Navigant Research Blog

When Competitors Help You Succeed

— November 14, 2017

Today’s energy efficient buildings solutions can involve complex interactions between technologies and vendors. As building components become deeply integrated with intelligent building technologies, it is increasingly rare for one vendor to supply the entirety of the technology. Large global vendors may have the resources to acquire or build diverse sets of technologies, but it is difficult for one company to claim market leadership or even significant competence in all technological areas. In some instances, this strategy can even amount to brand dilution or lack of focus.

Models for Success

Business models are playing into this quickly emerging market dynamic. In the past, the prevalent model was for companies to offer a single product or unit for sale. Sales were mostly a one-time transaction with a marketing follow-up when the product became outdated or reached the end of its useful life. Customer retention was difficult with this model, and revenue streams were uneven and influenced by the economy, market trends, and a host of other drivers or hurdles. As a service business models, such as software as a service or platform as a service, alleviated some of the risks and downfalls of single product or license-based sales. For vendors, this meant a more recurrent revenue stream, more consistent interaction with customers, and an opportunity to upsell additional products and services as part of the ongoing relationship. However, these as a service models are still somewhat limited, as they may only solve one aspect of a customer’s problem. In an increasingly integrated world, as a service offerings can be seen as being similar to single product offerings when viewed from the perspective of a customer’s problem set.

Selling solutions or projects has evolved as a business model with market advantages. This model looks at a customer’s priorities and a specific problem or problem set, and combines technologies and services to solve that problem. Notice that competitive advantage was not used to describe it. The reason? Assembling the best solution set may involve working closely with direct market competitors, or coopetition, as the term has been coined.

Coopetition

Energy service companies (ESCOs), for example, are familiar with coopetition. ESCOs utilize a financial structure called an energy savings performance contract (ESPC) where, in simple terms, the efficiency upgrades are financed and paid for out of the energy savings. ESCO projects can be designed to deliver specific equipment upgrades, but typical projects encompass a bundle of improvements across technology types. This approach improves the economics of the entire project by blending the returns of high cost, longer payback pieces of equipment (e.g., HVAC systems) with lower cost, faster payback items (e.g., LED lighting). As described in a recent Navigant Research report, ESCO Market Overview, the necessity of bundling technologies and services to make the ESPC work from a financial perspective has caused ESCOs to embrace coopetition with a solution or a project-oriented business model.

Coopetition allows vendors with complementary strengths to apply those strengths to a project and share in common gains. Additionally, vendors are realizing there is great opportunity in shifting from the single point solution or component manufacturing role to the platform play that will support deeper, ongoing customer engagements. Success in this realm means positioning solutions in terms of broader business impacts, with a desire to engage directly with the c-suite. There is no cookie cutter design for partnerships or coopetition in commercial terms. This is a nascent market where flexibility is a key parameter. In this landscape, creativity and openness will be rewarded, and unprepared vendors may face real market disruption as they realize that they are unprepared for competition from non-traditional sources.

 

Two Issues That May Derail Global Sustainability Efforts

— November 9, 2017

Most nations around the world are committed to reducing carbon emissions and energy consumption. This is evidenced by the near complete global membership of 197 parties in the United Nations Framework Convention on Climate Change (UNFCC), with 168 members currently having ratified their commitment to the Paris Agreement. However, two global issues may affect the long-term success of the Paris Agreement and other national or regional sustainability goals and targets.

A Vicious Cycle

The first is the increasing demand for residential air conditioners in areas that have previously had low usage rates overall. This is most noticeable and prevalent in the Asia Pacific region, where many countries are in tropical or subtropical climate zones. Developed countries around the world have higher historical demand and usage of air conditioners, but increasingly, developing countries in warmer climates are escalating their desire for these systems. Several factors contribute to this increase of use, including general warming of the climate, increased urbanization and the localized hotspots urbanization creates, and the availability of a wider variety of affordable air conditioners.

Today’s air conditioners are much more energy efficient than their predecessors, but they can still be the single largest energy consumer in a commercial or residential building. Additionally, the industry has largely eliminated, reduced, or restricted the use of ozone depleting chemicals such as chlorofluorocarbons and hydrochlorofluorocarbons, but many of the newer refrigerants can have thousands of times more global warming potential than CO2. It is easy to see how increased uptake of air conditioners in areas of lower historical use can derail the intent and goals of sustainability efforts such as the Paris Agreement.

Miss-Measured Returns

The second issue is the miscalculation by governing bodies and sustainability related organizations of the persistence of energy conservation measures (ECMs). For example, the European Union recently proposed a new Clean Energy for All Europeans package with a goal to extend its current sustainability targets to 2030 and beyond. One important feature not included in this legislation is the requirement of ECMs persisting from one period to the next. Essentially, this may give many participating countries an out. The Coalition for Energy Savings, a European organization that promotes energy efficiency, estimates that the energy savings from measures implemented before 2020 will be lost by about 18% by 2030, and about 70% by 2040. Additionally, measures taken to correct these losses can be counted as efficiencies gained during the new period—essentially double counting a single solution. No matter how stringent the goals, if persistence is not required and double counting of ECMs is not eliminated the ultimate goals will not be reached.

Countries around the world are doing an admirable job committing to global sustainability. But commitment alone is not going to provide results if the actuals aren’t measured accurately or don’t match the targets. A key takeaway is that efficiency and sustainability goals cannot be removed from real-world dynamics, such as existing or emerging market forces (e.g., demand for air conditioners in the Asia Pacific region) or the reality of energy efficiency project measurement lives. US utilities, for example, include degradation rates on energy efficiency projects included in their generation capacity credits. This is essential for the utility to meet its generation capacity requirements for large customer bases. Global sustainability goals and targets need to include this type of consistency and accountability in order to be effective in the long term.

 

Inexpensive Offerings Driving Deeper Penetration of Efficiency Technologies

— March 22, 2017

Technological development is evolving quickly in all areas of the energy efficient buildings market. From HVAC systems with advanced controls to building energy management systems (BEMSs) that can drive deep efficiency gains, it is possible for commercial buildings to reduce energy consumption by up to 50% or more in a well-conceived project. Software has become a ubiquitous and necessary piece of almost every building component.

Most connected, intelligent devices of all types were devised to accomplish a defined purpose while gathering volumes of data along the way. But according to IBM Research’s Global Technology Outlook 2015, 90% of the data collected in the 10 years prior to 2015 was abandoned. Additionally, 60% of sensory data collected at the edge of intelligent systems loses its value in milliseconds. Like the parable about the tree falling in a forest, if these advanced digital tools collect data but nobody uses it, does it really add value? It may … eventually.

Early Adopter Phase

A large segment of the overall building stock is still managed using older technologies, with little or no digital data to support efficient operations. Some building owners and operators have the necessary sophistication and resources to proficiently understand and utilize more advanced digital toolsets, while many others do not. It is still the early adopter stage for much of the sophisticated new technologies. This dynamic, however, is feeding other emerging trends on the energy efficient buildings landscape.

So many buildings operate inefficiently that even the most basic forays into gathering data and understanding operational efficiency can lead to significant savings. Many of the initial efficiency activities can also be done at low or no cost by simply understanding operational setpoints and other characteristics. This simple understanding can lead to energy savings from 5% to 25% or more and provide enough information to lead to more significant projects and savings over time. This trend has been identified as a valid business model in its own right, and it serves what has been recognized as a valid market need.

Innovative Business Models

EnergyAI is an example of a company that offers a no touch analysis of a building’s performance at a very low price point—approximately $25 per report. EnergyAI utilizes a company’s utility interval data and produces a comprehensive report on the buildings energy consumption patterns with a simple, itemized list of suggestions for improvement. Gridium is another company with a similar utility data approach, but with more of an ongoing presence in the building. Eco-Energy works with larger clients and annual energy spending (+$10 million) and utilizes a sophisticated software package, but it sells energy savings, not the software itself.

These business models eliminate large upfront expenditures, work within the resource and experience constraints of a typical building, and identify meaningful savings at a lower cost. They are also enabling greater penetration of efficiency initiatives in a larger portion of the global building stock. The energy efficient buildings market continues to evolve.

 

Intelligent Digital Systems Enabling New Strategic and Operational Paradigms

— March 20, 2017

Data in and of itself has little value. Dashboards and other business intelligence software are excellent at compiling and displaying collected data from a multitude of sources in a useable and understandable format. At times, however, these analytical tools do not go deep enough with intelligent calculations on that data to transform a business, increase efficiency, promote deep understanding and learning, and add the most value. In these instances, it can be a case of you don’t know what you don’t know—leaving important insights on the table.

A good yet simple example of this was outlined in an IBM white paper on facilities management. A commercial building designed to accommodate 1,800 people showed an occupancy rate (assigned space) of 66%. However, further study of the data using access card information showed that average daily occupancy was only 28%, leading to a better understanding of the actual space being used and paving the way for eliminating unnecessary costs associated with rather large and consistent underutilization of the facility.

Beware of Silos

In energy efficient buildings, care must be taken when assuming that smart components are always operating efficiently and in the best interests of whole building optimization. In a recent interview, an intelligent building component OEM stated that he has seen instances where the intelligent cooling and heating equipment each reported that they were operating at peak efficiency—but they were efficiently cooling and heating the building simultaneously. In this instance, the overlord building energy management system (BEMS) identified and resolved the issue. Intelligence systems operating in a silo can be as ineffective as data that has yet to be transformed into useful information.

Analyze the Analytics

Today, the general use case for data analytics is well understood and accepted. This acceptance arose in a similar fashion to a market dynamic that happened in the LED lighting industry. Ten years ago, questions arose when LEDs were specified for a construction or retrofit project. Today, questions arise if LEDs are not specified for a project. The same largely holds true now for BEMSs and other intelligent systems that generate analytics regarding building performance. With the variety of analytics engines available in the market—at all price points and complexity levels—it is assumed that some form of analytics will be included in any efficiency effort, no matter how deep or superficial the project is.

Open communication standards have enabled access to this disparate universe of intelligent and connected digital systems and the data they generate. The cross-pollination of information from these diverse data-driven systems opens a multitude of possibilities that reverberate across the entire organization with all key stakeholders, enabling new paradigms of strategy formulation and operational success.

 

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