What’s going on with the Small and Midsize commercial energy efficiency market, anyway?

Even though technologies are well-established and value propositions are compelling, the adoption rate of commercial energy efficiency remains low. As shown on in the figure to the left, the vast majority of US buildings built before 2008 still utilize the same energy equipment they did on the day that they opened. Among the most popular energy efficient upgrades, not one vertical could boast a penetration rate of more than 21%. In fact, this same study also found that an astonishing 61.2% of all buildings 50,000 square feet (sqft) and smaller built before 2008 have never been renovated or improved in any way. Not only is this equipment assuredly grossly inefficient, it will have undoubtedly suffered major degradation through the decades.

The American Council for an Energy-Efficient Economy (ACEEE) lists the primary reason for this stagnant market is money. Up-front costs and the lack of well-aligned financial solutions have doomed the market.

Regarding up-front costs, entities have only so much cash available for capital projects and energy efficient upgrades routinely have not been deemed a priority. In a study of small and midsize entities, only .35% of business owners said they planned to use their available cash to “Be proactive” – the category that includes energy efficiency. This has even been in the case of failing machines well past their useful lives; building owners have preferred to pay the high and increasingly frequent service costs just to avoid the up-front capital expense of replacement. Ultimately, with limited capital insufficient for all of a business’s needs, building owners are opting to not replace items that can kept in a current suboptimal state for a fraction of the up-front cost.

While there are financing structures available to small and midsize entities that do not require up-front payment, all of the current options have substantial drawbacks. Leases, loans, and lines of credit all carry with them substantial sales friction points like time-consuming underwriting, personal guarantees, and/or a negative affect on the customer’s ability to borrow money for other projects and priorities. The most attractive solutions, specifically, those that do not affect the customer’s borrowing ability, do exist in the market; however, the high costs to underwrite customers have limited third-party ownership structures to buildings larger than 50,000 sqft and often above 250,000 sqft. Yet the market below 50,000 sqft represents 93.9% of the commercial buildings in the United States. In other words, the major players in our industry like Johnson Controls, Siemens, and Honeywell neglect 19 of every 20 commercial buildings in the US.

The only way that we can begin to address this major issue in our market is by providing a scalable, well-aligned financial solution to these small organizations. This is why EMPEQ exists: to provide a simple, swift, and safe financial solution to the small and midsize commercial market. Our proprietary Empower Visibility platform trims time and effort from the process by evaluating 81% of customers with just their corporate name and address. And EMPEQ’s UnFinancing program is a no-money down solution that never requires personal guarantees and does not affect a customer’s ability to borrow capital for other priorities.

At EMPEQ, we believe strongly in the power of energy efficiency. And it is clear to us that animation of the financial marketplace to bridge the most important gap for this currently dormant section of the market is an important first battle in the critical war of the next fifty years: the fight against climate change.

1 – https://www.eia.gov/consumption/commercial/data/2012/bc/cfm/b6.php; Retrieved November 8, 2018. And EMPEQ calculation of the data therein

2 – Ibid, and EMPEQ calculation of the data therein.

3 – https://aceee.org/topics/energy-efficiency-financing; Retrieved November 8, 2018

4 – “2015 Business Funding Survey: SMEs”, British Business Bank, Feb 2016. And EMPEQ calculation of the data therein

5 – https://www.eia.gov/consumption/commercial/data/2012/bc/cfm/b6.php; Retrieved November 8, 2018.