Putting it together

Over the last week or two we had a shift in our frame of reference about our primary customer. Although our vision, to enable wider use of 3rd party ownership models in the renewable energy market, has not changed. We were working with the assumption that investors were not interested in making  these types of investment and we therefore needed to show evidence, through the data we have collected, that the investments were worthwhile. The subtle shift in thinking after our many interviews, is that investors were not opposed to the opportunity, however they lacked consistent ways to value the investment. In essence this was a switch from thinking of our target group of customers (the investors) from being an opponent to being an ally (which is also convenient, recognizing that somewhere in this space one of them may be our exit strategy).

To capture this we re-defined EnergyWise Partners value proposition as: “We are a financial services infrastructure company that enables investors to source, manage and value renewable energy projects”. We spent a few hours flowing that back to the EnergyWise Website ( http://www.ewpllc.com ) and present a more coherent picture of that value proposition and how it ties together our 3 different customer “personalities”:

The “My eWise” brand ( http://www.myewise.com ) for performance data monitoring hardware and software (customer: for installers).

The “BluePrint Zero” ( http://www.bpzero.com ) brand, which was our self-invested fund to explore a marketing and sales approach to utility style 3rd party ownership of renewable assets (customer: for consumers)

And “CEARRAS” our developed portfolio management platform ( http://www.cearras.com ) that turns data into information for decision making (customer: for asset managers and investors)

We will continue to refine these sites as well as the EnergyWise site as we talk to each of the relevant customer segments.

While I am in 7 step mode: We should probably also mention “The Open Thermal Project” and our use of OpenThermal.org and OpenThermal.net. These are outgrowth of our marketing work with regional geothermal associations, supported work for different states and OEM supply of our monitoring solution. Each of these groups get sub-domains of openthermal.net as a way to preserve anonymity from a commercial organization. We will use Openthermal.org in the future to create a focus for collaboration and top level information sharing.

So, as we work through our set of meetings and presentations over the next few weeks, this will be the living framework that guides our thinking. 

Establishing a beachhead in Toronto

We spent the last weekend 21st/22nd in Toronto, doing training installs of our My eWise monitoring system with a geothermal company. We assisted in installing 6 systems found at http://www.groundheatems.com/

And they add to our performance database map at http://www.myewise.com/Neighborhood.html (click the map tab).

The importance of this…our first distributor and also our first white label product. Their target, 500 geothermal monitoring systems for 2013 (aggressive perhaps) . They are just starting to drill geothermal wells for a development of 200 homes…..and they have just purchased a company in Vancouver.  The importance is recurring revenue $2 per month per system, so maybe “Big oaks from little acorns grow” would be a better title for the post. But in addition this company is collecting data for the same twist in ownership of our target customer, they are looking for investors to own the thermal energy assets as a way to promote adoption.

We have started talking with another distributor about private labeling for sales in the US. Someone we met through the customer discovery we have been doing in this launchpad process. We consider the sale and installs of monitoring systems as something of our Trojan Horse. Installers place them into their customers homes and derive some benefit, marketing sales and post sales support improvements…. we gain more than just the markup on the product  however we gain access to the performance data-stream, which we hypothesize  is very monetizable to our customers (think of energy assets as  securitized products, or the database as  actuarial data repository).

Our business plan shows revenue from monitoring hardware sales for a while, seems like a good thing therefore, as long as it does not distract us from the higher leverage products.

Another funding opportunity

When I was doing my “financing of renewables” presentation at the Maryland Energy Authority last month, the MEA program manager mentioned they were looking for “Game Changer Proposals”…..specifically looking at how to accelerate adoption of renewables that they were targeting. Due date was 12:00pm on April 22nd….we achieved 11:57pm on the 22nd.

MEA is a lean organization compared to some states, so there should be a quick turnaround. Hopefully we articulated some benefits that they were looking for. We see most states as needing objective data in some way to reduce the influence of “Forcefully Expressed Opinion” either good or bad. SO our proposal was generally around collecting data to give legislators some information.

Interestingly everyone seems to be interested in collecting data. On 9th April NREL (National Renewable Energy Labs) launched an initiative to develop a performance database for solar electric systems under a DOE grant. Their press release said

As part of DOE’s SunShot Initiative, the Open Solar Performance and Reliability Clearinghouse (O-SPaRC) will give the private market tools to develop investment vehicles to tap low-cost public capital.
“The O-SPaRC dataset will provide the market with critical data on the long-term performance of residential and commercial solar facilities,” NREL Senior Financial Analyst Michael Mendelsohn said. “This is an important step to tapping the public capital markets and offers the potential to significantly lower the cost of solar energy.”
O-SPaRC will improve access to capital by enabling credit rating agencies and potential investors to assess the underlying risk of the asset class. It will also give the private market the tools to develop investment vehicles such as asset-backed securities, master limited partnerships, real estate investment trusts, and various debt products.

Maybe the DOE and the State organizations are a couple of years behind in their appreciation of thermal energy.  But the press release gives us some very nice positioning words for the CEARRAS portfolio management platform. Which we have quietly populated with performance data for a couple of years on the small scale….. and if you replace the word “open solar” with “openthermal” in the press release…… (hint we collect our data at http://www.openthermal.net  and also; see an old MVP for the “OpenThermal Project”at http://www.openthermal .org, which we ran around for a couple of months to gauge interest in a collaborative initiative).

But everyone knows the game now is reducing the cost of capital and transitioning renewables into the “Utility” style structures that finance traditional energy, or for that matter any other high capital  assets, since the days Egyptians leased oxen to plow fields every spring.

 

Cearras portfolio management software

A quick website structure for collecting information and pointing people toward to describe the “portfolio management application” http://www.cearras.com/

CEARRAS: If it needs a meaning beyond a reasonably pronounceable name then CE = Clean Energy and ARRAS = tapestry or weave/web or as the anthropologists I used to work with said “operation within a rich social tapestry”.

So we have published a website…even a couple of position papers in the news room, we’ll write one on the PMS soon for a handout….now all we do is sit back and wait for people to find us….. no better we work on list of customers to talk with.

Strategy and Customer Meeting

We spent a useful time trapped in a car going to Canada to talk about strategy. Our conclusion centered around where we are today and our ability to balance the sides of our platform.
We agreed we still see the far view as managing energy assets (we want to be a bank or a hedge fund or an insurance company what ever the right analogy is)….. with a revenue model of taking 2% of assets under management.
Our conclusion was we were still trapped in the chicken and egg for financing, money would be too expensive for us. We could allocate $30,000 like we did at the end of 2012, but that would be only useful if we could then go and get relatively cheep money to fund the next assets (on there own they would not make a very interesting bank). Our introduction of crowd funding, like Mosaic, where people are interested in the “greenness” of the assets and therefore would accept lower returns might be reasonable or it could be a seemingly easy response to Mr. Glaser’s observation that we need to validate by talking to the financial customer segment.
Also Eric had feedback from the financial member of our board of advisers. Basically he confirmed returns would have to be higher for normal investors at this stage of the business. He offered some alternatives however such as looking for a strategic investor…Someone whose business depended on the technology that our platform delivered and would be willing to buy a “licence” to it or partner with us. There were two attempts by companies to do this at the end of last year, people suggesting money in exchange for %age ownership. Neither panned out, but this could be a direction. So we think we have another interim strategic step to make before we get to our end game.
Our strategy session ended with whiskey (they did not have Bourbon in the hotel bar…. consequence of Canadian heritage?, which I would have preferred), and a list of potential customers who might need our platform because they have the asset deployment resources and the funds, but not the infrastructure.
Today:
Met with the CFO of a company evolving from being a distributor, who has negotiated between 8 and 9 figure funding to do what we have been talking about….. but has been looking for a way to implement. CFO’s background was in Hedge funds……remarked that he though we might have something to say when he read our company logo which says “portfolio management”. This observation actually reduces our customer segment to one and provides a practical test… our customer segment are the people who resonate with the words “portfolio management”, if they don’t we just sell them a monitoring system and move on.
Working with this type of customer will be a great step 3 in our evolution, we will be the infrastructure, the SAP of this emerging business/revenue model…which has been referred to as the acronym BTU (Be The Utility).

BioMass conference

As part of our core competency the measurement of thermal energy at a price point below current industry capability, I am on the EPA sponsored ASTM working committee for heat meter standards. We did a face to face at the BiMass conference in Saratoga Springs, NY.

Why of interest to us: BioMass boilers (fancy name mostly for wood pellets….yes wood is defined as a renewable fuel source) are used in Europe for district heating systems. Big push by European companies to enter the “underdeveloped” american market.
BioMass boilers themselves are not interesting to us, they measure heat output by weighing the truck going in and weighing it coming out and dividing by approximate moisture content. They target the MUSH market (Museums, Universities, Schools and Hospitals). However district heating is very much of interest to us as a provider of infrastructure services (aggregating consumption and creating bills for usage and service models etc.). One of the companies who approaches us last year for equity share was directly in similar district/community heating projects.

New Hampshire yesterday passed bill in house to define district heating to be outside control of Public Service Commission, therefore not regulated and opening up market to companies intent on making big profits. Talked with group responsible for the bill at ASTM meeting, who are looking at an initial 400 home development question: do we make money in this market, do we have a chance to get to the plate.

Also yesterday: Maryland deployed their application process for thermal RECS (renewable energy credits). This is the first state in which a homeowner will get $’s for operating a heating system that offsets carbon production with a renewable heating system. RECS are traded by utilities against their %age targets for clean energy production…otherwise they get tax implications. Thermal RECS are currently about $2.00 in Maryland so a homeowner might make about $40.00 a year…..its the principle at the moment but if RECS get to the $120.00 value the same as Solar credits do in some states then becomes interesting.

Too Many Customer Segments

So….. as Eric and I were reviewing our canvas on Tuesday morning. We were thinking that we had too many customers, and consequently too many value propositions or vice-versa. In one way a nice problem to have. But one of the hopes for us from the program was to be able to triage strategic direction….as we have been talking with our customer segments we are basically getting positive feedback from each, may be we are asking safe questions that we already know the answers to (optimizing a local maxima) visualize being in the middle of a crown of hockey-sticks (the entrepreneurship financial projection chart).
Anyway we decided to take two days and see if we could pull the things together and calm down the canvas. After we had finished the discussion we saw Martins blog on focus (great minds… or fools rarely differ).
See next blog

Marching through march (2)

Met with a local installer and elaborated on our MVP for service plans. Confirmed that this was an interesting idea, that he had though about but had been too busy to implement. We had developed an breakdown of options and he took that away to give us feedback on what he would like to see in a service plan. We’ll get back together with him in a few days.

Also telephone conversation with a ground loop installer in CO, who we have been corresponding with on the concept of loop financing. He has been developing legislation in CO to enable these options and setting up his own company. Maybe he would ultimately be a competitor, or we can provide infrastructure for him to operate this kind of business structure. He saw the key barriers as “Deal Flow”, somewhat similar to our conclusion about chicken and eggness, 3rd party funding is available in larger chunks so it is a matter of finding a way to deploy the first assets in larger increments, either through commercial projects or multifamily buildings. But regarding this observation a company set up in NH to offer Thermal Power Contracts for commercial geothermal systems >$500K (with a fund of $700M available to them) presented at the Maryland Energy Association on monday…their conclusion was they renamed earlier this year and refocused by the investors to go after the commercial solar electric market as well as geothermal (interpretation: they were not deploying funds fast enough).

(See “The Nod”). After working through our discovery questions with a distributor. receiving mostly validation of hypothesis; their biggest challenge is throughput via small installers…… so they do training and other value added services for the installers to try and increase their ability to sell. Our financial tool would potentially be an interesting offering and would assist us in offering it to their customers (installers).

Marching through march

Busy week again. Monday started with presentation on financing model at the Maryland Energy Authority. Group contained several distributors, installers, engineers and agency people.
Presentation from Western Farmers Electric (OK) who generate power for Coop electric companies, showing their rationale behind utility ownership of geothermal ground loops and the targets to save 1 power station’s worth of energy (so they won’t have to build one). The scheme puts the ground loop in for free and the homeowner pays for the energy delivered….(the world is catching up with us). Adding the $’s benefit of demand reduction of the utility sweetens the whole financial diagram above simple reallocation of geothermal operational savings. Utilities have been one of the targets for our infrastructure. We have the basic capability to offer a turn key set of applications to enable a coop utilities to implement this kind of program. We had been thinking local but OK/NM sounds like a nice place at this time of year. More validation of the financing model, we have an initial contact with one of the coop’s and should do discovery with the WFE to see what we can learn for our infrastructure.
Also at the meeting, spoke with company entering the US market from Europe with private equity funding. They target supermarkets, who have larger cooling /heating loads with a similar financing model, upgrading the infrastructure and the supermarket pays for the energy from the system. Same do we go after commercial or residential?, but its another validation of the model.

The nod

Sometimes, when you test a hypothesis, you find out that you were completely wrong. Or, you find out that you were right about the outcome, but not the reasons. In both cases you learn something about the customer or the value chain and roll that into the next meeting. We’ve had some of that. We’ve also found lukewarm agreement – an acknowledgement that some part of our hypothesis was correct, but that it wasn’t really something they had though much about. No pain.

Still, we keep meeting customers. We had a large number of potential customer segments and value propositions on our canvas when we started, and we’re still going through the list. We met today with another of our segments – really another channel to get to end-users of energy – and learned more about their business. This wasn’t our first meeting in that segment, so we had a fairly clear hypothesis and some good validation questions prepared.

The meeting was going fine, but when we got to the core of what we were offering, we didn’t really get an immediate reaction. But then it happened – the guy running the show looked to his partner with a nod and said ‘go ahead’. We had just described their own plans to grow the market, and we could help them do it.

Thanks, Richard, for the introduction.