The three most important words in energy

The announcement from Stem and Clean Fleet Investors to launch a program that will effectively let hotels and other large building owners obtain energy storage systemswithout any upfront investments underscore once again why the fossil fuel industry is going to face some big problems in the future.

Under the terms of the program, Stem and Clean Fleet essentially install banks of batteries linked to a sophisticated software system in large commercial buildings. The batteries get recharged with cheap electricity during off-peak hours. During the afternoon, the system then curbs the amount of power the building pulls from the grid, relying instead on the batteries.

InterContinental Hotels IHG 0% has installed it at two hotels in San Francisco. Harry Hobbs, Area Director of Engineering, says that the system could cut “demand charges,” those pesky fees utilities tack onto commercial and industrial utility bill that are determined by a peak power usage, by $30,000 a month and achieve payback in two years.

Under the new program, payback is instantaneous. Stem and Clean Fleet structure the deal so that the equipment gets paid for out of the savings. The building owner sees its utility costs dip, Stem and Clean Fleet make a profit, and the utility benefits by gaining greater predictability over the peak power demands in a given region. Everybody’s happy, except coal producers.

And it all works because of three words: No Money Down. You won’t find that phrase in the Constitution or the Declaration of Independence, but it’s deeply woven into the American cultural fabric. White goods manufacturers and auto companies have thrived off the phrase for years. Granted, so did high-risk mortgage brokers, but other than that exception, it’s been a fairly successful concept. In the same vein, it’s no coincidence that Freedom of Choice is both a hallowed legal principle and one of 7-11′s most successful slogans.

The renewable industry has already been mining the no money down mantra. The solar industry took off after SunEdison introduced power purchase agreements that cut down payments to zero or close to zero. Under these, the solar company owns the panels on a roof, sells energy to the building owners, and makes its profit on the spread between the savings, the accumulated credits and declining equipment costs. SunEdison Jigar Shah also worked on the Stem deal.

Several companies have created programs for installing LED lights or conducting retrofits through savings. ChargePoint, among others, has developed programs to hide the cost of chargers. These programs have multiple benefits. At the most basic level, they can reduce operating expenses or costs for consumers or businesses. But they can also reduce tenant churn, according to Dianna Berry, Asset Manager at Colliers International, who spoke at the recent Verge event. Tenants at an industrial park were not renewing because of high bills and occupant/employee complaints. By taking advantage of a PACE program that let the owners retrofit the buildings through supplemental tax fees, the owners were able to fill the building back up.

“It (Efficiency) isn’t a technology issue. It is a financial issue,” added Matt Golden, who heads up Efficiency.org.

These programs can work across a broad spectrum of buildings. PosiGen Solar Solutions has developed a program under which the company will install solar panels and conduct energy efficiency upgrades in low- to moderate-income homes. In a program with a utility in New Orleans with 120 homes, PosiGen managed to cut energy consumption by 30 percent, said executive director Elizabeth Galante: the goal was 15%.

The solar panels are free: they get paid for through existing programs and energy bill savings. Most customers ultimately get an upgrade because it makes their homes more comfortable, but “zero down” helps draws their attention, she said.

And here’s another benefit: capital value. Lower operating expenses in a commercial building lead directly to higher rental values and capital values. Reducing utility costs by $100,000 can raise the capital value by $1.1 to $1.4 million. It’s a lot easier to change your light bulbs, particularly when it’s free, than upgrade the entire block. These sort of plans are also migrating overseas. Japanese vendors are beginning to experiment with solar leases.

The fossil fuel industry can’t match this. Traditional energy is a one-way street. You have to buy fuel, and buying fuel does not add to the capital value or attractiveness of your home or building. Even if you don’t own the solar panels on your roof, they can add to the value. Find someone to replace your oil-burning furnace for a new one that you finance through the spread on commodity prices?

Good luck.

http://www.forbes.com/sites/michaelkanellos/2013/10/24/the-three-most-important-words-in-energy/?ss=business%3Aenergy