Buildings 4Q Published. Presidentt

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1 EXECUTIVE SUMMARY: Building Energy Enabling Systems for Energy Efficiency, Demand Response, Energy Management, and Facility Automa tion in Commercial Buildings NOTE: This document is a free excerpt of a larger research report. If you are interested in purchasing the full report, please contact Pike Research at sales@pikeresearch.com Published 4Q Jevan P. Foxx Industry Analystt Clint Wheelockk Presidentt

2 Section 1 EXECUTIVE SUMMARY 1.1 BEMS Overview A number of companies are entering the energy management space and others are converging into the market. Historically, building management systems (BMS) players such as Honeywell, Johnson Controls, and Siemens have dominated the energy management market for commercial buildings. However, newer, more nimble players such as EnerNOC (converging) and BuildingIQ (new entrant) are beginningg to define a new market and increase market revenue. A building energy management system (BEMS) is similar to a BMS, yet is specifically focused on energy efficiency optimization andd energy management. While a BMS does have energy management aspects, it also includes the monitoring of fire systemss and security systems among other building and mechanical controls. In contrast, BEMS are brought to market by vendors that solely focus on energy efficiency and energy management as their means to penetrate customer channels. Notable are firms like Verisae that will, after providing energy management, focus on existing customer channels to provide asset or carbon management applications. A BEMS is based on IT hardware and software. The three components of a BEMS are: Building automation and control Energy efficiency technologies and systems Demand response systems For very large commercial and institutional campuses, such a system may include thousands of controls, multiple networks, multiple applications, and internal and external support services. There are many drivers for implementing a BEMS in commercial buildings that have an existing BMS. For example, a BEMS can also: Analyze weather data Analyze energy usage Enter in i energy demand and cost curves Pull BMS data Pull data from meters 1

3 1.1.1 Passive and Active BEMS Two types of BEMS are in the market today: passive and active. Passive BEMS will read both weather and meter information, and thenn report past energy usage. These systems are great for smaller buildings and can be employed in buildings without a BMS quickly and cheaply. Less sophisticated end users cann look to vendors like MACH Energy that specifically serve office buildings and focus on consolidating and organizing data on the flow of electricity into office buildings. A passive BEMS does not interface with every sensor in the building for several reasons, none more important than striving to keep costs down and not producing overly complex algorithms to increase predictability. The passivity of thesee BEMS is exemplified by the daily reporting and minimal inputs/outputs. Active BEMS operate at a level of higher intelligence and automation. Beyond accomplishing all of the inputs and outputss of the passive BEMS, active BEMS will interfacee with a commercial building s BMS sensors, meters, and submeters. The BEMS will actively read BMS sensors and subsequently control real-time data. Additionally, the BEMS will enter in a growing list of inputs such as building characteristics, demand response (DR) signals, utility incentives, determined inhabitant comfort levels, and more. 1.2 Commercial Buildings This report focuses specifically on the commercial buildings space, whichh includes: Office Institutional Retail Warehouse/Storagee Other Pike Research examines BEMS implementation tactics via several segments, including building age, building size in square feet (SF), and building profile (use). In terms of building age, due to the increasing number of buildings 20 years old and older that need to becomee more energy efficient, this is a market that will continue to grow for the foreseeable future. Improving energy efficiency in commercial buildings via advanced diagnostics, applications that monitor and adjust energy usage based on usage patterns, and overall automation are all products and solutions that are seeing sustained growth across a broad range of building types and uses. Regarding building size, many large commercial buildings already have a BMS installed. Yet, similar to the metering community, they will need to upgrade or purchase a new one soon. These large buildings that are greaterr than 500,000 SF now have the option of selecting a BEMS to upgrade their BMS. Thiss option provides a multitude of advantages. For example, if the end user selects a BEMSS vendor to manage its portfolio, the BEMS vendor can seamlessly integrate with any BMS, as it is technology-agnostic. As such, the vendor can combine several buildings in one portfolio, even if each building has a different BMS. This capability is very attractive to endd users, since the majority will have several buildings with a Honeywell BMS, others withh a Schneider BMS, and yet others with a Johnsonn Controls or Siemens BMS. The BEMS vendors bring in a lighter, less capital- intensivee offering that will enhancee the productivity of an existing BMS. 2

4 In terms of building profile, Pike Research dissects the commercial building so as to provide clear insight into where energy is beingg used most and what technologies can help reduce these problem areas. Based on statistics gathered by the U.S. Department of Energy (DOE), 57% of the energy consumed in a commercial building is used for heating, cooling, ventilation, and lighting. Of that, the largest single portion, approximately 25%, is for lighting. Cooling uses approximately 13% %, heating 12%, and ventilation 7%. Other large energy uses in a commercial building include electronics (7%) and computers (4%). These data points highlight the need for vendors to provide a means to optimize HVAC efficiency and provide an automated, more efficient lighting system. Until recently, the response from most commercial building owners and tenants was that this energy consumption was a cost of doing business a fixed cost that not much could be done about. However, there have been three significantt changes in the market that are acting as clear drivers for energy efficiency andd energy management: a shift in thinking, IT systemss and software ubiquity, and shifts in government policies A Shift in Thinking A shift in i thinking at the end-user level has served as a primary underlying cause for a change in perspective from energy as an unavoidable cost of doing business to energy as an asset to be managed. Businesses paying attention to profit margins increased by energy management, demand response, and carbon accounting have impacted this shift in thinking. Additionally, the overall shift in thinking regarding energy efficiency, and equating a saved kilowatt (kw) to a generated kw will increase revenues in the BEMS market. IT Systems and Software Ubiquity As IT systems and software become more ubiquitous, they are growing to become a larger and larger part of building and energy management systems. The application of information technologies to building and energy management is becoming more prevalent every day, which is enticing large IT conglomerates to enter the BEMS and building automation space. IT systems and software can be used to: Embed intelligence at the controller level Connect a multitude of devices via an IP network Monitor, track, and manage equipment and energy usage via smart meters and systems Monitor and control equipment and systems remotely Moreover, the investments and technologies being implemented to make the United States electricity grid smart are inevitably moving the building automation industry forward. Historically, the BMS would internally manage and automate a commercial building, detached from any type of grid network. Moving forward, BEMS vendors are creating technology to not only enhance internal automation and energy management capabilities, but also produce applications that will ultimately connect the commercial building to the smart grid. In this model, the building will be able to converse with the utilities and grid operators so as to reduce peak load in times of need the crux of demand response. Furthermore, this technology will enable dynamic pricing structures so that the building, in theory, only uses energy when it is cheapest, and can also sell energy back to the grid as needed to increasee profit margins and grid stability. 3

5 1.2.3 Shifts in Government Policies There have been shifts in government policies.. These policies range from state- and local- level building codes such as California s Titlee 24, Part 6 to federal-level legislation and policies like the Energy Independence and Security Act of 2007 and the American Reinvestment and Recovery Act of 2009 (ARRA). The role of policies is having a significant effect on the market. Such policies mandate the adoption of certain levels of energy efficiency for buildings and equipment, technologies like cool roofs, and reporting requirements in the marketplace. In addition, they mandate government investment in the research and development of technologies. These shifts in thinking and other associated factors have been the key components of the creation of a new energy management systems market (i.e., BEMS) for the commercial building vertical. In the truest sense, this iss not a completely new market. Rather, it represents an evolution from the older building management systems market that has been heavily impacted by the growth and influencee of IT systems and technologies against a social and economicc push for a more sustainable business model. Together, these two complementary dynamics have allowed businesses and commercial building owners and managers to better understand and manage the energy usage of a building. In addition, they have encouraged the creation of new technologies, new software, and a new market to assist commercial building owners in increasing energy efficiency and reducing the energy load l of their buildings through demand response technologies. 1.3 BEMS and Demand Response Pike Research believes that DR will becomee an application within a company s energy efficiency (EE) suite. The current DR market is highly fragmented and is gaining attention from a myriad of players in adjacent markets and largerr energy efficiency companies. Firms in adjacent markets are already touching customers who demandd energy efficiency products, solutions, and services and can capitalize on existing customer relationships. Our analysis indicates that that advancedd BEMS are inextricably linked to DR. Furthermore, Pike Research believes that end users with less sophisticated BEMS that do not provide DR capabilities as well as BMSS and energy service companies (ESCOs) will increasingly be attracted to DR because it is an energy efficiency measure they can provide in their turnkey building efficiency plan. The realization of the commercial DR market potential will be driven by economies of scale, making larger projects more attractive. At its essence, demand response represents a convergencee of IT with energy management. As the industry continues to move toward the automation of DR (AutoDR), Pike Research believes that telecommunications and networking companies will increasingly strive to have a play in the energy efficiency industry. 4

6 1.4 BEMS Market Forecast Pike Research has created three different forecast scenarios for the BEMS market, each containing a number of different assumptionss for key variables. The energy efficiency sector will see huge growth in the next decade, as governments, legislative bodies, and end-users continue to appreciate the value of decreasing energy demand. Further, energy efficiency proponents will provide measurement and verification (M&V) data to show a more attractive ROI than renewables. As the technology matures and the energy efficiency story takes shape, we believe the revenue opportunity is significant. Chart 1.11 Total BEMS Revenue Forecast, Base and Average Scenarios, United States: $2,500,000,,000 $2,000,000,,000 Base Average ($) $1,500,000,,000 $1,000,000,,000 $500,000,,000 $ (Source: Pike Research) 5

7 Section 7 TABLE OF CONTENTS Section Executivee Summary BEMS Overview Passive and Active BEMS Commercial Buildings A Shift in Thinking IT Systems and Software Ubiquity Shifts in Government Policies BEMS and Demand Response BEMS Market Forecast... 5 Section Market Issues Definition of a Commercial Building Commercial Buildings: Energy Usage Commercial Buildings in the United States Office Space Education Retail Healthcare Energy Usage in Commercial Buildings by Component Energy Usage by Commercial Building Activity Estimated Energy Costs for Commercial Buildings Drivers for Improving Building Energy Efficiency The Perceived Cost of Energy and Its Impact Energy as a Cost of Doing Business The Perception of the Rising Cost of Energy Shifting Perspective Energy as an Asset Triple Bottom Line Market Drivers Low Cost and Ease of Implementation Limited Capital Budgets Lending Legislative, Regulatory, and Other Drivers End-User Bottom-Line Corporate Sustainability State-Level Regulation and Building Codess Building Codes and Energy Efficiency California Title 24, Part Federal Legislative Efforts Energy Independence and Security Act of American Reinvestment and Recovery Act of EPA s Energy Star Program Market Barriers Lack of Information Split Incentive Alternative Options Large, Traditional IT Market Entrants

8 2.6 Methods for Improving Building Energy Efficiency Appliances and Equipment Current Levels of Adoption of Energy Efficiency Efforts Definition of Energy Management Definition of a Building Energy Management System Energy Efficiency and Demand Response Improved Energy Efficiency Demand Responsee Drivers for Demand Responsee Commercial Market Drivers for Demand Response Growing Demand for Energy and Demand Response Low Cost to Implement Demand Responsee Components of a Building Energy Management System Hardware Software Corresponding Services Other Aspects of Energy Management Energy Procurement Section Key Industry Players The Competitive Landscape Hardware Vendors Software/Application Vendors Service Vendors Energy Service Companies Multi-Product and Multi-Channel Vendors Profiles of Key Market Players Archibus Architectural Energy Corporation Autodesk BuildingIQ Cimetrics Cisco Comverge Cypress Envirosystems Eaton Echelon EnerNOC GridPoint Honeywell IBM Johnson Controls MACH Energy Pulse Energy Schneider Electric Scientific Conservation Trane Verisae Viridity Energy Section Market Forecasts Methodology Total Number of Buildings by Square Foot Buildings by Annual Energy Expenditure

9 4.4 Buildings by Age Potential Revenue in Defined Market Verticals Base Scenario Average Scenario Aggressive Scenario to to Section Company Directory Section Acronym and Abbreviation List Section Table of Contents Section Table of Charts and Figures Section Scope of Study Sources and Methodology Notes

10 Section 8 TABLE OF CHARTS AND FIGURES Chart 1.1 Chart 2.1 Chart 2.2 Chart 2.3 Chart 2.4 Chart 2.5 Chart 2.6 Chart 2.7 Chart 2.8 Chart 2.9 Total BEMS Revenue Forecast, Base and Average Scenarios, United States: Commercial Buildings by Use Type, United States: Energy Usage in Commercial Buildings, United States: Energy Usage by Commercial Building Activity, United States: Energy Usage by Commercial Building Activity, United States: Estimated Energy Costs by Commercial Buildingg Activity, United States: Average Electricity Price per kwh Including Taxes, United States: Retail Gasoline Prices (Regular), United States: September 1990 to March Primary Energy Consumption, United States: Percentage of Commercial Buildings with Energy Efficiency Efforts in Place, United States: Chart 4.1 Total Number of Buildings by Square Feet, United States: Chart 4.2 Annual Building Energy Expenditures by Squaree Feet, United States... Chart 4.3 Number of Buildings by Size, United States... Chart 4.4 Commercial Building Aging Infrastructure... Chart 4.5 Potential Energy Savings by Size of Building, United States... Chart 4.6 Total Annual Energy Expenditures in Commercial Buildings... Chart 4.7 BEMS Revenue Forecast by Vertical Market, Base Scenario: : Chart 4.8 BEMS Revenue Forecast by Vertical Market, Average Scenario: Chart 4.9 BEMS Revenue Forecast by Vertical Market, Aggressive Scenario: Chart 4.10 Total BEMS Potential Market Revenue Forecast, Base and Average Scenarios, United States: Chart 4.11 Accumulated Square Feet by Building Size Segmentation, United States: Chart 4.12 Total BEMS Potential Market Revenue Forecast, All Scenarios, United States: Figure 2.1 Progression toward the DOE s Net-Zero Energy y Building Goal Figure 2.22 and Demand Response... Levels of Energy Management 30 Table 3.1 Archibus SWOT Analysis Table 3.2 Architectural Energy Corporation SWOT Analysis Table 3.3 Autodesk SWOT Analysis Table 3.4 BuildingIQ SWOT Analysis Table 3.5 Cimetrics SWOT Analysis Table 3.6 Cisco SWOT Analysiss Table 3.7 Comverge SWOT Analysis Table 3.8 Cypress Envirosystems SWOT Analysis Table 3.9 Eaton SWOT Analysiss Table 3.10 Echelon SWOT Analysis Table 3.11 EnerNOC SWOT Analysis Table 3.12 GridPoint SWOT Analysis Table Honeywell SWOT Analysis Table 3.14 IBM SWOT Analysis Table 3.15 Johnson Controls SWOT Analysis

11 Table 3.16 MACH Energy SWOT Analysis Table 3.17 Pulse Energy SWOT Analysis Table 3.18 Schneider Electric SWOT Analysis Table 3.19 Scientificc Conservationn SWOT Analysis Table 3.20 Trane SWOT Analysiss Table 3.21 Verisae SWOT Analysis Table Viridity Energy SWOT Analysis

12 Section 9 SCOPE OF STUDY Pike Research has prepared this report to provide participants in the BEMS market, including BMS vendors, HVAC equipment vendors, HVAC optimization companies,, investors, energy efficiency companies, commercial building owners, curtailment servicee providers, electric utilities, regulators, and other interested groups, with a study of the current and potential market for BEMS. The report includes discussion of the major drivers and barriers for multiple BEMSS business models and technologies and the current and future state of the market. In addition, Pike Research provides a strategic analysis of the BEMS market based on legislative and regulatory developments. The report s purpose is not to provide an exhaustive technical assessment of BEMS, BMS, IT, HVAC, or any other technology covered, but rather, a strategic examination from an overall business perspective. Pike Research focuses on the United States and provides several different BEMS market forecast scenarioss based on the players and factors listed above. Thee forecast period extends through SOURCES AND METHODOLOGY Pike Research s industry analysts utilize a variety of research sources in preparing Research Reports. The key component of Pike Research s analysis is primary research gained from phone and in-person interviews with industry leaders, including executives, engineers, and marketing professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the value chain, including but not limited to technology companies, utilities and other service providers, industry associations, government agencies, and the investment community. Additional analysis includes secondary research conducted by Pike Research s analysts and the firm s staff of research assistants. Where applicable, all secondary research sources are appropriately cited within this report. These primary and secondary research sources, combinedd with the analyst s industry expertise, are synthesized into the qualitative and quantitative analysis presented in Pike Research s reports. Great care is taken in making sure that all analysis is well supported by facts, but where the facts are unknown and assumptions must be made, analysts document their assumptions and are prepared to explain their methodology, both within the body of a report and in direct conversations with clients. Pike Research is an independent market research firm whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. The firm is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets. 76

13 N NOTES CAGR refers to compound average annual growth rate, usingg the formula: CAGR = (End Year Value Start Year Value) (1/steps) 1. CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well. Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unlesss otherwise noted. All values are expressed in year 2010 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding. 77

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