Commercial buildings are largely inefficient users of energy, consuming nearly 20% of the total energy in the United States and costing more than $190 billion in energy every year. Much of that energy is wasted, yet many building owners are unaware of how their building’s energy is consumed or how to invest in energy efficiency in a way that will yield profits.
In Portland, commercial energy consumption is one of the city’s largest sources of carbon pollution. Many retrofit projects stall because of misaligned economic interests between building owners, tenants and project developers. I had an opportunity to discuss these challenges with Jason Gregory, CEO and co-founder of local startup, EnergyRM, that is trying to solve this problem.
“Traditionally, there has been a lack of tools and technology to identify and accurately meter energy efficiency production, as well as financially transact the value of deep retrofit projects,” said Gregory.
The Portland-based, venture-funded software company wants to unlock investment in deep commercial energy efficiency. EnergRM’s Energy Investment Platform includes patented software and an energy efficiency investment structure that enables investors, commercial building owners, and project developers to monetize the value of energy efficiency.
The company’s software also helps owners and project developers find energy efficiency opportunities across their portfolios.
Building owners have been reluctant to fund deep retrofit projects because they won’t see returns on the investment since it is building tenants that would see savings on utility bills. Tenants aren’t incentivized to pay for these improvements themselves because they are temporary occupant.
“Most significant office buildings are multi-tenanted with all tenants sharing in the expense structure,” said Eric Turner, managing director at JLL Portland. “Because building owners pass through most expenses to their tenants, which includes utility costs, there is limited motivation for owners to invest in energy efficiency and limited buying power from the tenants to precipitate change.”
To solve this, EnergyRM created its Investment Structure, a series of agreements that can be used to fund retrofit projects by generating something called Net Operating Income (NOI) to monetize these efficiency projects. The platform provides business and legal structures needed to avoid complex and customized contracting between owners, investors and project developers.
Portland has already embarked on an ambitious path toward reducing energy use in commercial buildings; an existing policy requires owners of buildings over 20,000 square feet to track energy use and report it annually, with the end goal of cutting carbon emissions by 80% by 2050.
The mechanism for recovering invested capital into deep retrofits becomes a win-win-win: Tenants continue to pay a consistent amount for utility bills as if the retrofit didn’t happen, while the reduction in energy usage generates new NOI for building owners through EnergyRM’s Investment Structure. Investors can profit, as well: While it requires capital investment upfront, funding these retrofit projects will generate favorable financial returns.
The path to a clean energy future may be closer with a new Biden administration. The Biden campaign put forth a comprehensive energy efficiency and job creation proposal, including a plan promising to create hundreds of thousands of new jobs through the retrofitting of four million existing commercial buildings along with tax incentives to businesses that adopt clean energy practices.
EnergyRM plans to hire for Portland-based roles this summer and fall. These include software engineering, building science and sales roles.
“We find that Portland’s talent market is a good fit for EnergyRM now and in the future,” said Gregory. “There are great candidates with expertise in energy efficiency, commercial real estate, cloud software engineering, and most importantly, mission-aligned people who care about climate.”
This is part of a regular guest column written by the Technology Association of Oregon in the Portland Business Journal.