Cracking the SMB nut: how to make energy efficiency work for small to medium businesses
Note: This is part II of a two-part series exploring energy efficiency in the Small to Medium Business (SMB) segment. In the first post, we looked at the economics of applying traditional approaches like audits and measurement & verification. We concluded that "business as usual" is simply too expensive for buildings under 50,000 square feet. This post explores other options - innovations with the potential to unlock energy efficiency in the SMB market.
Energy efficiency is an interesting business. Unlike a retail store or a law firm, the "product" is not a good or a service per se, but a reduction in the energy used by a building. So essentially that's what we are selling (and those who have spent time promoting energy efficiency in the small and medium business market know that it is a tough sell). The product is the absence of something physical. Like a "hole" inside a semiconductor.
Pretty weird when you think about it, right? I had my first experience with this as a consultant implementing utility rebate programs. Fresh out of grad school, I was full of macroeconomics and public policy models that showed how energy efficiency is a "no-brainer." I knew the savings on energy bills repaid the upfront cost of most energy efficient equipment, and operational improvements could save large amounts of energy with almost no initial investment. Because of the energy savings, the cost of greenhouse gas emissions for some energy efficiency measures is actually negative, meaning business owners could help the environment and save money. On top of all that, the California utilities used a surcharge on all utility bills to provide financial incentives for efficiency projects. We were providing energy upgrades that more then paid for themselves, helped the environment, and came at a steep discount because of the utility rebate! How could anyone say no?
So, you can imagine my shock when I drove down to Bakersfield, donned a hardhat, and sat down in a trailer with the local facility manager for an industrial site. We outlined the benefits of energy efficient pumps, HVAC equipment, high-bay lighting, and then waited for this manager to spring out of his seat to sign the paperwork. Instead, he was skeptical, disinterested, and dismissive. Our meeting ended abruptly when his walkie talkie summoned him to the field to deal with malfunctioning equipment.
It was a sobering introduction to the realites of the energy efficiency business. This experience (and many similar ones since) taught me that energy efficiency is not a strictly technical problem, meaning that we can't rely exclusively on engineers to fix it by designing more efficient buildings and equipment. It's also not strictly economic, meaning that even projects where the energy savings easily repay the initial investment will be left undone. There is a human element to energy efficiency that is absolutely critical. And it is this human side that can help unlock efficiency in the SMB market.
How to sell energy efficiency to a human
The onsite audits and engineering work we discussed in the last post evolved over time to provide effective energy services for large energy users. Part of the reason for this "high-touch" approach is technical; in order to engineer a new hot water delivery system, you need to walk the site, understand the loads and investigate the old system. But there is another, more subtle reason behind the conventional approach to energy efficiency - direct, personal contact overcomes the human tendency to ignore what you can't see. Without a hands-on approach, projects would languish in an attached spreadsheet somewhere in cyberspace.
Take the example of collecting electric bills for a preliminary analysis. For all but the most sophisticated facility owners today, the realistic way for a service provider to get the data is to ask for them in person, and then literally follow the customer to the file cabinet in the room next door while he fishes out the correct sheets of paper. Only when these are copied or scanned does the service provider feel confident about having the data, a process which is only complete after another hour of data entry from the scanned bills to a spreadsheet.
All of this is not to say that the end users of energy and decision-makers of efficiency are somehow short on capability. On the contrary, it is their focus on delivering widgets, services, or whatever their core business is that makes them so valuable to their organizations. In most cases, no one asked them to care about energy, and the ones who put forth effort do so out of pure altruism, even though it adds to an already full workload.
Understanding this, the best energy efficiency professionals build a process that is easy for the end user. Basically, the service provider needs to do their homework on the company and its operations, own the assessments and project development, and deliver a proposal that is only missing the signature on the dotted line. For complex facilities and organizations, this means a "high touch" relationship.
But we already showed how that "high touch" model will not be sustainable in the SMB segment, where 90% of commercial buildings fall (probably close to five million buildings!). Fortunately, the underlying concepts of the traditional energy efficiency business can be translated into a new, internet-enabled model for serving SMB's. This translation can happen along several dimensions:
- Technical/engineering. Recently-invented tools have been able to "bottle up" the engineering methods and approaches refined over the past several decades by the energy services industry. Data collection, benchmarking, pre-audits, remote audits, and technology-enabled commissioning are all examples of traditional energy engineering services that are now provided through software.
- Programmatic efficiency. The more streamlined the process, the more scale we will be able to achieve. Early efforts along this vein are promising, and utilities and service providers across the country are pushing to develop the most efficient approach to efficiency.
- Beyond the numbers. Of course the economics matter, but there are other drivers behind energy efficiency decisions. One example is public recognition for the "good deeds" of sustainable operations. In this day of email, blogs, and social networks, getting the word out has never been easier.
- Make it easy. Tools can provide enormous value at very low cost, but they can also annoy people by asking them to learn a new system. Instead, technology providers can talk to their users and make sure they solve real problems, instead of adding to the workload.
We learned this last lesson at WegoWise. After creating a web-based tool that automatically collects utility data, talks to Energy Star Portfolio Manager with the push of a button, and provides intuitive visualization tools, we thought we had done a pretty good job making things easy for our customers. But when we talked to our users, we started to hear the same message again and again. For every one person in their organization using our software, there were another 10 that cared about some aspect of energy management, but would simply never log into an online tool. Never.
So we went back to the drawing board. We knew we needed to provide the core service of data and analysis, but now it was time to go further. We needed to deliver answers to the important questions of energy management. And instead of delivering the information online, we sent it in simple pdf reports. Our premium product was born.
The innovation here is not just high-tech (although it is a little tricky to automate the regression analysis required for whole-building measurement and verification), but it's human-centered. People don't buy technology for its own sake, just like they don't buy efficiency for its own sake. They want outcomes.
In energy efficiency, the outcomes are lower bills, better operations and a cleaner environment. And small business owners want those things; they just need an easy way to buy.