Navigant Research Blog

Intelligent or Not, Siloed Systems Decrease Value

— June 12, 2018

Energy efficient commercial building equipment has gone a long way in helping businesses reduce energy-related costs, as well as enabling them to become more environmentally responsible. Significant energy reductions can be realized through the installation or replacement of high energy-consuming components such as HVAC and lighting. In general, these two components are the highest consuming pieces of operational infrastructure in a commercial building. Replacing either or both of these systems will help the building owner or operator gain notable savings on energy-related costs.

Coordinated Systems Mean Savings

When advanced digital systems, such as building energy management systems, became more prevalent, building owners and operators and energy efficiency commercial building vendors realized that even more savings could be had through coordinated control of all relevant building systems. Individual system gains can be 5% to 15% in energy savings when operating a building component in a silo. Through the coordinated operation of all building systems, savings of up to 35% or more are possible. Siloed systems can step on the actions taken by other building systems that are trying to operate more efficiently. When systems are integrated and work together toward a common efficiency goal, operational actions taken by one system don’t degrade the performance of other systems in the same building or setting.

Smart building systems, such as Internet of Things (IoT) technology, have taken commercial building energy and non-energy related performance to the next level through advanced digital intelligence. The key to IoT technology is the interconnectivity and communication between a wide variety of disparate systems to help solve an important use case for end users. Solving a particular use case can bring significant returns to a business or building through reduced energy costs or by enabling more efficient overall processes. For example, connecting a building’s security systems with the building’s operational infrastructure can reduce costs by allowing the infrastructure components to understand a building’s occupancy, and adjust lights or temperatures to suit the immediate need. Even if this is the only application of the installed IoT system, significant value can be received. But this is akin to the siloed installation and operation of infrastructure equipment described earlier. Value is received, but it may not be all the value available.

Small Changes Can Mean Big Gains

If, in the previous example, the IoT system was also used for indoor wayfinding or the tracking of company equipment assets, additional value can be realized with relatively small modifications to the same IoT system. In a healthcare setting, wayfinding is important for improving the visitor and patient experience, and asset tracking and management is important for critical care services and theft protection. In a commercial building setting, wayfinding can add to the portfolio of building services being offered, attracting a premium on rents and providing a competitive differentiator. Conversely, value can even be destroyed with ad hoc IoT implementations if two separate systems are purchased to handle energy conservation measures and wayfinding, for example, when one system could have been utilized to perform both jobs—and more.

Intelligent systems implemented in silos are no different than energy efficient building components that operate independently. That is, value may be received, but only in proportion to how much the component holistically operates with other connected components. The more data any system has available to use, the more value will be received. Lessons learned from previous siloed installations of efficient building technologies can be used in the implementation of intelligent systems as well. The more things work together holistically, the more value will be received.


Do Conglomerates Hold an IoT Advantage?

— June 7, 2018

Modern-day conglomerates that have stuck with this business model may be poised to capitalize as the Internet of Things (IoT) broadens its penetration into commercial and residential building-related markets. In western countries, conglomerates had their heyday between the 1960s and 1980s, when large corporations used their profitable cash cow businesses to finance the acquisition of diverse companies in tight capital markets. Japanese horizontal and vertical keiretsus are similar to western conglomerates, although current keiretsu relationships have not been as tightly bound or integrated as they were prior to the 1990s. In the buildings sector today, several conglomerate- and keiretsu-type company structures are beginning to show a distinct market advantage in the fast growing IoT realm.

The Conglomerate Advantage: Meeting Evolving Consumer Needs

What gives these conglomerates an advantage? Simply, these companies control a portfolio of technologies that can be connected in novel ways, forming use cases to solve a host of real world problems. They are also poised to meet evolving consumer needs and expectations about what technology will do for them. Let’s look at a few examples.

Johnson Controls’ merger with Tyco expanded the companies’ technology portfolios to include fire and workplace safety, security, and closed-circuit TV systems, along with the more well-known HVAC and building controls offerings. The use case of obtaining occupancy data from the building security system and linking that with other building management systems allows for a more efficient and intelligent operational program for the entire building.

Honeywell’s Vector Occupant app includes wayfinding capabilities and a location-based feature to rate spaces, allowing those within a building to highlight comfort issues to the building staff for quick resolution. Japanese company Panasonic, which is part of the Matsushita keiretsu, offers a host of products ripe for IoT applications. From HVAC and smart home sensors to appliances, cameras, and communications technologies, Panasonic is well-positioned to offer consumers unique connected residential applications that add convenience and efficiency to their daily lives.

Communications and Integration Are Key

One issue that these conglomerates have with engaging the IoT market is communications between devices and coordination between the companies, which historically have been accustomed to independent operation. Many times, individual technologies were developed in a silo within one of the conglomerate’s vertical companies. At the time, this approach was perfectly acceptable and made fiscal sense. Today, these technologies need to communicate with each other to solve a use case, but they each have different communications protocols. This is causing development challenges as well as internal coordination challenges within the conglomerate.

Partnering Offers Opportunities to Non-Conglomerates

Non-conglomerate companies can use a partnering strategy to compete with conglomerates. In fact, partnering may offer more opportunities to be flexible in the market. Companies can offer multiple unique solutions with different technologies by partnering with a diverse set of companies. Conglomerates that use their own technology exclusively may be limiting themselves to a smaller solution set, and end-use customers may feel boxed in to using only one supplier brand.

The bottom line with either type of company, conglomerate or non-conglomerate, is to build or work with systems or solutions that are open to integration with other systems. Open systems expand the market for all participants and significantly increase the number of use case solutions that can be devised.


Sustainability as a Business Model

— December 12, 2017

Energy efficiency and emissions goals form an important piece of sustainability initiatives for many corporations and other professional entities. Sustainability is often solely associated with energy and climate-related metrics, but it is not the only factor contributing to a sustainable organization. Investors are starting to recognize what a sustainability-focused business approach can mean for long-term organizational success. Increasingly, sustainability performance (or environmental and social governance) is being defined more broadly to include social issues such as education, injustice, and poverty.

UN Sustainable Development Goals

In 2015, the UN launched the 2030 Agenda for Sustainable Development with the support of 193 nations. This agenda includes a set of 17 sustainable development goals (SDGs) and 169 targets that came into effect in January 2016. The purpose of the SDGs is to create standards that can measure progress on key issues like combating poverty, climate change, and injustice—among others. The UN agenda is designed to create an economic environment where the deployment of capital resources is considered in terms of economic, social, and environmental criteria. SDGs foster a discussion on investment quality beyond just the expected financials.

Socially Responsible Investment: A Growing Track Record of Outperformance       

Socially responsible investing may have begun in the 1700s with the Quakers, who refused to support “sinful” businesses such as tobacco, firearms, and the slave trade. More recently, sustainable investing has taken on the guise of promoting environmentally sustainable businesses, although financial performance is at the fore. The Morgan Stanley Institute for Sustainable Investing performed a study on over 10,000 sustainable equity funds that found that these investments have met or exceeded the performance of comparable traditional investments. UBS, a leading global investment bank, claims to have $970 billion, or 35% of its investable portfolio, placed in socially conscious investments. Al Gore’s sustainability-focused private investment fund, Generation Investment Management (GIM), has returned about 16.3% after fees since September 2014, while the MSCI World Index has returned 7.7% over the same period. Assessing the sustainability of companies can be done using the Dow Jones Sustainability Indices, which are a group of benchmarks that track the stock performance of companies in terms of economic, environmental, and social criteria.

The Foundation of High Performing Companies

Why do sustainable companies often outperform their peers? For Gore and GIM, not only is sustainability good for humanity, it is also a significant indicator of investment risk, management integrity and quality, robustness of business models, and products and services that are aligned with real-world problems and needs. Put together, these characteristics can identify high performing companies that provide consistent returns. An interesting note about GIM and its investment thesis is that it has broadened the scope of the definition of sustainability to include company diversity, human resources practices, community interaction, employee benefits, healthcare, and the values and ethics of the C-suite—along with the usual energy- and climate-related strategies. Each sustainable investment decision is aimed at choosing the factors that are most important to the sector where the company competes.

Many companies that use Navigant’s Energy research and services deliver energy-related products and services that can help their own customers meet sustainability goals. However, energy and emissions are only a small component of sustainable participation in the global economy. Similar to the dramatic efficiency results that can be achieved with a holistic approach to commercial building energy management, corporate sustainability efforts—and often business performance—can be dramatically improved with a more holistic view of what sustainable business performance means and how it can be achieved. There do not have to be any tradeoffs, and the real-world results are starting to speak for themselves.


Monetizing Energy Efficiency: Creating Additional Value Streams for Your Customers

— December 8, 2017

Much is transforming the global energy landscape these days. Building technologies are progressing from single point solutions to system and platform-based solutions utilizing the latest in smart digital technologies and the Internet of Things. Utilities are reshaping entire business models and strategies to integrate and enable a swiftly growing and diverse stock of distributed energy resources. These are just two of the more visible market evolutions. But as with most industry transformations, change does not happen all at once.

Large groups of buildings (of all sizes) lie along the continuum of advancement with regard to building technologies. Most organizations realize the potential benefits of energy efficiency; however, there are still hurdles that could prevent these types of projects from moving forward. According to a recent Navigant Research report, Energy Efficient Buildings Global Outlook, these hurdles include confusion about which technologies to adopt, what internal resources would be required to manage an advanced building, and how to best understand and calculate payback and ROI to get a project approved.

On the supply side, utilities are also realizing the benefits of making the buildings in their service territories more efficient. Utilities must be concerned with their conglomeration of generation assets to ensure a reliable future energy supply. Energy efficiency and demand-side management (DSM) are two ways that utilities manage this critical task. In fact, at less than 3 cents/kWh, energy efficiency is the most cost-effective source of energy compared to all other sources of generation.

For decades, utilities have had success reaching large commercial and industrial and even residential customers with incentive-based DSM programs like energy efficiency and demand response. PJM is an example of a regional transmission organization (RTO) that understands and actively pursues energy efficiency initiatives to include in its regional capacity planning. Over time, PJM has encouraged over a gigawatt of annual energy efficiency projects in its current and future capacity markets.

The one hurdle faced by utilities and RTOs is awareness of these programs. Small- to medium-sized businesses, energy service companies (ESCOs), and even larger commercial customers may not be fully aware of the availability of these programs. Incentives can go a long way toward clearing energy efficiency project hurdles. For example, utility and RTO incentives may be the final project piece that enables payback and ROI calculations to meet internal financial requirements. Organizations can benefit from working with outside specialists in this area to help understand what is available and how best to assess and include incentives in efficiency and sustainability initiatives.

Join the Conversation

Navigant Research is hosting a free webinar, Monetizing Energy Efficiency: Creating Additional Value Streams for Your Customers, on December 12 at 2 p.m. EST. I will be joined by Meg Kelly, Senior Director of Energy Efficiency, and Russ Newbold, Director of Sales Operations at CPower. Learn the benefits of utilizing PJM capacity credits as a value to you and your customers.

The webinar will help end-use customers—and ESCOs that serve customers—learn what capacity credits are, how to attain them, and how to make them a part of the value chain to earn more energy efficiency project business. This webinar will outline how to benefit from these credits and, for ESCOs, how to add value to proposals all the way through receiving the payments.


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