been commissioned once, and the rest rarely after that.
The idea of continuously commissioning that building literally every 5-10 minutes, looking at 5,000-20,000 data
points, pulling that together, analyzing it, then having deep algorithms and going automatically back through policy
and procedures, and control that building; that is a level that until now, and we have this level and a few other people
are trying to get there, you could not do until the last year or two, if at all. So now is a time where the facilities
manager does not get overloaded.
I love the situation where facilities managers have worked very hard to get certain savings in the building and they
have done everything that they can. You have to realize that when you bring new algorithms and technologies that
can look at all of these points, we are helping them be successful in a way that they could not have been before.
They could not have seen and analyzed all of that data by hand. It was and is not possible. You have got to have
really sophisticated algorithms that do that and once a month tell them to do two things to save them another 3% -
5%. You keep doing that repeatedly to drive savings and ROI.
DEMAND RESPONSE
Don Bray (AltaTerra Research): So what is driving this and what is changing in the larger world of energy supply,
the way energy is priced, demand response programs, and the general question of pricing? There is a lot going on
FULL REPORT
The Intelligent Building: Networks, Controls, and Efficiency
AGRION LLC | 5 Third Street, Suite 520 | San Francisco, CA | Tel: 415-882-4615 | www.agrion.org
there that is affecting how energy should be managed and business cases around energy management. There is also
a lot happening in terms of standards, both voluntary and regulatory, that are driving attention in this space. Can you
comment on that, and if anyone else wants to also?
Standards
Zach Gentry (Adura Technologies): We have an interesting relationship with standards. We are a company that
makes a lighting control system based on a ZigBee standard. The ZigBee standard is roughly the standard that is
used in all of the smart meter implementations and many of the industrial applications for wireless that are build out
in the world now. We decided a few years back to go with the ZigBee standard primarily on the basis of the smart
meter implementations. But those standards are also something that is shifting rapidly. Looking at BACnet for
example, it has taken a significant amount of time for BACnet to achieve a certain market presence. It is still a
presence that in the lighting world needs to be adopted. It is without question that standards are going to drive
some part of the market. We do not see and room for proprietary systems whatsoever.
Nathan Rothman(Optimum Energy): To talk a little bit more about standards, I think that what really has to
happen is this entire systemic change. It is the standards, it is building owners, it is the entire universe of building
participants that needs to change and needs to adopt these things. Just to show how far out it is, I was at a
conference in New York City and they are trying to play catch up and be the big apple. New York City is a leader and
I have got to say that in our conversations we say that California is a leader. You people should be proud of the work
that California has done because California is a leader in building efficiency.
Government Regulations
New York has instituted a new regulation that all buildings have to be monitored for energy, report energy use, and
they have set out a whole new set of standards. The problem is that those new standards do not come into effect
and are not enforceable until 2025. We can do that today. Why are all of these things being pushed out?
In late in 2008, the government said that Ashrae 90.1 is the new standard that we are going to work to. We did this
three years ago. We can go way beyond that. There is this lag and this push and shove, where the building owners
are asking how much they have to spend here, what is going to happen, to speak to the ROI, I have got to have that
ROI. We think that the government is slow. There needs to be this big systemic change. To get there, maybe 2015
is the date and these are the standards. We know it is achievable, let us go am make it happen. That would
stimulate the entire industry and create more jobs and more opportunity for people.
Kevin Surace (Serious Materials): We have sort of given up on any sort of government regulation. That is just
us. I think, especially after last week, the chance of there being substantial energy regulation going in the right
direction really is not going up. It is going down.
Regardless of what side of the political aisle you are on, and this should not be a political issue -- it is either an energy
issue, a climate issue, or security issue, never the less we have made it a political issue in this country. By doing so,
we arguably have had, arguably, the two best years opportunity of getting energy legislation through of any sort,
whether it is about buildings, efficiency, fuel standards, or whatever. We go somewhat of a healthcare bill through
and we did not get anything in energy. We can all be forlorn about it, but I think that is where it lies.
FULL REPORT
The Intelligent Building: Networks, Controls, and Efficiency
AGRION LLC | 5 Third Street, Suite 520 | San Francisco, CA | Tel: 415-882-4615 | www.agrion.org
I think we, as a company, have pretty strongly said that we wish the government here were as good as it is in
Australia, Western Europe, or other places. It is unlikely to happen. Maybe it will happen in California, but it is
unlikely to happen.
We have got to build a company on saving our customers money today. We cannot wait for government regulations
or changes in building codes. Because if I can deliver money to you pocket at your bottom line, it is pure profit that
you did not have before. It is your money that you are giving to the power company. Why would you give it to the
power company? Why would you not keep some of it? It seems obvious when I say it, but that is not what this
industry has been talking about for many years and it is still not what many of the players, and I would say some of
the larger and older players, talk about.
We have got a SAS Platform, so it is easy and cheap to implement, but people still walk in with big, old, expensive,
and clunky software. They cannot talk about and ROI because the implementation is so expensive that there is no
ROI. There are energy saving, maybe, but there is no ROI. Energy savings are separate from ROI. They are really
unrelated. That is what our focus is. Let us give people their money back.
Nathan Rothman (Optimum Energy): I agree totally, but I think also that when you talk about people coming in
with these old legacy systems, that there is a lack of skilled folks out in the field. That is one of the reasons that we
have been a success, which is we are an application that drops right on top of the building automation system. Each
building is its own plate, in the way that they are designed and the way that they operate, and I am just talking from
the HVAC sector. I do not know about lighting or some of the other things.
To find the skilled folks to implement new technologies, or technologies from some of these older legacy companies,
is very difficult in today’s market. In today’s market with people looking for jobs, we look for technical people. We
are moving people from other countries to help us do what we need to do. We are a company based in Seattle, and I
think that Seattle is one of the Software IT leaders in the country, with down here and Boston. We have a hard time
finding people who have the technical skills. When you go out into these buildings, and many of these building
operators do not have the technical skills and ability to do it, we have developed these applications that are able to
drop in and make the system work. There is a gap there and until we fill that gap, there is going be a gap.
Facilities Management and IT
Don Bray (AltaTerra Research): That takes me to another question, which is there is a lot of convergence
happening here in this zone. Building management systems historically were the purview of the facilities function
within most companies. Now, with the level of system integration that we are talking about and the move the IP, etc,
and the IT department is now in the mix. Can you talk about what you see going on in that zone? This seems like it
is a pretty important shift. Zach would you like to comment on that?
Zach Gentry (Adura Technologies): I think that anybody who is in this industry who has had the fortune, or
misfortune, to walk into the facility manager's office with an IT solution, is stuck with the same sort of classic
conundrum. It is not uncommon for the IT department to look upon the facilities management department as though
they are the janitors. They may actually be the neural network of that building. They may in fact know more about
compressors on the 11th floor than anybody else in the facility. The common perception with the facilities staff is that
they are classically not trained to do IT matters.
Looking at it from the other direction, to try to make it possible for the facilities management staff to be imbued with
an IT solution, is not an easy thing either. They then have to go and ask the IT department, in many cases, if it is ok
FULL REPORT
The Intelligent Building: Networks, Controls, and Efficiency
AGRION LLC | 5 Third Street, Suite 520 | San Francisco, CA | Tel: 415-882-4615 | www.agrion.org
or acceptable to do some work that has an IT infrastructure related to it. The answer is often No. I was talking to a
utility yesterday and they call it the department of NO. So, I think that there is a new business model to be built that
has a reliance on both sides. It is not going the classic route, the systems automation route, which is just to talk with
the facilities manager and form a relationship there. It also has got to be something that relies on a discussion with
the IT department. They have to be brought into the discussion early. They have to be brought into the solution.
Then, in many cases, they will allow the same opportunity, as would be available to other IT solutions that they may
have management domain over. So, that is our experience.
Don Bray (AltaTerra Research): I am calling on Mike next. He is free to talk about whatever he wants to talk
about. We have put him off too long here.
Utilities
Mike Zimmerman (BuildingIQ): I think that they key is that these facilities managers are being asked to do more
now, because there is pressure on them to reduce energy. The pressure is on all sides: from their tenants, who
want to be more sustainable; the government maybe mandating, or not mandating, reductions; and certainly with
real estate earnings down, people really have to find ways to increase their profit margins.
On one hand they are being asked to do more with reducing energy, then also you introduce the utility side of it, and
the utilities are gradually moving from flat rate pricing, to stage one time of use pricing, where you have an off-peak,
shoulder, and peak price, and then moving into demand response, where you have situations where the grid is at a
certain level of strain and the utilities put out incentives for the building owners and managers to reduce energy.
They can actually get financial payments from that.
Then gradually we are going to see demand response shift to being imbedded in tariffs and you move to something
more like real time pricing, which some of you may have heard of. It is where the pricing that you get on the day
reflect what sort of strain is on the grid. As that evolution happens and the pressure on facilities managers to also
reduce energy increases, they are being asked to do a heck of a lot more. Their job description is basically changing.
In the mean time with the downturn in the sector, there are probably fewer of them, or fewer skilled ones, in each
building to manage energy. So their life is getting incredibly complicated. So enter IT, getting back to the original
question, I think that the opportunity is how do you get IT to help these guys do their job better in delivering energy
saving ad cost savings associated with that arbitrage opportunity associated with time of use, demand response, and
real-time pricing.
Don Bray (AltaTerra Research): Is this a significant development? What I am hearing is that it is?
Mike Zimmerman (BuildingIQ): Do you mean the idea that the utility would pay you to stop using energy? That
is pretty significant.
Don Bray (AltaTerra Research): Right. Historically facilities folks were worried about keeping folks comfortable,
keeping the building operating in a reasonably efficient way, and managing the energy costs. Now there is this
broader opportunity to save money or lose money based on exactly when you use energy. Is that, in a sense, a new
variable in the equation?
FULL REPORT
The Intelligent Building: Networks, Controls, and Efficiency
AGRION LLC | 5 Third Street, Suite 520 | San Francisco, CA | Tel: 415-882-4615 | www.agrion.org
Controls and Energy Performance
Mike Zimmerman (BuildingIQ): I think that it definitely is. Add to it the challenge that the existing building
automation systems were not built and architected at a time where they really had to be energy performance aware.
They were built to control and keep people comfortable. That is almost necessarily opposed to energy conservation
and energy optimization. That has created a huge opportunity for folks like us to come in with IT based solutions that
sit on top of the existing systems and bring a whole new level of intelligence and value to bear. I just want to point
out that Tom Arnold is here from EnerNOC, so there is a whole company created on the demand response
opportunity that was not there 10 years ago, although they are doing a lot of energy efficiency stuff also. So it is
clearly a whole new paradigm.
Steve Nguyen (Echelon): We have been in the controls business for a long time and there is a big difference
between control and information. So an IT based solution provides a great deal of information, but the control
algorithms and what happens at the control level is a very different story. I will just relate one instance in our
building.
The IT department, or we, reacted to an event that incentivized us to save energy, which we did. But from an IT
perspective, what that meant was shutting down the fans and the cooling. From a practical perspective, what it
meant was that the building became really stuffy within a couple of minutes. Then our president, who is our most
highly paid employee, decided that it was too uncomfortable to keep working, so she took the afternoon off.
So that is the big difference between the IT based solution were we can save energy and we can save on the bottom
line, and the practical reality that we just lost our most valued employee. The point is that the facilities manager is
the guy who, in many buildings, really owns the knowledge of how it functions to the tenants benefit, and the
company's benefit. There are a lot of guys out there who have GEDs who keep companies running and they do it
with a screwdriver and innate knowledge of what needs to happen to make the tenant comfortable.
Sure it is informed by IT and Energy Apps., but if you do not marry the value that these facilities guys bring, you will
have a situation where people are not productive anymore. It will take a lot of time for the IT department to manage
that, because IT is not necessarily know for that as a mindset. But, for the facilities guys, that is how they keep their
jobs.
New and Retrofitted Buildings
Kevin Surace (Serious Materials): Another thing as it relates to IT solutions, I think that it is absolutely true that
we are going to need IT solutions. One of the things that might be important to point out as well is over 50% of the
buildings built in the United States were built before 1980. If you look at almost every major innovation on the IT
side, on the sensor side, on the actuator side, those are all post 1980.
So we have a mismatch between the kinds of technologies that we might like to deploy into existing buildings, and
the kinds of buildings that are available to deploy them. That is one of the reasons that we thought that wireless was
an important component for that. It makes it much easier to get new field devices into old buildings.
We focus on the retrofit market. That is the market that we think is the area that needs the most attention. It is
certainly the area where there are the fewest building control and building automation systems involved. Just a
couple of other facts to consider, only 7% of existing buildings in the US have lighting control systems. Only about 50
FULL REPORT
The Intelligent Building: Networks, Controls, and Efficiency
AGRION LLC | 5 Third Street, Suite 520 | San Francisco, CA | Tel: 415-882-4615 | www.agrion.org
billion of the total 70 - 80 billion square feet of commercial building space still use pneumatic thermostats. We are
talking about a very old building stock.
So when we are talking about that kind of a situation, I think it is very important to focus on the IT solutions, but in
many cases with the existing buildings that we are talking about, if we do not do something to create new field
devices, and create something to create a better way of getting those important sensors and actuators into the field,
if we do not have some sort of platform in which to do so, a lot of the opportunity is just not available. I just thought
that I would point that out.
Nathan Rothman (Optimum Energy): I think that plays into what Kevin said about that three year or less
payback. We work very hard to make sure that the retrofit projects that we put in place have that co-efficient of
return for the investor.
Back to the demand response thing, I think that this piece is changing now. We are now looking at automated
demand response and the feedback will go back to the utility. Instead of shutting things off, in instances where we
are deploying demand response, we are slowing things down. We are maintaining the comfort in the building, but
still shedding the load and reducing energy requirement. So that is coming and I think we are going through the
evolutionary cycle there.
I think that when you talk about IT and the convergence here, IBM, for example, started this program seven years
ago of the Smarter Planet, Smarter Buildings, and Smarter Water and Energy Usage. They were clearly a leader in
this and of course in this convergence of IT and control systems.
One other comment about it, when you talk about the old building stock, it is a very good point. We used to
commission buildings based on the exterior walls. We would throw the air conditioning or the heating out to heat or
cool the exterior wall because insulation, good windows, and etc. were not a part of building the building. It was not
a critical part of that. That has changed.
Now we have companies, like Kevin's, that do a great job with that and we now need to heat, cool and light
individuals and the individual spaces within the building. Look what we are doing here in this room. We have got all
of these lights on, probably at full capacity; we have got all of this daylight coming in. Somewhere now, or in the
near future, you look at daylight and look at lighting and adjust accordingly so that we are using the least amount of
energy. That is what is happening with all of these sensors and all of these things are coming together, and IT is the
kind of vehicle to go outside of the building as well as inside of the building.
Kevin Surace (Serious Materials): We were involved in the Empire State Building project, as many of you may
know. We just finished that project three months early. We have replaced all of the windows in the building, taking
them from R2 to R8. So, it is about a 400% improvement in the insulative quality.
The interesting thing is that the project took two years of analysis before anyone touched anything. That is a pretty
big and heavy project. There are 2.8 million rentable square feet in the building. But that building, at 2.8 million
square feet, spent $14.4 million dollars a year on energy. Now, it will save $4.4 million with this retrofit. So it is a
38% reduction across 8 major things.
A lot of the old equipment that you were mentioning is a serious issue, but they were able to get for the equipment
that they were not replacing new digital controls to go onto that, even though some of it is from 1931. They were
able to control it in new ways and interface building systems to those controls. There are methods. They may not be
FULL REPORT
The Intelligent Building: Networks, Controls, and Efficiency
AGRION LLC | 5 Third Street, Suite 520 | San Francisco, CA | Tel: 415-882-4615 | www.agrion.org
the most eloquent, but they are there to get to the oldest equipment and get some level of control there. If it can
only go on and off, at least you can do something with it. They publish all of the data on everything they used and
how they did it. It is www.ESB.sustainability.com or .org.
It is a great example. Tony Malkin said he wanted a three year payback, which he got. Second of all, he wanted this
to be an example to the rest of the world that if you go and retrofit a building built in 1931 and get 38% - 40% total
saving out of that building, and leaving another 20% - 30% on the table because it would have cost them more
money. If you can do it there, then you can probably do it anywhere.
THE FINANCIAL CASE
Don Bray (AltaTerra Research): It reminds me of a song about New York... We are going to shift gears here a
little bit and move towards the financial case around this. We are in tight economic times as a number of the
panelists have mentioned, but what are the primary financial challenges in the marketplace right now and what are
some effective strategies for overcoming these challenges?
Capital Investment and ROIs
Mike Zimmerman (BuildingIQ): I think that the biggest issue is capital investment and the availability of capital.
Beyond that it is probably some of the uncertainties around some of the new technologies, especially when you are
looking at renewables or some alternative technologies.
On the capital side we have taken a pretty radical approach. We actually believe that multi-year paybacks, like a 2-3
year payback, are not realistic for a lot of the market if you look at how hard the sector has been hit. So we have
taken a very different approach. Our system is no capital up front, it is basically a monthly fee, and we deliver
savings back to the customer every month. So we call it energy savings as a service. It is just a little play on
software as a service, but our system is basically free to install. Basically, our system turns on and starts saving
money for the building owner. There is not even an R in ROI, it is immediate savings.
There are shades of grey across this panel, but I think that the overarching thing is even multi-year paybacks are
being called in question by lots of folks other than the federal government, which has a bunch of money to spend.
Kevin Surace (Serious Materials): We are also free to install and we are a SAS platform as well, although I might
just use Energy Savings as a Service. Is that a trademark?
The truth is that a lot of these buildings need a lot of new sensors and need a lot of additional systems to interface
with what is already there. Yes, while our platform is a SAS platform and is free, a lot of these buildings are not that
new and they just need a system integrator to come in and add some things for us, or anyone, to be able to interface
with what is there.
I want to be realistic about the fact that there is a little bit of money spent, but we are also talking about thousands
of dollars here, not tens of thousands or hundreds of thousands. It is $5,000, $10,000, $20,000, and numbers like
that, if your building has almost nothing. If we are going to put something in from Echelon that will allow us to talk
to the old systems, and we had better put some new sensors in so that we understand what is going on in each of
the rooms, and things like this so that we have more data. We have tried to be realistic about that, and frankly these
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facilities managers who have no capital budget, ideally need to see the payback in a year or a year and half. Three
years and numbers like that are a little edgy.
ESCOs (Energy Service Company)
ESCOs (Energy Service Company) look for the payback period of everything that they put in for under 10 years,
because they finance it for 15 years. If you talk to Johnson Controls, with whom we did the Empire State Building,
anything that paid back under 10 years is of general interest for them. That was a unique building because the
building pays itself back in 3 years. Generally speaking, since they are financing for 15 years, they can get a payback
under ten. So they are looking at a different method and payback method than if you want up to the facility manager
and say that you have something for them. He is going to say that he is looking for under a year so that he can
make it in the same year’s budget and still show a break even or a savings. So there are different audiences.
Don Bray (AltaTerra Research): So a financed savings or an efficiency savings as a service concept is another
approach to reducing that initial hurdle in terms of the cost.
Nathan Rothman(Optimum Energy): To what Mike said about that, it has been around for awhile in the ESCO
model. But what Mike said was about the black box. ESCOs were out there in the 1970s saying that they would
share the savings with you, we will put up a little money, and we will do the retrofit. The problem was that there
were a lot of black boxes that did not work, so people did not get the savings.
When I first got into the industry about five years ago, I was at a show of ESCOs and I sat down at the table and said
I am new to this, tell me the words of wisdom. And they asked how many lawsuits I was involved in. That is what
went around the table. So they got a black eye for that, but that is changing now.
To what Kevin said about the data, we say to not only our customers, but when we are in a competitive mode too,
show me the data. When we install our applications, we will not install without measure and verification and what we
call management optimum MVM. We are tracking that building from day one. We have a base line for how the
building was operating before. We show savings in Dollars, greenhouse gases, water reduction, and then we show
how all of the equipment is operating, predictive maintenance, self repairing and self tuning, so really there is
convergence.
PACE, Green Leases, and Incentives for Multi-Tenant Buildings
Then, on top of the financing models that they are saying, again hats off to California, PACE Bonds (Property-
Asessed Clean Energy) are one model for this thing. PACE Bonds started in Oakland, California, where the local
government puts a tax lien against the property, will pay for the retrofit, and then will recover the money over time
through taxes that are paid.
There is now MESA, which is Managed Energy Savings Agreements, which will take care of a building where
there are tenants. This is normally a problem because the owner does not get reimbursed for the capital expenditure
and the tenants do not want to put up the money, but they want the savings. So in the MESA agreements there is an
opportunity for that to work with a third party financing arm. Again, there is not an upfront cost. Everyone realizes
the savings and there is a third party doing the financing and getting the benefit of putting up the capital. So there
are new vehicles coming out, like green leases, which enable retrofits and upgrades to these buildings without the
burden of capital up front.
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Don Bray (AltaTerra Research): You have touched on a lot of topics there, any other comments from the panel?
Kevin Surace (Serious Materials): I wish that PACE would come back.
Don Bray (AltaTerra Research): So do a lot of people. Build on this green lease question and what is known as
the agency problem where you have a building owner and a tenant with different financial interests. I understand
that this is a significant hurdle in this industry. Do we have others who would like to elaborate on this?
Kevin Surace (Serious Materials): It is a hurdle only to the extent that it is new. So as you start to do green
leases, you can only do them at the pace at which lease renewals are occurring. But if I think if you were to talk to
Michael Jordan at JLL (Jones Lang LaSalle Strategic Consulting Group) or any of the other major property
managers, they are trying to push, and are successful at pushing, a significant amount of their property towards
green leases, particularly with customers who have a published commitment to sustainability.
It is a pretty simple concept and a direct way of dealing with the agency issue. It is making the tenant ultimately
responsible for their load. The only other thing that is required, as Nathan was mentioning, is there is still an issue of
data disaggregation. It is sub-metering and sub-metering at the level of understanding what the impact of certain
specific technologies might be and how those might be impacting the total energy load.
We are still at a level where when we sub-meter data out of the building, we are getting a single piece of the data.
Whereas, the amount of load might be conditioned by a number of things at any given time. The way that the load
profile is in one building might be different than any other building. So there is still probably a need for greater data
disaggregation at the metering level.
Mike Zimmerman (BuildingIQ): Sorry to pound on this but the agency issues really come up when one party, the
owner, has to come up with capital and another party, the tenant, is getting all of the financial benefits. If, either
through a business model or through the other mechanisms, you can eliminate the capital piece, then you
significantly reduce the friction in that.
In our cases from existing buildings, depending on the lease structure, the customer is the owner and the tenants are
actually paying the monthly fees, but they are getting the net savings as a result of the improvements. So everybody
is better off. TH owner is getting energy performance improvement, plus longer or mid-term they are improving their
margins on their property and therefore improving the property valuation. Then tenants are reducing monthly cash
flow because they are saving energy.
Tax Credits
Don Bray (AltaTerra Research): What tax credits exits for intelligent building retrofits or what other incentives
exist that are material?
Nathan Rothman (Optimum Energy): There is an existing federal tax credit of $1.80 a square foot for energy
reduction and it is unfortunately renewed on an annual basis. So it is sometimes hard to do some planning. In our
case, where our projects are $200,000 - $ 2,000,000 a project, you need some lead time and that is a short coming
from that. There are local incentives and rebates from the utilities all over the country and there are some states,
more in the New England area, which have tax benefits in the state level.
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Kevin Surace (Serious Materials): Are you finding for a software based solution that there are tax incentives, or
is it against capital?
Nathan Rothman (Optimum Energy): No it is against measured savings.
BUSINESS MODELS, OPPORTUNITIES, AND THE MARKET
Don Bray (AltaTerra Research): Let us move to the third and final topic, which is about where the industry is
headed. We can also touch on business models here and I think we should talk about the merger and acquisition
market environment and so forth. I will begin with the high level question of who are the major incumbents in this
market and how are they positioned relative to all of the developments that are occurring and to some varying new
interests?
The Incumbents
Nathan Rothman (Optimum Energy): Again, so the Johnsons, the Tranes, the Siemens, and the Schneider
Electrics are the incumbents, right? We do see them changing with new programs. Energy efficiency has become
the new buzz word. With the new entrants, certainly the small ones, all of them are shown here, with the exception
of Echelon and you guys maybe, but also the IBMs and the Ciscos. Cisco went out and bought a building control
company and that was a pretty bold move from our perspective. They bought Richards-Zeta. We see IBM partnering
with Cisco, Microsoft, Oracle, and all of them partnering around this sector and the sharks are starting to circle.
When we talk about M&A, the sharks are swimming.
Mike Zimmerman (BuildingIQ): I just wanted to make one point, which is if you look at the IT sector and what
happened in software, you had basically a lot of best in breed point solutions. But ultimately, the buyer inside of a
company who is buying an IT solution does not want to buy from 10 different vendors. They want to have a
relationship and a whole set of solutions.
I think that the trend is going to be very similar, where you have the big incumbent players, whether they are outside
the building or at the IT network level or the building control level. Then you have got a bunch of point solutions,
best of breed hopefully, on top of those. I think what you are going to end up with is a smaller number of the
incumbents with a bunch of point solutions on top that can present a total solutions. They may start out as alliances
but will probably end up as owned businesses.
Steve Nguyen (Echelon): I would also add that if you are talking about the large commercial or large built
environment, this is all true. When you get into smaller and smaller buildings, the market fragments significantly. I
think that there is a big play for companies that are going to be able to offer things like sub-metering and relay or
circuit control with some kind of SAS model to all of these smaller buildings out there that are largely under serviced,
especially as we expand outside of the north American market where the idea of building controls is a switch in the
basement.
The ability to retrofit and go in with the local integration companies, the local footprint guys who maintain a kind of
maintenance relationship, and to be able to work with them and say we are going to take your 3,000 square foot
laundry mats and make them more efficient. I think that there is a big market there and no one is really doing that
stuff yet. So to the extent that you can offer an integrator who has a local relationship and can walk in and say, 'We
are going to make you more energy efficient. We are going to make you 30% more energy efficient. It will cost you
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$5,000 up front and you will get all of your money back in 12 months and then you have this annuity model on this
SAS.' I think that is a significant market and there is a lot of room in there to play.
Kevin Surace (Serious Materials): The way that we break down the market is in three tiers today. You have the
older incumbents, the Johnsons, the Honeywells, etc., who are not know as the most progressive software
developers on the planet, but they have stuff that controls their stuff. That is sort of what they do. I think that they
are going to keep doing that. They have obviously opened up their systems to be a little less proprietary and have
some interfaces to them. Do I see them getting to the next level? Probably, but not very quickly. They are not
known as rapid developers of software.
Then you have the next tier, which has EnerNOC and us. They are larger companies who are well trusted by lots of
commercial building owners. We are both involved in thousands or tens of thousands of buildings out there with a
variety of our products, so there is that trusted level of faith in the buildings. Then there are five to ten startups that
have their own unique take on what is going on. It is a little harder to get to the larger accounts, obviously, because
of trust issues. On the other hand, they can move faster. If we broke it down into three tiers, which is how we look
at it.
Merqers and Acquisitions
In terms of M&A, there is going to be M&A all up and down that slice. We have acquired eight companies in the last
couple of years and I suspect we will acquire three or four more in the not too distant future as well. So we are
continuing to acquire in the space. EnerNOC is continuing to acquire in the space. I think that you will see some
other people acquire in the space. In fact Johnson Controls is acquiring in the space. So people are certainly doing
that.
Zach Gentry (Adura Technologies): The only thing that I will add is that classically there has been a major
distinction between the mechanical side and the electrical side in the construction trades and certainly in the
companies that have formed around them. In the lighting space, the biggest players are typically going to be
different, but in many cases they are aligned.
For example, Siemens owns both Siemens Building Technologies and Sylvania. So there are some
connections, although those units do not communicate very well together at all. Because of that, what we find
interesting in terms of M&A activity are areas where typically building automation is seen as a mechanical component,
where the mechanical side makes an overture to make a purchase or to be involved in the lighting side.
Recently Johnson Controls bought a service unit called NES and now has made a statement that they intent to
occupy a significant portion of the lighting services market, which is the construction based services market. But a lot
of the M&A activity that we expect to see is probably going to be in our space, the lighting space. It is going to be
coming from either the building automation side or coming from the IT side.
Remote Operation and Running a Building
Nathan Rothman (Optimum Energy): Talking about convergence, if we look 10 years out, let us say, and we
look at Europe as the model and a company in the US that is no longer in existence, but was very good at that, and
that would be these companies being totally remotely operated and a separate entity that runs the building and all of
the elements within the building.
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Enron is a company that is no longer in existence, but was a company that was very successful at that in the United
States. It was one division that was a true money maker and a true success. In Europe you find many buildings
where the building owner no longer owns the infrastructure in the building. Another company owns and operates
that infrastructure. As we move towards this convergence, and it can be done remotely, we are going to see more
and more of that. There are NOCs right now that are running numbers of buildings around the country. So I think as
we go out, the people that surface are going to be the people who have the capital requirements and the capability of
running the building.
Steve Nguyen (Echelon): I would add that the technology Nathan is talking about already exists today. I was at a
conference and Western Allied is the San Diego Region’s third largest mechanical company. The owner pulled out an
iPad and opened a connection to a high rise they were building and showed everybody the schematics, pulled in on a
floor, and shut down the AV. The ability to remotely manage even the smallest nuance of a building already exists
today. It is a question of what happens on an industry perspective. But, there are companies out there that can do
scary things.
Kevin Surace (Serious Materials): We do that as a part of our feature set today. You can do that on an iPad
anywhere in the world. The practicality of someone doing that, I do not know. But your point is that there will
actually be service companies that spring up and leverage that technology not just through an iPad, but they are
going to run the building for you from somewhere else.
Running a building is not a core competency of most companies. It is some painful thing that they have to do. It is
just like companies that have farmed out other pieces. We think nothing of handing off payroll today. Of course you
go to Paychecks and it is done. That was not the case 30 years ago. Today no one would think of doing payroll in
house. There might be a time, which I think is quite revolutionary, when why would you think about running your
boilers and chillers yourself. There are people who do that and so why would you touch that. That is very
interesting.
Nathan Rothman (Optimum Energy): So in 10 years we will see.
Kevin Surace (Serious Materials): It may take 20, but it is a possibility. As I said, there was a time when people
would not have thought about handing off their HR functions and now there are large service organizations that come
in and run HR for you.
Nathan Rothman (Optimum Energy): That, again, is happening today with demand response. You can go into a
building remotely, to the utilities can go into a building remotely, and slow it all down, not affect the comfort, and
shed load. No one knows it and no one feels it, and they keep moving.
The Extent of System Inter-Operability
Don Bray (AltaTerra Research): So this is a futures question that is focused on gaps. The gaps may be technical
or they may be business model oriented, I guess. So to what extent is system inter-operability, and this means
integrating lighting controls, HVAC, occupancy sensing, etc. with the existing BMS, and the gaps, if any exist, in
integration and what other kinds of gaps exist in terms of the ability to serve the market more broadly? Is it a
technical question or is this a business question?
Steve Nguyen (Echelon): This is a business question.
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Mike Zimmerman (BuildingIQ): This is a business question.
Kevin Surace (Serious Materials): It is all about driving price down at this point in all of the technologies here.
Nathan Rothman (Optimum Energy): And competency, right? The IT guy is not a mechanical guy. We see that
out in the field all of the time. The IT guys says no, the mechanical guy tries to make it work and tries to convince
him that it is not going to screw up the network and there is this big conflict. Or the engineer for the building writes
the sequence of operation for the building hands it over to the controls contractor, who has no understanding of
lighting parameters and yet he is supposed to write all of the code based on these two pages of when, where, and
how much to do these things. So there is this disparity of skill sets, and as the industry progresses there will be that
convergence as well.
Steve Nguyen (Echelon): I can address that as a company that created a standard so our technology is an ISO
standard, a GB Standard in China, it is a European Standard, and we just opened up out metering protocol as a
standard for global standardization, as well, on the smart metering side of the business. I can definitely say that it is
all business related. We have been able to do this high level device IP integration for over a decade and yet our
investors continue to ask us if it is so good, then why does everyone not use it?
The answer is that the business models are not there for a lot of the incumbents -- the large mechanical vendors, the
JCIs, the Honeywells, the Siemens of the world. They are not that keen to go whole hog into integrated systems
because it does not suit their business model that well. And it sounds easy to say that you go to the big end users
and convince them. We did that. We went to the US army and convinced them that they need to put in these flat
open systems.
But then you talk to the guys who actually put in systems in the US Army, and they say it is great that you have a
really nice standard, it is well published and well supported, but at the end of the day I play golf with the CEO and I
am his kid‘s godfather. If I do not like your system, then it is not getting in. That is the way the game is played at
the street level and there is a big difference between Standards, IP Integration, and all of the stuff that we can do
today with our technology, and the sale at the street. We see that all of the time in this industry.
CLOSING STATEMENTS: PROJECT EXAMPLES
Don Bray (AltaTerra Research): We are going to open it up to questions from the audience pretty soon, but I
thought as a wrap up question from the panel we could go down the line and have each of you talk about a notable
pilot project. We have heard about the Empire State Building, but as you look at examples from experiences at your
own firm, or other experiences you have had in the marketplace, describe an interesting project that you have seen
out there that will inspire the audience and get them thinking about questions.
Nathan Rothman(Optimum Energy): Without mentioning names I will take a large facility in this area that was a
LEED Platinum building. We were invited in to look at their facility and see what we could do in that building. We
were able to take approximately 500,000 kilowatt hours out of that building. That was a significant upgrade and, to
what I said earlier, Ashrae 90.1 2009, we are way past that. As everyone is saying, all of the technology exists. We
are way out ahead of what buildings are already doing. To Kevin's point about the green dollar and ROI, and to Steve
and his point, it is a very fragmented industry and if you are not playing golf with the CEO, then it is not getting in the
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building. It is a fragmented industry. By coming at it through projects and showing people, over and over again,
what is possible -- that is the way that I think we will make the change.
Kevin Surace (Serious Materials): We have been in 70,000+ projects and some of those are residential as well
as commercial. With Serious Energy Manager and Serious Insight, I can think of a lot of projects, but one fun
one is that we went into a Lead Platinum building. I love when we go into a LEED Platinum Building because that
really is the best that we can build, or we think we can build. And, of course, it had just been commissioned and the
facilities managers said that the building was running in tip top shape.
Within a couple of weeks, we had found 13% more savings in energy, and we keep finding more. So we will probably
get to 15%-20%. That was a highly commissioned, highly tuned, and everyone looking at the building to get it to
LEED Platinum; and it does not matter. One of the reasons it does not matter, and if they threw our SAS platform
out, I assure you, is that building will dwindle down in performance over the next few weeks, months, and years
because people go and play with thermostats, play with lighting, there are timer that break, things that get out of
joint, and a lot of other things that can happen. If you have really sophisticated algorithms monitoring this and
controlling it for you, it really is too much.
I do not want to say every building, but in many of the buildings we are in, there is a heater and an air conditioner
not only on at 3:00 am, but on in adjacent or the same rooms fighting each other. Now, I am thinking that neither
one is going to win this battle, right? The only one who is winning is the power company and you have seen this too.
But the facilities manager cannot find it. There are too many rooms, too many systems, too many buildings, and he
is not there at 3:00 am. You really need some really sophisticated technology to find this for them. Once you do,
there is 10%-15%-30% savings that is in that, and in virtually every building that we have -- even the best ones.
Steve Nguyen (Echelon): I will use an example from Europe. We worked with a bank that has 1,200 branches.
The first thing that they did, in order to put in systems based on our technology, they had to just look at what they
owned. The discovered that more than half of their properties had heating or cooling on 24/7, and a third of their
properties had lighting on 24/7. So without touching any of the controls, they were able to save a lot of money to
start the process.
Ultimately over time, they were able to put in products that let them retroactively monitor circuits, control circuits,
and then bring it all back into a network operations center to give them this continuous commissioning notion of what
do they need to do to light their bank branches. The whole point of that was to integrate lighting, HVAC, and the
tenant or customer experience when they walk into a bank -- is it comfortable, well lit, is it the right temperature on
the given day -- and to be able to normalize that. It is an example of how you can take these very disparate
organizations, with lots of properties, do the centralized command and control monitoring, and identify best practices.
All of the retrofits happened within about $5,000 a location, which gives them a really nice ROI.
Zach Gentry (Adura Technologies): I think that the project that I am most proud of in the last month, and every
month it changes, is a project we did at a pharmaceutical wholesaler. There are only about three major
pharmaceutical wholesalers, so I will just say one of the big three. We have done a project to install LEDs in this
facility and to control these LEDs with a platform that gives each of the occupants in the office space personal control
over their environments. There is about a 40% energy savings that comes from the controls and about a 25%
energy savings that comes from moving from a fluorescent source to an LED source. There is a combination of
benefits from the source illuminates and from the controls.
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While we are excited that we have done a significant amount to improve the energy profile of this building, I think the
thing that impresses us the most is that we have the support of the utilities, which we are very happy about, we have
the support of the facility manager and the owner of the business, who is looking at it for sustainability reasons and
other reasons, but the people that were the more supportive in using this are the end users.
There were a number of people in this office who had complaints, and had actually left the office at various times
with migraine headaches, complaints about dry eye syndrome and other things, which are a result of really bad
lighting. We are able to take those people and get a higher rate of productivity out of them than might have been
available before our installation. As much as we are interested in the energy savings, we are equally interested in
making people happy in their environments. That is probably in the last two weeks, and to get that level of
satisfaction from the end user is what impresses us the most.
Mike Zimmerman (BuildingIQ): For us the key thing is helping people get more out of their existing
infrastructure and investments. While we are in a number of high performing buildings, the one that I will talk about
is a quite old and fragile building. We work with the city of Perth, Australia. Perth is one of the major cities there,
and their city hall building had energy infrastructure that had not been touched since the mid 1990s.
They were basically running an old Siemens System 600. It is a very old system and we were able to go into that
building, install our system on top of the Siemens system, and without any new sensors or upgrades at all, we started
doing our optimization. That is all of the building modeling and then looking at opportunities with weather forecasts
and some of the time of use rates to reduce energy and cost. We got about 30% on an ongoing basis out of the
energy reduction on the HVAC systems.
Then on top of that, we started working with the utility, Western Power, and we trialed and launched our demand
response product, which is called DRIQ. We basically take the demand response event parameters in place the day
before, or the morning of, and event and then optimize the building around the demand response parameters. In
that case we shifted about 30% of total building load off of the peak periods during the demand response event, and
in both cases we had not uptick in tenant complaints.
So it is all about a very old building, and much of the stock in America is pretty applicable for the most part, to
manage the system the system on top of it, and then immediately generating significant peak load and ongoing
energy load savings.
Nathan Rothman (Optimum Energy): I think that there is a common theme you have heard here across this
panel, which is about this continuous commissioning. Or really what we are talking about is continuous monitoring.
In the HVAC what goes on in the building, as Kevin alluded to, is drift, where the air filters do not get changed, the
fan has to work harder to push against it, no one is monitoring it, no one is taking care of it, the guy who is running
the building has toilets backed up and other things to attend to. Unless you are monitoring these things continuously,
these things can go on for years and never change.
All of us have talked about being in the building, monitoring what is going on, whether it is lighting, HVAC, energy use
in the building, or any of the components of the building. As long as you can look at it all of the time, you have some
benchmarks that you can measure it against to determine what is going on and where the failure is coming about,
and you can get energy saving immediately. Continuous Commissioning is a trademarked term from Texas A&M.
They trademarked that term and I do not know the validity of that, but what we are all saying is that you have to get
into the building, monitor it, and be able to view what is going on continuously in order to make energy
improvements.
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Q&A SESSION
Question from Amanda North (Porter Novelli): A lot of the companies that you have discussed have been US
headquartered, but what I was wondering is if you could comment on what is happening with companies outside of
the North America? The flip side is you have mentioned some of the projects outside of the United States, so how do
you see the markets outside of the US, in particular some of those new construction markets in Europe and China?
Global Markets
Nathan Rothman (Optimum Energy): Well Schneider Electric is not an American company either and there are
some controls companies that are UK based that are in this market. In terms of other markets, we are in Asia and we
are just beginning work in Europe. I think Steve commented that you go into a lot of these buildings in other
countries and the automation system is a switch in the basement. You turn it off and on, and, in Asia particularly, the
level of controls that we have in the US and Europe have been more control systems.
There are great opportunities in Asia. China has incredible opportunities. China, as we all know, is a major factor.
We have not talked much about water, but a building's use of water is very critical. We have been able to reduce
water consumption 8%-13%. When you look at water around the world, as we see in publications, it is the next
major element that the world has to deal with.
Mike Zimmerman (BuildingIQ): We are actually headquartered in Australia, so we are an Australian company.
Our technology came out of the national labs in Australia. Both Australia and parts of Europe are well ahead of the
US in terms of energy performance in buildings. For example, in Australia about 30% of the commercial buildings are
already rated for Energy Star, so they have been monitoring and reporting for a long time.
My VP Bob, who is in the back of the room, ran an energy monitoring business that is similar to what a lot of new
companies here are doing. The other thing that Australia has done is any time that a space over 20,000 square feet
is either sold or leased, the energy performance has to be displayed on the advertising. If you do not do it, it is a
$100,000 fine, plus $10,000 per day. That has just come in, so I am not going to say that everyone is going to get
dinged with that right away, but is going to come in. I think that Australia is similar to parts of northern Europe.
I think that it is a very relevant question for what companies elsewhere, especially more developed markets, can bring
to the US and kind of exploit that experience. I agree on China. There is a close relationship between Australia and
China in terms of trade. There is a huge push for energy efficiency. The building stock is mostly new. The large
building stock has all been built recently.
The other big difference is that the government can mandate something and it is going to happen. For example,
there are cases where whole villages of factories have been shut down because they did not hit energy efficiency
targets. The government just said they did not make it and so they shut them down. So the good thing is, when the
government says that you are going to drop 30% over the next five years, you are going to see initiatives to do that.
Steve Nguyen (Echelon): Our company has recently been investing very heavily in China and also the Indian
subcontinent. So we see those as the two really big emerging markets from the smart grid perspective and the
infrastructure perspective. The European market is about a decade ahead of the US market in terms of energy
efficiency in general on the building side. Our revenue has always reflected that as an international company. The
Russian market is also coming up very quickly. They are probably where we were about ten years ago.
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Now that we are seeing money freed up again in Russia, we are seeing smart grid projects and integrated building
projects. Other areas that are emerging and we are looking at, are South Africa and the Middle East. We have a
large project with the Kuwaiti Government that will impact roughly 6,000 buildings. That is government driven. So
there is a lot of opportunity out there in the world, and none of it needs to wait for standards, which was an earlier
question.
We definitely see in the Chinese market that where the government goes, the money will flow. The difficulty will be
competing with companies that are funded with a 30% lead on you in terms of the cost. For instance, in the smart
meter sector, the government has already determined that the power line will be the smart metering communications
standard. They have not determined which form of power line yet, but they have also said that you are not going to
import meters into China. So you had better be Chinese. That is the market for energy efficiency. Eventually when
they get mature with their technologies, they will start bringing them to the world as well.
Don Bray (AltaTerra Research): Interesting question about Global Markets. It seems like there is a variety, in
terms of what is going on around the world. Are there other questions?
Real Time Pricing
Audience Question: So the theme of solving the history problem and the physics problem, and yet we have yet to
galvanize the populous. So the question is, to what extent will real time pricing, which I think was mentioned earlier,
provide a coursing function or a galvanizing effect on making change?
Nathan Rothman (Optimum Energy): First the countering needs to get better, because we have many instances
where we have a lot of parallel capacity. With renewables coming online, there is capacity there, and the utilities
need to change their business model.
Audience Question: I would appreciate your opinion in the context of whether real time pricing is going to make
that change.
Mike Zimmerman (BuildingIQ): I can offer up some thought on that. To give you an example, demand response
is a type of real-time pricing. As I said before, you have flat rate pricing, then you have time of use pricing, and then
you have critical peak or demand response pricing, and then I think you go the real-time pricing.
Heinz executives, in a meeting over a year ago, were talking about demand response and they said that they were
not really doing anything that is demand response because it is a voluntary program and we do not think that there
are enough reasons to justify financially going into it. We are also concerned about tenant concerns and service
levels.
What happened with PG&E, and I do not know if people know this, but they had these voluntary demand response
programs with financial incentives. They have basically shifted to something now called Peak Day Price Tariff. It is
basically the opt-out and the default tariff for the commercial buildings. So it is basically a penalty price, where you
can pay 10x - 15x your normal rate on those critical days.
As a result, you can now go into any Heinz building in San Francisco now and they have all sorts of mechanisms in
place to deal with a peak and to drop load. So, as you see the financial penalties come in and we move from flat rate
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price to time of use, demand response for the early adopters, then peak day price, and then real time pricing, you are
definitely going to see moves. It is already happening.
Nathan Rothman (Optimum Energy): When you look at the project in Boulder, Colorado that Xcel did with 2,000
residential units, this is a classic example. This was going to be the smart grid. Hats off to Xcel for getting that
project going. They installed all of the smart meters and established the smart grid, but at the end of the day
consumers did not respond. It was real-time pricing and I cost more, but residential units turned it on when they
wanted it on. It did not matter. They paid the extra premium.
Steve Nguyen (Echelon): I would add from a technical perspective and from in a building, real-time pricing sounds
good, but I think that critical peak pricing and demand response is a more practical application of that paradigm. You
just cannot more air in a building like that, without having a negative effect on the tenant. You can do the lighting,
and maybe that is where the payback is, but even then...
We are an engineering company, as well as a software company, so we have guys who have high intensity lights on
24/7 and they work 24/7, and you are just not going to impact that, in the valley especially with all of our technology
focus. But, from a practical perspective, once we go into a DR event, we get a 24 hour notice and we work with
EnerNOC. It takes a few minutes to shed the load, but it takes a full hour to bring us back up. So we cannot
respond and we arguably have the most sophisticated office building in the State of California with 1,100 devices, 30
vendors, 16,000 IO points, real-time reaction, curtailment at the individual office level, all web based, IP integrated,
and the whole deal.
At the end of the day we would not respond to real time pricing. We would respond with notice because we want to
keep our employees happy, because having air pressure problems with our ears and flickering lights means that we
are just not going to do it.
Kevin Surace (Serious Materials): Well, while the PUC is not a government agency exactly, per se, you have got
PUCs in each state that are less than progressive on some of these things. While we have not talked about PUCs
here, you are just not going to get power companies willy-nilly doing things like this and getting it through the PUC.
So you have got that issue to. Power companies may be looking for more ways to extract more dollars from their
customers, but PUCs are not looking for ways to pass that on right now when customers are screaming that they
have no money and their buildings are worth less. You have got this backdrop of a bad economy that is likely to last
2-4 more years, so I think that backdrop overwhelms anything else going on.
Competing Products
Question from Raymond Martin (1st Lighten the Load, Inc.): Question for Mike Zimmerman. How do you see
your company's product competing with Echelons Smart Server and Cisco Mediator product?
Mike Zimmerman (BuildingIQ): Pretty easy. I actually just spent some time with the Echelon guys, the other
day actually, and I know the Cisco product. Those are really, and stop me if I am wrong of course, enabling
technologies. They are about enabling the communications between the building infrastructure and those
applications that might be making the changes in the building. Our system is basically an application, so our stuff sits
on top of the building control systems and may go through either a Tridium JACE controller, an Echelon server, or a
Richards-Zeta box. But we are basically using those for communication. Cisco is a marketing machine, so they talk
about controlling thousands of buildings. It is actually not thing. They do not have an application. It is more about
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enabling other applications to sit on top of them. Kevin is probably the most relevant to respond because he works
with both Cisco and Echelon. He is an application that sits on top of that infrastructure.
Kevin Surace (Serious Materials): We are fully integrated with both. Both of these products allow us to talk to
these legacy systems. They have done all of the work to talk on some goofy communication, RS232, to some old
system and get it into something that we can communicate with. Both Cisco and Echelon are slightly different and
the Echelon product is an outstanding product and is pretty low cost, too. They really enable lots of other
applications, and we are an application at BuildingIQ, if they want to write the interfaces to those boxes, which we
have done. We are fully integrated and that works with us.
Steve Nguyen (Echelon): I agree.
Methodologies for Verification
Question from Danchi Dguyen (Accenture): My question has to do with your comment about the business case.
Typically we are very skeptical about people who come in and say that they are going to change X, Y, and Z to save
you energy. I think that it comes down to the ability to verify. So I wonder what you think about where we are in
terms of having a methodology that really helps verify that savings not at the individual machine level, but when we
talk about continuous commissioning, it is about operations.
Don Bray (AltaTerra Research): I think that it is important to say that there is physical measurement of energy
that a device might be saving. There is also this higher level concept of putting in a monitoring layer. Then what
does that save me and how do I essentially assign credit or value to that, versus, perhaps, changing out some device
for a more efficient device.
Kevin Surace (Serious Materials): All of us who are in this space create a baseline window in a building.
Probably some are more sophisticated than others, but you create a baseline and you track from that baseline, up or
down, of what is saved and how it is saved. Clearly, if in the day after the baseline someone moves out of some
section of the building, you will show that and you can see that difference. But you will also see the differences in the
other areas from the efficiency measures. So this is pretty well understood at this point, at least for those of us in the
business.
For us walking into you, we could give you dozens of people to talk to who are saving that kind of energy in their
buildings. We do not see a lot of skeptics in this space. You see a lot of people when you walk in that say they have
too much on their plate, I do not have a budget, I just cannot take anything else on, or my CFO does not care. You
get those things, but there are far too many building from dozens of us companies that are saving 10-30% to not pay
attention to it. That is my sense of what we are seeing. We do not see that kind of skepticism at this point. We see
skepticism in the fact that they may not have a budget or the time, but not that they do not believe that we can save
them energy.
Steve Nguyen (Echelon): I would add to that. I had a meeting with the folks at Johnson, Honeywell, Siemens,
Schneider and Distech, so fairly large companies. They commonly agree that expert companies that do energy
management can provide that level of comfort and insight, but as an aggregate there are no commonly accessible
tools for to loan facility guy to log in, model their building and say this is what I am going to say. They believe that is
a problem. Utilities, that we have talked to, also believe that it is a problem. It is not easy.
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It is an expert function for the companies to go in and identify how to save money in the building. Con Edison was
the speaker in this case. They can do that on a building by building basis, but they cannot just model everybody’s
building, because they are all different. They also believe that there is a space where someone needs to create a tool
where a facility person can log in, model their building with some reasonable level of accuracy to get that baseline, so
that they can make the case. I do not think that we are there yet. I think there is a necessary tool that needs to be
built. There is an association called CABA (Continental Automated Building Association) that wants to do that.
It is a question of will and money unfortunately.
Nathan Rothman (Optimum Energy): The industry is pushing for that.
Steve Nguyen (Echelon): I think that would help accelerate the adoption of these technologies.
Kevin Surace (Serious Materials): It is quite hard to model these buildings. The model itself is not hard. There
are so many inputs and if you put some wrong data into some of them, what you get out will have nothing to do with
the savings that you are going to get. It is harder than one thinks to get that down to a couple of things that
someone can do.
Utilities Competition and Data Privacy
Question from Kurt Hurley (Cleanshare): The question I have for the panel is can you comment on competition
from the utilities themselves and how the segregate the privacy of client data without sub-metering your energy
consumption as it pertains to your clients?
Steve Nguyen (Echelon): Are you talking about residential or commercial?
Kurt Hurley (Cleanshare): Commercial.
Kevin Surace (Serious Materials): Multi-tenant cloud based systems that store your data securely. Our sales
force has done it for a long time and others do it now. While I recognize some people may not want to do that, there
is much more sensitive data that people have out there today, than how much energy or gas they use. I do not think
that is too big of a problem and I do not see the utilities, themselves, getting into the application and could based
SAS space to provide this kind of service. They have not traditionally done that and I do not think that is their space.
Steve Nguyen (Echelon): I think that on the Open ADR model there is a requirement for HTTPS, which is a secure
transmission. I am not really convinced that it is necessary because there is no control function required with an
Open ADR. You can make it as purely an information or expert level system. Our technology is compliant with Open
ADR on the server side, but we did not bother to implement HTTPS because we did not think that it was necessary.
That is why I asked the question about residential versus commercial. On the residential side I think it is a much
different dynamic.
International Financing Mechanisms and Ratings
Question from Bill Soby (Green Vision Fund): To veer back internationally, you have identified that there has to
be a big stick to get adoption. There has to be some better financing mechanisms that have accelerated international
acceptance. Does anyone want to comment on what those are and if there is anything that we can learn from that?
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Steve Nguyen (Echelon): One of the things that we heard was that the energy efficiency projection was tied to
your permitting process. So you could not put up a building unless you could show that it was going to be energy
efficient to some level. You then had to rate it and go back every year to re-rate it to maintain your tax basis and
your permits. I think that is a pretty good stick and not quite as dramatic as the $150k and $10k a day fine. I think
those seem to work pretty well in the European market.
Mike Zimmerman (BuildingIQ): In Australia, at least at the higher end of the building industry, the owners look
at energy performance and energy performance ratings as a competitive advantage to attract high quality tenants.
And they do link that to higher rents, property value, etc., so even though that stick is out there, the owners are
actually looking at it as a way of getting better financial performance into the building.
Steve Nguyen (Echelon): That was also a part of Mayor Green's initiative here in the City of San Jose. It was to
tie economic development with the greenness of the city from both a residential and commercial perspective. I think
that the model exists from Europe, but the question is whether we can implement it here in the states.
Base Lining
Question from Amit Gattani (Akros Silicon): I have a specific question about base-lining. If you look at a cross
section of office buildings, say, where do you find that there are big pockets of energy consumption and how does
lighting fit into that? What is the adoption curve here? There is so much going on in LED lighting, but in terms of
actual implementation, where are we in the adoption curve?
Zach Gentry (Adura Technologies): I think that a couple of different questions were asked. The first is about the
contribution of lighting to the general commercial building load. That can vary from about 20% - 40%, depending on
whether you are talking about an office building or a retail space. There is a bit of variance depending on the source.
I would also mention that lighting contributes significantly to HVAC loads, particularly in hot climates. Although it is
not necessarily a part of that slice of the pie, it is roughly said that for every three watts you burn of lighting load, you
are burning about a watt of HVAC load. So there are a couple of things to consider.
As it is in regards to the adoption of LEDs, I think if you asked anybody five years ago you would have gotten a
longer adoption curve. I was a part of a team that wrote a paper for LBNL (Lawrence Berkeley National Lab) on the
adoption of LEDs when they performed at about 25 lumens per watt. The expectation was that LEDs would enter the
market in about 2020 and as we have grown more accustomed to them and have seen them start to penetrate the
market, we are finding now that we have source illuminants that are four times that. LEDs are performing at about
four times the level they were maybe five years ago. Their cost has actually gone down considerably also. If you ask
any of the majors when they think that LEDs will hit the market, the rate of penetration is probably twice what they
expected.
The expectation, and I am not going to name any of the people that I have talked to about this, among the majors is
that by 2015 as much as half of their fixtures, drivers, or half of what they deliver to the market will be LED based
sources. We are a controls company and we actually believe that we are a catalyst that will enable LEDs.
LEDs, as a light source, are inherently a dimming source, and they actually perform better when then dim. You
cannot dim unless you have a control system. You have no reason to dim. We see ourselves as a functional
requirement of what will be a rapid acceleration of LEDs into the market. There are other parallel examples. When
magnetic ballasts, a form of core and coil systems, were replaced by electronic ballasts about 15 years ago, the rate
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of adoption was very slow and then it became everything. We expect something quite similar to happen with LEDs
and probably within the next three years to see everything that goes is being LEDs.
Don Bray (AltaTerra Research): I am going to call it at this point. Thank you very much for coming and please
give the panel a round of applause. Thank you.
End.