What’s Hot for Energy Efficiency Investors Today?

Bill Kingsley, managing director of EnerTech Capital, explains what energy efficiency investors look for in companies today. We interviewed Kingsley just days after the company led a $14 million round of investing into software company Blue Pillar.

What do you look for in an energy efficiency company? 

We want to find and invest in talented, strong management teams that can state a clear customer-focused value proposition. The companies most likely to receive our investment have demonstrated that their product/service is valued by customers and that the company can scale to large markets and earn sustainable profit margins. We find it desirable when companies can demonstrate both focus and flexibility with regard to their business model; allowing the company to get rewarded for delivering value to customers.

What sectors in energy efficiency are most attractive right now?

At a high level, we are most interested in three energy efficiency areas:

1. Building automation, smart LED lighting solutions, HVAC controls, sensors and cloud-based building energy management solutions. We recently announced the sale of one of our companies in the building automation area: Distech Controls to Acuity Brands for $318 Million CDN

2.  Behind the meter & device level energy management – Internet of Things (IoT)

3. Networked control and interconnection of customer premises assets that allows for integration with utilities to better manage their power load requirements

We view ‘energy efficiency’ as being a fairly broad investment area – it is the application of technology to reduce the cost of energy and/or reduce the amount of energy used to achieve an outcome. In EnerTech’s view, this definition applies to the entire energy value chain and not just the end user.

One theme we have been investing in for the past two funds is the mobilization of under-utilized customer premise energy consuming or generating assets to play an increasing role in the overall energy eco-system.  Demand response is a simple, but well known example; however, the ability to employ the underlying assets is much broader.   The industry and customers are trying to make sense of edge-centric approaches versus traditional central grid approaches, and various challenges created by the intermittency of renewable energy assets.

We think it is highly desirable that technology enable use of the distributed assets to benefit a broad range of stakeholders – customers, retail energy providers, distributed energy asset manufacturers (i.e. solar)  and local distribution companies. We think this leads to the possibility for multiple revenue streams to support design, deployment and operation of such a customer premise based network.  We envision a time in the future when a distribution energy management system works hand-in-hand with a traditional distribution management system to maintain voltage and frequency on the electric grid. Until then, there will be an increasing number of ‘point’ solutions and interesting companies to invest in.

What are the challenges for energy efficiency companies?

Some companies demand that customers put up significant upfront capital to achieve uncertain rewards.  Telling customers that they can make up the capital over three to five years is a more difficult sale, and those customers often decide instead to invest in their core businesses over the proposed energy efficiency measures. Customers see so much technology change and are uncertain regarding energy costs.

Business model challenges are ever changing in this market segment. Does a small company sell directly to end customers, partner with or sell to a utility, partner with a retail energy provider, or with a manufacturer of equipment?  Or does the small company attempt one or more of these simultaneously? While many challenges exist, we view the market opportunities emerging as worthy of investment.