Wrapping up the latest update to the Pike Research Microgrid Deployment Tracker, which was published earlier this month, I had a very simple insight: What is and what is not a microgrid is really in the eye of the beholder.

The U.S. Department of Energy (DOE), guided by the perspective of academics from the University of Wisconsin and big thinkers at DOE’s Lawrence Livermore National Laboratory, came up with a long-worded definition: “A group of interconnected loads and distributed energy resources (DER) with clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid [and can] connect and disconnect from the grid to enable it to operate in both grid-connected or island mode.”

To large extent, Pike Research adheres to this definition, but with one major exception.  One segment of microgrids included in our Tracker update is “remote microgrids,” networks of distributed resources that are not interconnected with a larger utility grid, primarily located in the developing world.

All told, Pike Research identified 87 new microgrids either planned, proposed or in current operation which now total over 2,574 MW in planned or operating capacity.  This compares to 1,626 MW of planned and operating capacity identified in the Pike Research 4Q11 update, a 63% capacity increase.

I had lunch with Gary Seifert, a business development executive at OSIsoft, at the recent OSIsoft Users Conference in San Francisco.  He opened my eyes to the perspective of a company whose data management systems are vital for the University of California-San Diego’s microgrid, whose 42 megawatts (MW) of total capacity generate over 84,000 data streams through the company’s “PI” system, a volume of data that keeps growing and can reach 100 bits per second.

From a company such as OSIsoft, the islanding requirement to define a microgrid is largely a false one proliferated by academics.  In the real world (I am paraphrasing here) it’s the organization, optimization and visualization of data for customers that really constitutes a microgrid.  “Don’t tell some of these military bases that they don’t have a microgrid if they cannot fully island yet,” he warned.

Data Architecture for UC-San Diego Microgrid

(Source: OSIsoft)

Seifert made a convincing case that the islanding threshold for a microgrid may be too stringent.  Nevertheless, Raj Chudgar, vice president of smart grid/microgrids for Power Analytics – whose modeling software is layered on top of OSIsoft’s PI system at UC-San Diego – claimed that only 5% to 10% of the projects listed in Pike Research’s MGDT published in the 4^th quarter of 2011 met his vision of what constituted a bona fide microgrid.  Since his firm’s software is among the most sophisticated available, this assessment did not surprise me.  (Chudgar was a panelist on our May 22 webinar, “Renewable Energy Integration.”)

Outside the Lines

Indeed, not all of the projects profiled in the Tracker database meet the Pike Research and/or DOE definitions of a microgrid.  Some projects were included due to their noteworthy features and/or key contributions to the development of technologies critical to the success of the overall microgrid market.   Yet Pike Research still uses the ability to safely island as the key distinguishing feature for microgrids for very practical reasons.  If we followed the OSIsoft view, it would be impossible to track all projects labeled a “microgrid” due to the sheer numbers.

This is an even larger concern with remote systems.  Therefore, Pike Research screens these microgrid projects according to the following criteria: (1) inclusion of a renewable energy generation resource; (2) some network controls that allow for optimization of generation, loads and (in most cases) some form of energy storage.

At present, Pike Research does not include remote Direct Current (DC) telecommunications towers in this database.  These systems number in the hundreds of thousands, and so would be virtually impossible to track on an individualized basis.  Furthermore, Pike Research generally looks for a microgrid to feature at least two generation sources, two different buildings (and usually some human occupants of these building structures) as basic criteria for a microgrid.  As this market matures, these rather artificial screening functions may be revised.  The lines between microgrids, virtual power plants and smart grid renewables integration will continue to blur, making market segmentation of the microgrid market increasingly difficult.

Chicago-based utility ComEd filed plans recently with its state regulator (Illinois Commerce Commission) to deploy 4 million smart meters throughout northern Illinois over the next 10 years in a long-range bid to upgrade its system.

If approved by ICC, approximately 130,000 customers living along the Eisenhower Expressway would have the new meters installed as early as the end of summer 2012.  ComEd would then install 370,000 meters in 2013 and the following year some 500,000 meters would be deployed.  From that point, the utility would continue connecting new meters across its territory at that 500,000 annual clip until 2021.  (The utility has already deployed more than 131,000 smart meters in a pilot project that was completed in May 2011.)

The ambitious meter deployment – one of the largest in the country – would coincide with rate increases during the coming decade that will finance $2.6 billion in overall infrastructure upgrades, which include the new meter rollout.

ComEd expects, of course, to reduce operational costs by deploying the meters, which would be read remotely and not require sending meter readers to households or commercial sites.  The meters would also enable remote connect and disconnect of service, reducing the need to send a crew to a physical location for such purposes.  For customers, the new meters would enable them to take part in demand-response programs that could reduce their bills.

Clearly, ComEd has a roadmap to a full smart meter deployment, and now its cards are on the table.  But it needs to proceed with some caution here.  According to published reports, no one will be able to opt out of the deployment – at least not yet.  But if things proceed like they have in similar deployments in California and elsewhere, an opt-out program might be required.  As we’ve witnessed during Pacific Gas & Electric’s smart meter deployment in California, some vocal consumers won’t have anything to do with smart meters because of health-related fears or worries about privacy invasion.  And they were instrumental in getting PG&E to offer an opt-out option.  So, while ComEd’s plan may appear to be unfettered at this point, the potential for consumer backlash is valid, and the utility should have alternate plans – especially if the outcry is loud enough to stir local politicians.

Some myths just won’t die. Even today, if you mention cloud computing, inevitably somebody responds, “The Cloud is just too insecure to put anything in there.”

First, as I’ve mentioned before, there is no “The Cloud”.  There are many clouds – some public, some private, some shared, some hybrids of other clouds.  NIST Special Document 800-145 is an excellent definition of cloud computing.  If your computing environment meets that definition, you can rightly claim that you have a cloud.  If it does not, please don’t call it a cloud.

As for the claim that cloud computing is insecure, my reply is, “Compared to what?”  In two decades of cyber security work, I’ve examined several hundred large global corporations and seen first-hand the chronic underinvestment and shortcuts taken with in-house cyber security.  Nearly every conference that I attend includes a progression of cyber security officers lamenting their inability to get anything funded.  It’s not possible that those same people who cannot get anything funded have managed to deploy such wonderful cyber security in-house.

The most sophisticated cyber security for traditional closed networks with PC-based storage is beyond the reach of all but the largest companies.  Yet cloud vendors implement it as a matter of course because they spread the costs across a client base.  The incremental cost of adding one more client to a cloud is much lower than standing up a complete in-house environment.  Also, the continued existence of a cloud provider is much more dependent upon its cyber security than the continued existence of a utility.  So the investment case for a cloud vendor’s cyber security is easier to write.  Otherwise the company will fail.

Some of those expensive security features include:

• Security Incident Response teams that are full-time staffed 24/7
• Sophisticated detection tool, such as Network Behavioral Anomaly Detection
• Sophisticated security event correlation, with predictive capabilities
• Geographically diverse double or triple redundancy of all data, networking, and computing assets
• Subscription to threat and vulnerability intelligence services
• Working relationships with Information Sharing and Analysis Centers (ISACs)

What’s more, security teams at cloud vendors usually have a broader view of threats and vulnerabilities, simply because they see what is happening at many clients.  In-house departments often do not have this visibility into threats in the wild.

Some in-house IT departments may fear the loss of control that comes with any type of outsourcing.  That is understandable.  However it is equally true that managers of many in-house systems – AMI or otherwise –have taken shortcuts when deploying cyber security, betting on the relative isolation of the system to protect them – the now discredited security by obscurity.  Conversely, smaller utilities that cannot afford in-house systems face most of the same security threats as do large utilities.  And yet, it’s rare to hear a smaller utility cite security concerns as an obstacle to cloud computing.  This may have less to do with utility size and more to do with pragmatism.  And when a lot of smaller utilities operate in a single private cloud, it begins to look an awful lot like the operating environment for one large utility.  Cloud computing can provide a secure environment.

But does that prove that clouds are more secure than other environments?  Of course not.  Like anything else, good security depends upon how effectively it is planned and implemented.  But cloud computing certainly presents the opportunity to have a more secure system.  For smaller utilities, it may be the only opportunity.

In the wake of Facebook’s belly-flop of an IPO, it’s a good time to update the evolving role of social media in the utility business.  The benefits in terms of customer service and brand reputation from improving emergency response and outage management using social media are well-understood.  It was made clear at the recent Social Media in the Utility Sector conference, in London, that utilities are also grasping the relevance of social media to broader changes in their business.  The conversational approach to customer engagement that characterizes social media is in tune with the transformation that utilities are already making to becoming more customer-centric businesses.  However, in the social media realm, consumers drive the conversation around their service providers and the utility has no choice but to become customer-centric.  The question for utilities is whether they become and active and trusted participants in these new conversations.

My role at the conference as chairperson was to set the context for a series of lively discussions as well as presenting the findings from our own Social Media and Utilities report.  Isaac Pigott, Communications Strategist with Alabama Power, delivered a presentation that provided insight into the use of social media and also connected with real life and death issues.  Pigott explained how Alabama Power used social media to help its customers following a disastrous storm in April 2011.  Over 30 tornadoes devastated the region within 14 hours, leaving 240 people dead and over 400,000 customers without power and many without homes at all.  Alabama Power was able to use Twitter and other tools to provide advice, reassurance and information on how it was progressing in the momentous task of restoring power to the stricken communities.  This clearly demonstrated the potential of such channels as a means of delivering speedy responses to public concerns and delivering up-to-date information on restoration work.  Simply asking for people to retweet important safety messages was a good example of social media’s ability to reach beyond traditional platforms.

It was also valuable to see how Alabama Power learnt as it went along how best to use these new tools.  This was a recurring theme of the event.  The use of social media is an emerging practice, with all organizations still finding their way in terms of the resource and internal governance requirements.  They are also facing the challenge of deciding which social media platforms they should focus on.

In the UK’s highly competitive energy supply market, utilities like British Gas, EDF Energy and E.ON are adapting quickly to the new possibilities.  However, the consumer focus of these energy retailers makes social media a more natural fit.  It’s a bigger challenge for the infrastructure-focused and still heavily regulated electricity distribution and water utilities.  One of the core issues for these utilities is how to make their engineers, who are the real stars of the operation, part of the dynamic and fast moving information flows of Twitter and other platforms.  The most oft-repeated advice at the conference was to trust people and to remember that the usual norms of corporate behavior still stand.  Embedding strong ethical principles in a communication culture is more important that an extensive and stringent rule list.

We often hear about how the smart grid is changing the utility business, but this is not the only driver changing the way utilities relate to their customers.  As with smart grid technologies, social media is moving utilities from a highly controlled environment based on one-way flows of information and simple relationships between suppliers and customers to a multi-stakeholder, multi-directional, multi-platform world, where control and communication lines are much less clear.

According to the Pike Research Energy Storage Tracker, there are over 6,000 megawatts (MW) of grid storage installed in the Southern Hemisphere, most of which is traditional pumped storage.  Likely market suspects populate the list of installations – including Australia and South Africa – but the Tracker doesn’t tell the whole story of the role electricity storage can play in emerging markets like Chile, South Africa, and island nations across Southeast Asia.  Nor does it highlight the budding business case for battery storage in these emerging markets.  The debate around economic growth, utilization of domestic resources, and clean electricity generation presents an interesting opportunity for electricity storage, particularly advanced battery storage, in markets where grid conditions are unreliable, economic growth is unrelenting, and commitments to resource conservation are on the rise.  The value proposition of advanced battery storage – which is, to be sure, unproven at this time – could give emerging markets in the Southern Hemisphere inroads to the broader utility market globally.

With growth rates over 3% in the last several years, both Chile and South Africa have navigated the global financial struggle relatively well.  A handful of other countries display the same market conditions as Chile and South Africa.  Each serves as a driver for economic growth in its respective region and is building industries that support global infrastructure and commerce.  Meanwhile, utilities in both Chile and South Africa increasingly struggle to keep the lights on.  Here is where the evolving debate around economic growth and resource utilization could lead strategies for expanding the power sector, the lifeblood of economic growth, to a pivot point.

Innovations in solar, wind, and transmission infrastructure have expanded the menu of power generation options from which emerging economies can choose.  The economic development model, on the other hand, hasn’t changed significantly, leaving bulk energy generation, whether from fossil fuels or renewable sources, as the primary solution to accommodating rising electricity demand.  But the forces of social change, new financing models, and global drivers for cleaner environments have the potential to drive forward new power sector paradigms.  If the building blocks of the future grid in Chile and South Africa were distributed solar and advanced batteries instead of coal-fired power plants and long-distance transmission lines, the resulting power sector could exploit local, renewable resources and deliver them efficiently.

Distributed generation and advanced battery storage present a unique value proposition to both developed and developing countries in economic transition.  Likewise, these new power sectors could be ripe for additional technological innovation in 21^st century, while preserving local landscapes, natural resources, and indigenous ways of life.

Ultimately, countries like Chile and South Africa present ideal conditions for dispelling preconceived notions about the market barriers to advanced batteries in the utility industry – high CAPEX, lack of empirical operations data, and unclear value streams.  But much of this potential hinges on the path the governments in Cape Town and Santiago take for power sector development.

What a week!

At the start of the year we forecast that one of the big trends in 2012 would be the return of the private equity markets to the fuel cell and hydrogen industry.  In fact, this trend has been far larger and is now having an impact on the entire cleantech sector.

The last week has seen an announcement from Goldman Sachs that it plans to invest a $40 billion fund in clean energy and Pangaea Ventures Ltd. achieving a first close of Pangaea Ventures Fund III, LP, having attracted the initial $50 million into the target $100 million fund.  The Pangaea Ventures Fund will also be targeted at energy storage, energy efficiency technology, and energy generation.  In Europe, the United Kingdom’s $5 billion bet, the Green Investment Bank, became a commercial reality.  (It was also the week though when T. Boone Pickens, the U.S. industrialist and of late clean energy supporter, pulled his backing of wind power development in the U.S. citing low natural gas prices that have reduced his profit margins in wind.)

Does this mean we are in for a new hype cycle with government R&D being replaced by easier to acquire private equity? And if so, is this a bad thing? Although it’s unlikely that we will see a return to the days when investors lily-padded across the supposed Next Big Thing en masse, we should see the average deal increase in dollar amount as well as the number of deals increase.

Series A funding is likely to remain the largest hurdle for cleantech companies, with more and more emphasis being placed on commercial viability of the product, rather than on a concept.  But once through that gate, the pool of available investment is growing and the number of companies investing larger.  Investors are still looking for the same things as in any other sector, including a good management team.  If the startup is small and stacked with R&D types, but with strong intellectual property, we are more likely looking at acquisition by a large corporations rather than investment by the private equity sector.  For companies that are clearly on the commercial track, with a viable and well developed business plan, getting the next level of funding should be easier.

So what has changed to bring investors back into the sector?  The clear major shift in the last twelve months has been the exit from the market in many countries of government based intervention.  The second factor is the increased number of technologies that now fit into a standard private equity model of a five-year exit strategy.  Fuel cells, wind, and biopower, as well as a range of energy efficiency technologies, now all are strong enough markets to sustain the traditional investment and exit model.

Finally, if we do have another hype cycle, will it be as counterproductive as the last?  Unequivocally yes.  The cleantech market cannot sustain another boom and bust.  To be a sustainable, growing part of the global energy market, cleantech cannot afford another gold rush.

Earlier this month seven U.S. and German automakers (Audi, BMW, Daimler, Ford, GM, Porsche, and VW) announced they were collaborating with the Society of Automotive Engineers (SAE) on a charging port standard that will allow electric vehicles to be charged at three different voltage rates through one plug.  Until the arrival of the new combo port, separate ports and cables were required for AC and DC vehicle charging.  Stations that use the plug (which is awaiting final approval from SAE, due in July) will not be available until later this year, and compatible vehicles will not be available until later in 2013.
The plug, showcased at the EVS26 conference in LA, is designed to erase concerns EV owners may have about whether their vehicle’s charging system is compatible with any existing station.  At the event, both EVSE manufacturers ABB and Efacec demonstrated DC chargers that had ports supporting both the proposed SAE standard and the Japanese-developed CHAdeMO system.

The announcement has been anticipated ever since the SAE declined to adopt the CHAdeMO standard.  Left out of the announcement are the Asian BEV automakers (Nissan, Mitsubishi, and Toyota) as well as the French (Citroen, Peugeot, and Renault) who are also the early adopters of the CHAdeMO system.  These automakers have been behind the CHAdeMO fast charging standard since the beginning and have made their EVs compatible, whereas the U.S. and German automakers have not offered DC charging, choosing instead to wait for the SAE standard.  Also left out of the announcement is BYD, which uses an entirely different standard from both SAE and CHAdeMO, but let’s not get into that now.

As CHAdeMO was developed in Japan, over 1,154 CHAdeMO stations are available there today. More than 200 are in operation in Europe, while the U.S. has a smattering of less than 50. CHAdeMO capable vehicles like the Nissan Leaf have one charge outlet for AC charging, and one for fast DC charging.

Not So Good News

The announcement was surely unwelcome for the early CHAdeMO adopters, who have spent millions to build infrastructure to accommodate the standard.  The more important issue, though, is whether the SAE standard will be adopted in future models of Nissan, Renault, Mitsubishi, and Peugeot-Citroen, or for how many years dual standards will compete in the market.  Common sense might indicate that at least for the U.S. and European markets, these OEMs would consider such a move.  But the early adopters of CHAdeMO were also the first to market, and thus have held considerable sway over how electric vehicle supply equipment (EVSE) infrastructure will be made.

Of the auto makers who have announced they will adopt the SAE standard, only GM is actually selling PEVs to the mass market in Europe or North America.  Ford is just beginning to roll out its Electric Focus, while Audi, BMW, VW, Daimler, and Porsche are still at least a year or more away from mass market deployments in North America. Nissan has developed a CHAdeMO fast charger significantly cheaper than most other fast charge options and is beginning deployment of it to varying global markets.  Competing standards are bad news for fast charger manufacturers, as they will have to outfit existing and future stations for both SAE and CHAdeMO standards.  Interestingly silent in the hubbub has been Toyota, whose Prius Plug-in Hybrid quietly outsold both the Nissan Leaf and Chevy Volt in April in North America.  No plug-in hybrid is yet fast charge capable, therefore the Prius Plug-in is not CHAdeMO compatible.  The company also debuted its pure electric RAV4 at EVS26; the crossover is also not CHAdeMO capable. However, Toyota is a founding member of the CHAdeMO Association, so it would be odd if the world’s No. 2 automaker did not push the CHAdeMO standard in future models. Because Toyota has a successful and lengthy history of selling fuel efficient vehicles, its strategy could have wide implications for the EVSE and EV industry overall. The battle over which fast charge plug will dominate the U.S. and Europe is just beginning. CHAdeMO supporters won’t be backing down easily.

The steady waves of consolidation within the smart energy sector produced a major deal this week with Eaton’s planned $11.8 billion acquisition of Cooper Industries, one of the largest to date.  If anyone thinks energy management or the broader clean technology market is fading, think again.

It’s easy to think of both Eaton and Cooper as big old industrial companies, and in many ways they are.  Most commentary on the acquisition has focused on improved brand and global reach, business diversification, and favorable corporate tax treatments in Ireland, which is where the combined company will be headquartered.  This is all true enough.  But one does not need to look far to see the evolution of smart energy as a major underlying rationale for this combination.

Eaton already has been positioning its technology across the power, hydraulics, aerospace, truck, and auto industry segments as an enabler of energy efficiency gains.  As an example, Eaton is already an established leader in commercial and industrial power systems, data centers, and electric vehicle (EV) charging, all key systems associated with smart buildings, green data centers, and EV infrastructure.

Cooper has been focused on similar power management issues, mostly matching up on either end of where Eaton is today.  Cooper is a leading vendor of utility-focused distribution and substation automation technology, expanding the portfolio with acquisitions including Cannon, Cybectec, Cyme, and niche AMI startup Eka Systems.  This theoretically links up well with Eaton’s existing strength in heavy-duty commercial and industrial power distribution capabilities.  At the end-use level, Cooper’s lighting and controls strengthen Eaton’s reach into the smart buildings area, leveraging at least a dozen different Cooper acquisitions in this space over the last eight years.  As is so often claimed in these deals, end-to-end solutions are now possible.

Leaving aside the usual (and substantial) practical integration issues, the acquisition places Eaton in a unique position to drive convergence of smart grid, smart buildings, and smart transportation, with significant links also into the smart energy and smart industry domains.  This corresponds exactly with the overall “smart energy ecosystem” upon which we here at Pike Research are focused.  Though we are fully aware of the challenges facing the smart energy evolution and convergence, we also see clearly the many opportunities.  Eaton now has the chance to join an elite group of companies, including Siemens, GE, and perhaps most closely, Schneider Electric, that have the scale and breadth to address the full waterfront smart energy opportunities.

So just as the cleantech hype of recent years is subsiding, combinations such as this remind us that cleantech is really just growing up, and that as for all the college graduates hitting the streets during this season, the future is really just starting.

Often described as the next evolutionary leap in battery systems, solid state batteries substitute solid electrolyte films for liquid electrolytes, thus eliminating the need for cooling devices and supporting materials and making the battery more stable and efficient.  Theoretically, they have the potential to cut both the size and the price of batteries in half.

In pursuit of this technological achievement a host of start-ups have emerged, some backed by big names.  However, in the last three months, major tech and manufacturing juggernauts (GM, IBM, BASF) have announced big investments and/or breakthroughs in technologies utilizing liquid electrolytes that promise to achieve competitive results with solid state technologies.  Listed below are the companies working on the cutting edge of battery chemistries and materials development, their backers, and announced time to commercialization.

Liquid Electrolytes:

Envia

The GM backed start-up announced in late February that it has produced a Li-Ion battery with 400 watt-hour per kilogram (Wh/Kg) energy density and with a mass-produced cost of around $125 per kilowatt-hour (kWh).  Most lithium cells currently in production offer 100-150 Wh/Kg and are significantly more expensive than Envia’s estimates.  Envia expects commercialization could come as soon as 2015.  The company’s major innovation is the utilization of manganese within the battery cathode.

Sion Power

One of the biggest single investments in a battery developer to date was BASF’s $50 million stake in Sion Power.  Based in Tucson, Sion Power is developing a lithium-sulfur (Li-S) battery that could theoretically achieve energy densities of 2600 Wh/Kg.  The company says it has created a battery cell with a density of 350 Wh/Kg, and that 600 Wh/Kg is achievable in the near future.

IBM

The latest announcement may also be the biggest.  In April IBM demonstrated the lithium-air battery, which “breathes” as it derives power from taking in and expelling oxygen from the ambient environment.  IBM estimates the battery is capable of powering a vehicle over 500 miles, but the technology won’t be available for at least 10 years.

Solid State:

Planar Energy

A spin-off from the National Renewable Energy Laboratory (NREL), Planar Energy has developed solid-state electrolytes that can be deposited as film directly on to battery substrates through the company’s SPEED process.  The SPEED process can be applied to a diverse body of compound materials and can theoretically cut battery costs in half while tripling current energy densities.  Planar says it hopes to be producing batteries for plug in vehicles in about six years.

Sakti 3

Michigan-based, GM-backed Sakti3 is has developed software capable of identifying material combinations conducive to solid state electrolyte structures and is also working to develop mass production manufacturing techniques.  Sakti3 is primarily working with Li-Ion chemistries but has been mum on specifics and a timeline to commercialization.

Prieto Battery

Born from Colorado State University’s Synergy program, Prieto battery is a high tech start up looking to utilize copper nanowires for battery cathodes, anodes, and separator materials.  If successful, the battery can achieve energy densities of 650 Wh/Kg and drastically decrease recharge time while increasing battery life.

Advanced battery development will never rival the extraordinary performance leaps and bounds microchips exhibited for the last 50-plus years, commonly described as Moore’s Law.  However, the race for the next advanced battery stands to profit its victor so enormously (see chart below), that the race is sure to remain heated.

Portable Power Revenue by Geography (Consumer), World Markets: 2010-2015

(Source: Pike Research)

There are dozens of financial instruments specifically designed to help address the initial capex challenges posed by energy efficiency investments. Research by Rod Janssen, a board member of the European Council for an Energy Efficient Economy, has shown that nearly every country in the European Union has a national energy efficiency financing scheme.  And revenue for energy service companies, who specialize in using financial tools to pay for the installation of energy efficient systems, are nearly $35 billion worldwide, as we found in the research for our recent report, “Energy Efficient Buildings: Global Outlook.”

Still, we can all agree that the building stock could be much more efficient than it is. Much of this energy efficiency opportunity can be achieved through energy conservation measures that meet even the most stringent investment criteria of building owners worldwide, according to speakers at the recent Hannover Messe in Hannover, Germany, who represented from leading global financiers such as Siemens Financial Services, Commerzbank, and the European Investment Bank, the world’s largest investment bank.  However, the capex requirements of energy efficiency discourage many building owners from considering energy efficiency upgrades.

Financing energy efficiency, in other words, remains a perennial challenge.

The challenge of breaking through these first-cost barriers sits, in large part, with the firms that install energy efficient systems.  In Hannover, Roland Chalons-Browne, CEO of Siemens Financial Services, discussed his role as a financier within a firm traditionally focused on hardware sales and engineering services.  On the technology side, Siemens knows that its efficiency solutions have a high net-present value (NPV), but the capex requirements deter many customers from paying for efficiency improvements.  Siemens Financial Services’ financing toolbox, which includes a wide range of instruments ranging from traditional energy performance contracting (EPC) to power-purchase agreements (PPA), to straight lending-lease solutions and bespoke financing arrangements for specific customers.  Leveraging its top credit rating and strong cash position, Siemens can effectively create business for itself without any cash obligation from customers by handling all aspects of energy efficiency financing.

Financiers themselves, however, are also being opportunistic about the growing energy efficiency financing opportunity. Simone Loefgen, a vice president at Commerzbank, the second largest bank in Germany, described how energy efficiency financing today in Europe is where renewable energy financing was six years ago: a niche area with a rapidly transforming regulatory and market environment that could dramatically accelerate investment.  Specialist firms such as Sustainable Development Capital, a London-based private equity firm, are opportunistically creating investment portfolios based largely on energy efficiency projects.

One of the most challenging areas is the small and medium enterprise (SME) opportunity.  Current energy efficiency financing arrangements tend to focus on large facilities and multi-site building portfolios, in which the profitability of energy efficiency improvements more than justify the transaction and implementation costs. However, Gil Levy, a partner at Sustainable Development Capital, indicated that his firm aims to aggregate energy efficiency opportunity across many sites, including many smaller-scale facilities and organizations, to create an overall attractive energy efficiency portfolio for institutional investors. Other organizations such as the Berlin Energy Agency, a public-private energy service company based in Berlin, have already found success in aggregating smaller sites.

As suppliers and financiers play a more proactive role in offering attractive financing schemes to potential adopters, , they will help customers access the latent value locked up in their inefficient buildings.