Recently I had the opportunity to speak with Brenden Millstein of Carbon Lighthouse about MythBusters, building efficiency, the internet of things, artificial intelligence, and guaranteed HVAC cost savings for building owners. The second part of our conversation is now available. You can listen to the full conversation in the embedded player below. Below that embedded SoundCloud player is a brief summary of the topics covered, but tune into the podcast to follow the full discussion.
The lead item for this portion of the discussion is whether building efficiency is at a point of diminishing returns of decarbonization given previous efficiency programs and the strong value proposition of refueling heating with heat pumps and electricity instead of gas furnaces. Brenden provides a strong no answer. While many buildings are torn down after 25 years, many last for 50 to 100 years. Only 5% to 15% of buildings are ‘new’. As a result, interventions in the existing building stock are crucial to reducing their emissions load.
And Carbon Lighthouse’s offer has four advantages over heat pumps. The first is that there is no capital cost associated with the installation of IOT sensors and adjustment of existing HVAC and lighting systems to find savings. It’s almost virtual and has no upfront cost to the landlord. Second, it’s an invisible, no-impact change for tenants. While ripping out gas furnaces and installing heat pumps can mean a potentially uncomfortable week or two for tenants, installation of sensors and adjusting of boiler and chiller operational cycles has no impact on people using the building. And there’s no regulatory burden. Changing out an HVAC system is a substantial building change, and typically requires approvals and inspections. Changing the way the building operates its existing boilers and chillers doesn’t require municipal approvals. Finally, IOT sensors have plummeted in cost. Sensors which cost $2,000 20 years ago cost $60 today. The fiscal cost of sensoring up a building and gathering the data is now trivial, especially when building facility staff are doing the work.
While I’m a big proponent of refueling building heating with heat pump technology, and think it should be core to governmental climate policy around buildings, I’m also clear that building efficiency has direct fiscal benefits, and ones that Carbon Lighthouse has managed to make work across the tenant landlord incentive split dilemma. Until they refuel as boilers age out, Carbon Lighthouse can offer double digit percentage reductions in CO2 emissions with a side of fiscal benefit. The only time they’ve actually needed to push a building retrofit was for a hotel in Death Valley, where it made a lot of sense to poke holes in the walls and pump insulation into the void spaces, but that’s one customer in a decade in an extreme environment.
The business model for buildings was another point of discussion. Per Millstein, individual buildings are held in specially created LLCs, and while they are engaged for portfolios of buildings, they have to offer savings at the building level and can’t provide an averaged saving across the portfolio as might be viable with fleets of vehicles for example.
It’s hard to overstate the guaranteed savings aspect of Carbon Lighthouse’s offering. I’ve had this conversation a dozen times in different contexts across renewables and building-related projects, and it always comes down to the client making it clear that if the offer is so good, the service company needs to put their money where their mouth is. That’s why so many efficiency programs depend on governmental or utility largesse. Externalized subsidy programs are required. While the energy efficiency market is over crowded with small and large firms offering consulting services, guarantees are thin on the ground. Millstein is only aware of two other firms which provide guarantees — Sparkfund and Redaptive — and they are mostly not competing with Carbon Lighthouse.
Because Carbon Lighthouse does guarantee savings, taking the fiscal risk itself, a major hurdle to the sales cycle is eliminated. That’s been on the books for years, and combined with the hands-free COVID model of shipping boxes of sensors to facility staff and lack of regulatory burden, they now close deals every 2-3 days.
The environment, social and governance (ESG) shift has had an impact on Carbon Lighthouse as well. In 2017, it was solely a fiscal discussion, with carbon reductions being a nice-to-have that wouldn’t move the needle in most conversations if the savings weren’t sufficient. With ESG becoming a key factor for Boards, customers and employees, now Carbon Lighthouse is seeing its clients sign up for lower savings as long as there are quantifiable carbon savings. This is without any price on carbon other than a social focus on reducing carbon footprints.
We did have a bit of a discussion of the technical AI solution toward the end. I have a background in big tech and data, having worked with a global technology firm and having authored the CleanTechnica report on machine learning and cleantech about a year ago. As expected, they are exploiting technologies such as Markov Chain Monte Carlo methods for sampling from probability distributions, not training substantial new machine learning methods. Where the AI components are valuable is where you don’t know what’s going on and you need to understand. Their software toolkit, CLEWS, is a mix of thermodynamics properties and real world data. And unsurprisingly, a huge portion of the software is focused on overcoming calibration challenges, a constant problem in software to hardware integration. But Millstein says that there’s no AI buzz associated with their sales, just the ability it helps them provide to share the risk with their clients.
And so our conversation wrapped up. Millstein offering some parting words to consider:
“The largest takeaway is important for everyone to recognize that the world and pricing has changed. There is no longer a difference between doing something that is economically beneficial and environmentally beneficial.”
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