The Biggest Challenges & Opportunities in Commercial Building Energy Efficiency Retrofits

Direct Energy is a retailer of energy and energy services. Founded in 1986, it is the largest energy and home services retailer in North America.

We recently caught up with Bill Kenworthy, director of business development for the greater New York city area, to get his views on key challenges and opportunities in the financing and adoption of energy efficiency retrofits in commercial buildings.

Here’s some key take-aways from our conversation:

– CFOs and plant managers don’t want to shop for energy; they have a business to run. Their biggest need is to reduce their energy spend.

– Most commercial customers don’t want to deploy their cash in retrofits, even if they generate a good return on investment.

– “No money down” financing plans are critical for doing energy efficiency retrofits with commercial customers.

– Making all the available energy data “smart” is the market’s greatest challenge. And the data must generate usable insights and be communicated clearly to customers.

Bill Kenworthy, Director of Business Development, Direct Energy

Who are your customers?

Direct Energy has two divisions: the business division and the residential division. I’m in the business division, with a focus on supplying commodity and energy solutions for that segment. In the business division we have about 250,000 customers, ranging from Mom and Pop small businesses all the way up to the largest industrial, commercial and real estate buildings in the country. We really do cross every size segment and most industry segments.

As far as our footprint, we are everywhere. The regulatory market has opened up, and people can now shop for their commodity in 38 states. We do have a very heavy presence of customers in the Northeast; that’s because those markets were some of the first to deregulate.

What are the energy challenges you see in the business segment?

In markets where people can shop for energy, people have made the business so complicated for customers that it’s almost reduced to just talking about unit price. You never really get to what customers need. Along those lines, if you take a CFO or a plant manager, they don’t really want to shop for energy; they have a business to run. So the experience of buying energy has to be financially beneficial, whether that means the lowest price or the right price stability they are looking for. But the process is probably a pain to them. So we try to enhance that process in order to make it simpler to do, partly through more online tools.

On the supply side, in our group, we’re helping business customers think about where they can install solar. When you install solar, you want to optimize when you turn certain pieces of equipment on, and when your internal circuits are relying on solar. So there’s software that goes with it.

We have an investment fund that we partnered with in SolarCity, where we go out and look for customers. For example, some of the biggest wholesale shopping clubs in the country have a lot of large warehouse type spaces (such as BJ’s Wholesale Club), and we put solar on those.

We also have the ability to help out customers with cogeneration, or where they have backup storage or backup generation that they run in the event of a weather event. We look for the way to optimally run that so they are not taking from the grid.

That’s all on the supply side. On the demand side, the obvious thing we can do to help is to participate in demand response events. We’re now going down the path of saying, as the Internet of Things comes of age, and sensors can be deployed inside of buildings, what can that tell you about how you use energy?

And we know from the U.S. Department of Energy and other sources, just in commercial buildings, there’s 25% to 30% is waste. And we see that waste is coming from suboptimal behaviors, operations, and another thing we categorize as “building drift.”

There’s something like five and a half million commercial buildings in the U.S., according to the government. And only 5% of those have building management systems. The other 4.9 million buildings are dumb. And sensors are going to give us an opportunity to educate buildings themselves and the occupants.

What are the main benefits that building owners are seeking by using your services?

Far and away, it’s to reduce their energy spend. Then you also get some progressive customers, whether its small companies or even public companies that have more of a social responsibility agenda. For them it’s about reducing their carbon footprint. And then you can have infrastructure resiliency too — such as a grocery store that wants that backup generator just to get a couple of hours so their inventory isn’t lost if there’s a blackout.

Do you see demand for energy storage in commercial buildings?

Absolutely. As storage costs come down, that will fundamentally drive demand. You get multiples more benefit from your solar panels if you have storage. You can also charge it off the grid, that’s an application as well. We are talking with different companies about what is the best storage technology.

Tell me more about your partnerships with innovative technologies.

We have a strategic partnership with Panoramic Power, which makes advanced sensors that are wireless and self powered. With the help of an electrician and a two hour installation time, you can monitor every circuit in your facility. Those sensors talk to the cloud and produce data in varying intervals, typically five minutes. Since commercial applications are very stringent when it comes to circuitry, it’s not uncommon to have a kitchen fan attached to one circuit. So as you monitor these circuits you are, almost by proxy, managing  and monitoring specific pieces of equipment. This is where we are uncovering a lot of waste.

People are using this with the intent of lowering their energy spend. But when they put in the monitors, they don’t really appreciate the type of insights they’re going to get. They think they are going to learn more, but they typically wind up learning much more than they expect.

A great example is this: We had an industrial application, a customer with eight forklifts. Their internal protocols would say, “Don’t charge the forklift during the day because it’s during expensive peak hours. We don’t want to tax the system. We also don’t want to contribute to when our peak load gets set. So please don’t charge them during the day.”  So we put these Panoramic sensors in and, as you can guess, they were charging them during the day. When we first showed them to the company president, he said “No, you’re wrong, my team knows they should not be charging during the day.” But they were, maybe because they had a new plant manager.

There’s another technology out there that exists, from companies like Opower or Pulse Energy, which is non-invasive load monitoring. You are using the statistics to look at your meter level and deconstruct that to what they think you are using. That’s a great application, but for certain commercial and industrial applications, it would never have detected the forklift anomaly.

Is developing “Smart Data” out of all the available energy data a challenge?

It is the biggest challenge. It’s still the capability that the market and Direct Energy needs to develop most. It’s really going to rely on data science. There are so many factors. It’s not what you need to study in the available data; it’s how do you do it in a scalable way?  So if we have a deployment of Panoramic sensors for 1,000 customers, we know we can’t have 1,000 analysts or 500 or even 200 analysts combing through the data looking for anomalies. It has to involve data science and machine learning.

And then, it’s one thing to generate the insights, which is not trivial, but how do you communicate those to customers? It’s the obvious things, from mobile apps to a platform. You can’t overwhelm customers with alerts. So that will be the art of it all.

What types of innovative retrofits have you seen?

Retrofits make sense, especially as LED lighting continues to get lower in cost and easier to install. It’s good for customers and where they have the cap-ex dollars to do it, they should.

One of the things that Direct Energy does is to offer a financing plan directly with customers, called Efficiency Edge. So if a customer wanted to do a retrofit of their building but doesn’t want to deploy the cash for that purpose, we say, “Fine, we are happy to do the retrofit and supply the electrons and we can finance it for you.” This is good for the customers because it enables them to turn a cap-ex project into op-ex dollars. That’s been an offering that we can help customers with.

Some of the experiences that customers are having, when you look at the design firms that do that, you just have to be careful not to overstate the benefit or the payback period. I think you really have to validate the design. Find experienced firms that know how to do the baselining, and that will set you up for accurate payback terms.

In one instance, at a retail store, we put sensors in after a company had done its own retrofit. They were surprised and thought that the Panoramic sensors were wrong because they showed more usage. What had happened is that the retrofit had over-lighted the space. That’s an anomaly. But again, it’s about proper design.

Can you quantify the benefits of the retrofits you are involved in?

In general, when you put these sensors in and start to generate insights to customers, on average you are seeing a 12% lower cost, just by behavioral changes. You see anywhere between 5% and 40%, but 12% on average.

What other types of innovative retrofits do you see?

Lighting is just one piece. You can also get into things like building ventilation. These are energy conservation measures. For example, on a cold day, certain buildings obviously need to bring in fresh air. If you pump that into the building, you are making the building cooler and you are making your heating system work harder. But if you can pre-heat that air before it comes into the building, you can concentrate how much energy you are using to do that heating, so instead of doing the whole building you are just doing it on that small volume of air. That has a benefit.

We look at HVAC as a way to respond to demand events, by direct controls or by incentivizing behaviors. We should be able to get building owners to warm up their buildings in the summer by one or two degrees and materially bring down demand or load in a given area. So I do see that as a development, and we’ve talked to some vendors and analytics companies who believe that you can get another level of benefit in demand response by working with HVAC systems.

We did a deal with New York City’s largest food distribution facilities for over 4,000 lighting fixtures.

However, customers don’t always want to take their cap-ex dollars and put them in retrofits. For example, we talked to a music school, and said they’d rather buy another piano than put in new lights, even if the lights had a better return, because energy isn’t their business.

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