Unleashing The Value From Energy

Energy will be delivered differently to customers than over the past 100 years. This energy transformation (“new energy paradigm”) is being driven by several factors, and Universal PropTech Inc. (“UPI”) is at the forefront in delivering it.
Change?

Prior to the global pandemic, there were a number of factors contributing to the new energy paradigm in energy resources for buildings in North America. The pandemic highlighted some vulnerabilities in how buildings operate, but the push was on to change.

Key factors driving change:

  • Climate Change;
  • Advancements in PropTech;
  • Energy infrastructure renewal;
  • Rising costs of delivering regulated electricity;
  • Lower costs of onsite energy generation and storage;
  • Growth of alternate asset class; and
  • Rapid expansion of Distributed Energy Resources markets.

From an existing building perspective, building owners/managers replace their energy assets as they reach end of life. They don’t simply replace them because new technologies come along, but the speed to which these factors are affecting decisions mean that a year-long decision to replace boilers and chillers and use them for the next 20 years could adversely affect the buildings competitiveness and value immediately. This is leading to strategy and decision hesitations and a mismatch in competency to make those decisions.

From a new build perspective, developers/builders design and install equipment largely based on ownership post-build. If the developer is selling assets and walking away, then history indicates that the choices for installed equipment is based more on a low-cost basis rather than the longer term value in operational efficiencies and deliverables. If the developer is retaining equity in the project, then increasingly investment decisions are being made through the lens of best net present value over the life of the investments.

These factors further exacerbate the challenges by including different decision makers by nature of the issue. Some issues incorporate long term ESG (environmental, social, and governance) objectives, strategies and policies, while some are capital expenditure decisions, and some are operational issues.

These issues are affecting value of buildings, today, and that’s without the impact of how they will transform in a post-pandemic environment.

UPI begins to fill out the partnerships, technologies, and approaches to building out and scaling the Energy Resources group.

 

Market Size

The market is made up of different and overlapping segments. Microgrid, while being a more utility industry terminology, is more focused on providing electricity resiliency on-site.

The global microgrid market size is expected to reach USD 61.18 Billion in 2027 at a CAGR of 10.5%, according to a current analysis by Emergen Research. Growing urbanization and increasing need for electricity and power have boosted demand for clean and renewable sources of energy and are expected to drive market revenue growth over the forecast. In addition, rising government initiatives to minimize carbon emissions and footprint and reduce dependency on fossil-fuel based power generation is another key factor expected to contribute to revenue growth of the market.[i]

The global thermal energy storage market size was valued at USD 4.38 billion in 2019 and is projected to grow at a compound annual growth rate (CAGR) of 12.6% from 2020 to 2027. Shifting preference towards renewable energy generation, including concentrated solar power, and rising demand for thermal energy storage (TES) systems in HVAC are among the key factors propelling the industry growth. Growing need for enhanced energy efficiency, coupled with continuing energy utilization efforts, will positively influence the thermal energy storage demand. For instance, in September 2018, the Canadian government updated a financial incentive plan “Commercial Energy Conservation and Efficiency Program” that offers USD 15,000 worth rebates for commercial sector energy upgrades.[ii]

Home construction and maintenance will also undergo extensive disruption. Americans spend $340 billion a year on home improvement and remodeling, with the HVAC market projected to reach $251 billion by 2023. Annual construction in the US is valued at $1.3 trillion.[iii]

Alternative investments have moved from the periphery of the global investment landscape into the mainstream. In just 15 years, alts grew from 6% to 12% or $13.4 trillion of the global market in 2018, and they are expected to grow between 18-24% by 2025.[iv]

 

The Opportunity

Each factor brings a number of approaches and solutions to resolve their impact, and UPI has generated solutions around each factor and bundled them to become the Trusted Advisor to developers, buildings owners and managers.

In practice is means that UPI gets involved with developers, owners and managers earlier in the discussions around investment approach before the damage is done and they hire general contractors and/or engineering firms that live of this old paradigm of delivering energy to end-users.

What is new in the UPI approach to generate these opportunities:

  • Generating partnerships to conceptually design energy projects earlier in the process;
  • Including key game-changing products/equipment to create a barrier to entry to competitors;
  • Securing strategic positions on sites by funding needs assessments, options analyses and developing project pro forma;
  • Mitigating risk by generating go/no-go investment decisions;
  • Drafting and securing the long-term energy delivery agreements;
  • Controlling the downstream choices in vendors and suppliers; and
  • Utilizing existing internal resources to de-risk execution and maintain quality controls.

In practice, it means that UPI is developing the capabilities to develop and invest in unregulated energy assets on customer’s sites where the integrated outcome is lower total costs and risks for customers going forward.

 

Flavours?

This shift to the new energy paradigm is happening, but one of its risks is to appreciate that there are no standard flavours for types of commercial agreement structures and terms, as of yet. While there are financial advantages in building behind the meter assets for customers, the dust has not settled on the value premiums around risk for either supplier and customer. Quite simply, when the customer is only interested in the lowest risk outcome, they tend to pay more in premium for the risk, and vice versa.

As this model evolves and matures over the coming years, we anticipate greater clarity on levels of acceptable risk by customers and suppliers thus reducing over costs.

What is the value to Developers, Building Owners and Managers?

UPI is delivering healthy buildings, and healthy buildings are more than just the health of the air and the individuals in the buildings, it’s also about using the least amount of green and clean energy and monetizing it when the market needs the energy more. The building’s resilience and sustainability are critical to delivering a healthy building.

As technology and investment decisions become more complex for developers, owners and/or managers, the outcome present themselves in the overall value of the building and properties. Making an investment decision today has a direct impact on the value of the building and property until the end of life of that investment.

Value for the developers, owners and managers is mainly about improved value of the building and land for either divestiture or securing more debt. In addition, they have the value of converting greater resilience and future energy cost risk mitigation into more and sustained customers/tenant stickiness.

 

How does UPI win?

UPI provides the following with respect to optimized energy assets to customers:

  • Increased revenue in design, build of energy and HVAC controls and mechanical projects (new build and retrofit);
  • Increased revenue in ongoing energy and HVAC controls and mechanical services;
  • Increased revenue from equipment sales;
  • New revenue from financing and/or owing energy and HVAC assets;
  • Larger and longer revenue streams tied to assets;
  • Greater ability to manage customer future spend; and
  • Greatly improved mix of assets on balance sheet.

 

How do UPI shareholders win?

There are a number of ways in UPI shareholders win from the approach:

  • Deployment of cash in energy and HVAC assets is accretive;
  • Growing mix of assets with long-term contracts improves valuation of business by Xs of earnings;
  • Ability to generate dividends from deployed assets; and
  • Attractive to institutional investors.

 

Next steps?

UPI has been building out a number of areas to support the existing business lines. Over the last several months, UPI has been building out areas, including:

  • Indoor Air Quality
  • Building Performance
  • Building Automation Systems
  • Mechanical

Now, UPI is growing out its Energy Resources group through strategic partnerships for assessing opportunities, technology, funding strategies and investment/acquisition opportunities.

Over the coming days, weeks and months, UPI will be filling in the components to deliver greater value in Energy Resources and revenues to other parts of the business.

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[i] https://www.globenewswire.com/news-release/2021/06/08/2243899/0/en/Microgrid-Market-Size-to-Reach-USD-61-18-Billion-in-2027-North-America-Region-Dominated-the-Market-for-Microgrid-in-2019-with-a-Share-of-38-5-says-Emergen-Research.html

[ii] https://www.grandviewresearch.com/industry-analysis/thermal-energy-storage-market

[iii] https://www.nfx.com/post/proptech-massive-opportunity/

[iv] https://www.caisgroup.com/editorial-why-alternatives