At A/O, next-generation energy efficiency solutions are central to our broader building decarbonisation thesis. This is because energy efficiency improvements are critical for reducing HVAC demand, lowering the costs of electrification.

Energy efficiency startups targeting CRE owners can be segmented into:

i. Thermal insulation solutions, which monitor or mitigate thermal heat transfer via the building envelope or ductwork. Heat transfer in buildings is caused by air leakage or deficient insulation and can be monitored at either the building, portfolio or global scale. Startups in this space include advanced building envelope systems, building envelope inspection software, and thermal imaging to identify heat loss. Solutions utilise a wide range of technologies, including new materials, IoT sensors, AI/ML, computer vision, and satellite imagery.

ii. Space heating and cooling demand optimisation solutions, which include one or more of the following features: real-time energy demand monitoring; energy demand prediction; energy optimisation insights; and, in some cases, autonomous energy demand optimisation. Solutions in this space include energy management systems (EMS) and next-gen building management systems (BMS). Startups utilise a combination of IoT sensors, legacy BMS, new BMS hardware, and AI/ML.

Energy Efficiency Pain Points

At A/O, we have identified common hurdles faced by stakeholders in scaling legacy energy efficiency solutions across CRE portfolios and geographies.

• Misaligned incentives limit adoption. Energy usage is undoubtedly a large operating cost for CRE owners, typically representing one-third of opex. Yet often those paying for energy efficiency solutions are not those who reap the energy savings benefits. Interestingly, the use of triple-net leases — where energy costs are passed through to tenants — is a hyperlocal characteristic that varies across geographies and CRE types. In practice, this means stakeholder adoption rates vary in line with the prevalent lease type for a given market.

• Standard BMS and EMS are cost-prohibitive for small CRE. Standard BMS and EMS solutions are widely available, with downward price pressure on sensors making EMS solutions – such as A/O portfolio company Aquicore — increasingly cost-effective. But at present, adoption is limited to large buildings only, as solutions require a facilities management team to either:

i. Manually implement HVAC adjustments or;

ii. Adjust profile settings to prevent post-installation performance drift.

In practice, this means the value proposition of EMS and BMS relates to only a tiny subsector of CRE. Small CRE buildings represent c.94% of US CRE building stock. Given their size, they generally opt for an HVAC engineer rather than employing a full facilities management team. Without an existing facilities management team in place, EMS and BMS solutions represent an additive cost rather than an overhead saving because of the added complexity and cost of installing and maintaining a BMS. In this way, there are low adoption rates among smaller installers and HVAC engineers, with a large majority of the CRE market remaining underserved.

• Labour intensive inspection and installation processes are costly and disruptive. Labour cost savings associated with offsite manufacturing are yet to be fully realised in the energy efficiency sector. This is particularly prevalent for thermal insulation solutions as no two existing structures are alike — even two identical buildings have natural variances that emerge over time. The complexity of initial scoping works, the need for large design tolerances, and the subsequent labour cost of onsite adjustments hinder economies of scale benefits. This is only exacerbated by growing labour shortages and supply chain holdups, which create a further market need for simplified and automated inspection processes.

The Investment Opportunity

At A/O, we are actively investing in solutions that acknowledge and address these frictions.

Next-gen BMS

Advanced BMS solutions, such as our portfolio company Passive Logic, are designed to increase adoption among CRE installers, HVAC engineers and facility management teams, through simplified installation and maintenance processes.

Having first invested in Passive Logic in 2020, A/O joined the $34m Series B round earlier this year. The team’s vision is to deliver an advanced BMS with maximised connected load capacity and the ability to autonomously adapt preset controls in response to external data points.

The introduction of autonomous control serves CRE stakeholders in a number of ways. Firstly, the risk of post-installation performance drift is minimised, improving energy savings.

Secondly, the need for ongoing intervention from facility management teams is eliminated, lowering operating cost and complexity. And, given the modular design, installation complexity is also reduced.

Together, these cost savings increase BMS adoption among CRE channel partners, while improving the reliability of energy savings for asset managers. At the same time, these solutions indirectly increase the adoption of EMS solutions such as Facilio, which require a building to have a modern BMS preinstalled.

Advanced Envelope Solutions.

Heat transfer through the building envelope accounts for up to 60% of total heat transfer. Energy efficiency solutions in the space either:

i. Minimise heat loss through insulation, or;

ii. Maximise heat storage through phase-change materials.

At A/O, we are particularly interested in emerging material based solutions that minimise and monitor heat transfer in the building envelope while requiring less labour.

• New insulative materials. Innovations in this space include high performing aerogel-based renders, which substitute traditional insulation panels. This serves to minimise tenant disruption, while the thinner insulation area maximises usable floor space.

• Identifying and sealing insulation defects. Innovative, tech-enabled solutions — such as Aeroseal – maximise a building’s existing insulative capacity by quickly identifying, sealing and monitoring building envelope air leaks.

• Don’t forget cooling loads! Heat loss solutions can be combined with certain phase-change materials (i.e., EnKoat’s insulating paint). This serves to increase the heat absorption capacity of a building – which is critical given cooling loads are the fastest-growing energy use in buildings globally. Other options for large commercial and industrial assets include solutions such as SkyCool Systems, which provides panelised cooling roofing systems to passively cool fluids in air conditioning and refrigeration systems.

Inspection & Heat Loss Monitoring

• Portfolio scale. Startups, such as Spotr, leverage computer vision and AI to facilitate remote façade inspections across portfolios. This allows asset managers planning capital expenditure projects to remotely identify façade defects and quickly gather measurements. Meanwhile, Sees.ai leverages drones to also facilitate remote rooftop inspections. When the drones are fitted with infrared cameras, building heat loss can also be detected.

• Global scale. At the global scale, our portfolio company Satellite Vu plans to fit satellites with infrared cameras to collect thermal data. In this way, heat loss from any building on the planet will be monitored in real-time. Once launched with SpaceX in early 2023, institutional investors and corporations will be able to identify their most energy inefficient assets. This data will inform investment decisions, aid ESG reporting, and importantly help firms to prioritise capital expenditure projects where the largest energy efficiency improvements can be realised.

At A/O, we are actively investing in technologies that enable buildings to become more energy-efficient while placing less strain on supply chains. Get in touch!