Market Analysis: Enterprise decarbonization analytics (for Real Estate) (EDA solutions)

We’d like to dig into a new solution category that is highly relevant and topical to our readers. This section won’t be monthly, but we do plan to share relevant market thoughts in subsequent issues.

We’re also starting to look more deeply into “enterprise-wide decarbonization roadmap analytics” solutions, or just ‘enterprise decarb analytics’. EDA tools are gaining steam due to (1) new regulations that push real estate assets to report on climate risks and take active steps to decarbonize, (2) increasingly serious investor expectations around real estate carbon emissions, and (3) general sentiment about the environment among clients, customers, partners and tenants. Overall, we see a wide range of solutions seeking to solve some or all of this broad use case. Today, we’re going to start with a summary of the market, as we see it today, as a kick off a range of interviews, analyses, and other newsletter insights about this growing and vital part of the digitization and decarbonization of real estate.

First, where do these solutions fit in the broader scheme of technology for real estate technology? They are a natural progression from the existing and well-adopted ESG reporting solutions that help to collect data, aggregate and audit it, and then automate reporting to various groups (such as GRESB). But, those solutions tend to just quantify a point in time - like a financial statement. They can answer questions such as “what is the carbon impact of my portfolio today?”, but, these solutions typically don’t provide a roadmap into the future to decrease emissions. That forward looking roadmap should include details on viable retrofit projects, timelines, and also estimated costs and benefits (energy savings, carbon reduction, etc).?

To do this type of analysis today typically requires an onsite audit, which isn’t scalable across a portfolio, or a software solution to augment or replace that effort. This is where these EDA tools fit. In general, these emerging offerings aim to provide the core analysis to identify the best sites to make capital improvements and chart out the carbon impact of those specific decisions. If you are thinking “capital planning with a net zero lens”, you are on the right track.?

Moreover, there are many different point offerings that may also contribute to such an analysis: from asset data tracking apps, which capture current information about energy-consuming assets on site (e.g., chillers), to procurement platforms that help streamline the selection of vendors to provide specific retrofits. At this point, there are some offerings that seek to automate and expedite the entire process, and there are others that seek to streamline specific points of friction and support existing services and vendors that already conduct these analyses.?

We’ve seen a number of companies launch in recent years to take advantage of these market developments. Specifically, we think there are a few discrete solution categories within enterprise decarb analytics: (not a complete list)

• Asset data: A key component of building a decarbonization plan is understanding the full picture of current energy consuming assets, and beginning to capture current state, direct impact on energy and carbon, and opportunities to upgrade. These solutions seek to capture some identifying information from critical assets and start providing a more complete picture of their status. These solutions can support many different use cases, as most facilities have fairly poor recordkeeping around assets (and it typically is paper-based and not standardized across the portfolio).
• Modeling/Analytics: An energy auditor, using tools such as EnergyPlus, can simulate energy usage in a building based on size, location, use case and details on the energy consuming equipment. This is a standard process, using a well-known software tool - but it is for a building (not a portfolio), requires some technical skill to run the model, and isn't cloud-based. The goal of this category is to make such analyses more self-service, for a portfolio (not a site) and drive more action around decarb investments and actions. Moreover, with various standards at different levels of a portfolio (Science Based Targets initiative down to NYC’s LL97), being able to track future compliance also is becoming a more important capability.
• Procurement support: Finding and vetting vendors to perform specific recommended projects also can be a long and burdensome process. We also are seeing more firms seek to simplify the vendor identification and selection process, though typically just for a single time of improvement (e.g., solar). Over time, these offerings will likely include a range of decarb projects (HVAC plus solar plus batteries plus TBD). And, we’ve also seen tools in this category that may provide some of the modeling/analysis capabilities listed above, but typically at a less sophisticated level.

While not an exhaustive list, these are three of the most exciting parts of enterprise decarb analytics - and where there is a lot of innovation and startup activity. Solutions focused on financing models, for example, also continue to grow, but are more mature and appear to have more adoption. Energy efficiency as a service (EEaaS) , for example, is one of those categories.?

Overall, this is a nascent space with significant market drivers and promising growth opportunities. What are the objections to software-driven capabilities replacing the analog approaches? Some building owners and operators still prefer a consultant/expert-led audit to better identify a net zero pathway. We typically hear the following points from real estate owners and operators:

• Buildings are different, and may not benefit from a one-size-fits-all solution (different systems, equipment, asset class, and overall expectations and timelines for the site, among other things). This may translate into varied levels of interest across a portfolio - some buildings may benefit from such as solution, while others will not.?
• The modeling may not be cheaper than just doing an audit in a building, especially on a total cost of ownership point of view. Related, some real estate owners and operators see these solutions as just augmenting their staff (by directing them where to look for?the biggest savings/decarbonization opportunities.
• A long term contract, structured as software-as-a-service, may not map with the value delivered (which might be viewed as a point-in-time, or once-every-few-years analysis).
• If building key data sets are not organized, running a model isn’t cost- or time-effective. As we noted in past issues, generative AI and other deep data analysis approaches tend to be early; many organizations are still in the learning and testing phase. Data readiness is a primary reason why. (And, this is a particularly significant pain point for a portfolio, which inevitably will have many different systems, recordkeeping methods, etc).
• Related, sometimes even the full building energy consumption data is hard to access, which is especially the case for triple net lease buildings (where tenants pay for their own utility bills, and may not provide those data streams to the building owner).?

We’ve also heard from our network of real estate sustainability leaders that these portfolio decarb analytics solutions do not necessarily have to use realtime, granular data. In fact, they may be able to use gross asset value (GAV) and current emissions as the key inputs, with details on completed and identified projects. At this time, solution vendors have a number of different approaches that seek to balance accuracy, ease of use, and required data inputs.

Future issues of our newsletter will provide more analysis about specific vendors, market trends and dynamics, and continue to share thoughts on the market framework. This is a nascent space, which is driving a lot of questions about how these products work, the relative value and hard questions about ROI. If you have a compelling solution in this market or strong views on what you want to see as a buyer/user, please reach out!

Aamidor Consulting works across the smart building industry, supporting startups, capital allocators, and industry incumbents throughout their journey, from the early stages of customer discovery to being on a rapid growth trajectory. Specifically, our firm supports startups on product and market strategy, investors as an independent advisor during diligence, and real estate owners/operators as they develop plans to deploy technology. See a summary of our past projects and also a description of our consulting services for more details on how we can help.