Wednesday, September 22, 2010

Recurve Nails the Science of Selling Home Energy Retrofits

Wade Roush 9/21/10
For Californians who want to make their houses greener and more energy-efficient, installing solar panels is often the first strategy that comes to mind. And there are many innovative Bay Area companies ready to help people do that, as I’ll describe in a story coming later this week. But Recurve president Matt Golden argues that solar is probably the last energy-related investment most homeowners should be making, not the first

“We are 100 percent pro-renewable energy, but you need to do things in the right order,” says Golden. “Before you install a new furnace, you put in the right insulation. Before you install 6 kilowatts of solar panels, you do efficiency improvements—and then you might need only 3 kilowatts to achieve the same result.”

It’s not very green, in other words, to put solar panels on top of a house that leaks heat all through the winter and cool air all through the summer. San Francisco-based Recurve, which Golden founded in 2004, will help you get your energy-wasting house in order before you think about bigger investments like solar panels.

Recurve is one of hundreds of energy efficiency retrofitters springing up around the country these days. But it’s perhaps one of the most high-tech, relying on software of its own design to systematize the process of home energy auditing.

Recurve’s technicians will go through your house room by room, testing factors that affect energy efficiency, such as airtightness, and feeding the data into laptops that run a physics simulation of the whole house. Once they’ve figured out how much you can save on energy bills by adding more insulation, sealing more ducts, and replacing outdated lighting, heating, and air conditioning equipment, they can do the actual work too—they’re certified builders. They’ll also help you pay for the work through zero-money-down, low-rate home financing packages.

Matt GoldenBut what really sets Recurve apart is its engineering-driven outlook on what it calls “home performance contracting.” These guys are the Amazon or the McKinsey of the energy retrofitting business, motivated by the conviction that a little data goes a long way, as long as it’s accurate. (Golden says Recurve’s retrofitting cost quotes are binding—if it ends up costing more to reach the promised efficiency improvements, Recurve eats the difference.)

While the company currently serves a relatively small market—just the counties surrounding San Francisco Bay—it’s got big ambitions. With around 65 staffers, Recurve is already the largest retrofitter on the West Coast, “and we intend to keep growing,” says Golden. The company is active on the policy front, pushing for more incentive programs like the $2,000 in efficiency rebates available to each San Francisco homeowner from the city government, the $3,500 newly available from Pacific Gas & Electric (PG&E), and the Home Star Retrofit Act wending its way through the U.S. Congress. But it’s Golden’s long-term vision for Recurve that’s really audacious.

The company has 10 retrofitting crews out in the field and a bevy of software developers back in its Mission Street offices, and in a way every home retrofitting job they do is a rehearsal. Eventually, Golden thinks, the day will come when Recurve is hired not by individual homeowners, but by utilities. His vision is that utilities will pay contractors to retrofit thousands of homes at a time, bringing about reductions in energy demand that will help them match generating capacity with expected loads for far less money than it would take to build new power plants. And Recurve will be a leading candidate for such jobs, Golden says, because of the accuracy of its software models, which have been tested and refined in hundreds of homes over the last six years. “If we aggregate 20,000 homes using the energy simulation from each one, we can show that these aggregated homes will deliver a certain demand reduction to the provider,” Golden explains.

Homeowners will still have to pay part of the costs of these retrofits, but Golden says their contribution will come in the form of flat monthly payments that will replace—and are guaranteed to be lower than—their monthly utility bills. That way, everyone wins: utilities don’t have to build more costly generating plants, consumers have lower overall bills, less energy gets wasted and less carbon gets emitted into the atmosphere, and Recurve gets to build a handsome business.

It’s only through market-driven mechanisms like this, Golden argues, that the nation’s 70 million single-family, owner-occupied homes will ever get retrofitted, since governments can’t pay for rebates on that scale. “This is not something we [the taxpayers] can afford to subsidize, and we don’t have to,” Golden says.

In regions with deregulated energy markets, utilities will continue to experiment with new ways to meet demand, including both “smart grid” technologies that measure and control energy usage down to the household level and “forward capacity markets” where utilities bid for the lowest-cost capacity. That capacity could come in the form of either megawatts, such as new gas-fired plants or wind farms or solar arrays, or “negawatts,” that is, guaranteed reductions in demand through retrofitting and other mechanisms. (A quick footnote: New England utilities are the world pioneers in building forward capacity markets, and at Xconomy Boston we’ve devoted extensive coverage to another form of negawatts traded in these markets, the “demand response” services offered by companies like Boston-based EnerNOC and Worcester, MA-based World Energy.)

Utility payments for forward negawatt capacity translate, in effect, into private-sector rebates that will cut the cost of home retrofitting, Golden says. And much of Recurve’s work is aimed toward the day when the company will be able to bid on large-scale retrofitting projects in forward-capacity auctions run by utilities in the western United States. “In the near term, the markets aren’t in place yet,” says Golden. “We are a few years away. But what we are investing in now is a foundation for this industry, which in a few years—in conjunction with the smart grid and forward capacity markets—is going more toward efficiency than anyone expects. It’s cheaper, it doesn’t have any fuel-price risk, and it doesn’t have any carbon risk.”

Golden started the company from the back bedroom of his apartment near the Presidio. (It was long known as Sustainable Spaces, but rebranded itself in 2009 “in preparation for national expansion.”) The company has been profitable from the start, Golden says, meeting payroll without any outside investment until 2008, when it picked up $6 million in Series A funding from RockPort Capital Partners and Shasta Ventures. That was followed by an $8 million Series B investment this June from Lowe’s Companies (NYSE: LOW) and existing backers. The company’s most recent news was the addition of a new CEO, Andy Leventhal, a software industry veteran who most recently founded and led Planet Metrics, a carbon emissions modeling company sold this January to Parametric Technology Corporation.

The fact that a home contractor is winning venture investments tells you something about the company’s uniqueness. So does the roster of backers—RockPort is a leading energy, environmental, and materials investor, Shasta’s portfolio is heavy on software companies, and Lowe’s, obviously, is the world’s second-largest home-improvement retail chain. What interests this motley crew is Recurve’s potentially revolutionary business proposition, which I would put this way: 1) Improving home energy efficiency is one of the keys to confronting climate change and volatile energy costs. 2) “Building science” has reached the stage where it’s possible to accurately model the energy flowing into and out of a home. 3) Nobody has yet systematically applied this science through software.

“From an engineering standpoint, we have all the answers,” says Golden. “But they’re stuck in white papers over at Lawrence Berkeley Laboratory, with no business model. A bunch of scientists running around working with a bunch of greenies in Marin has exactly zero impact if you can’t get this into every home in America.”
If you’ve ever had a utility representative come by your home to do an “energy audit,” you know that the usual procedure is to poke around looking for a few leaky windows or ducts. To understand what Recurve’s technicians do, you have to start by abandoning that picture completely. “These aren’t clipboard audits,” says Golden. “This is performance-testing a building.”

For each room and duct, Recurve hooks up blowers that force air through, and measures where the air is escaping. Auditors walk through the house with wireless tablet PCs running Recurve’s Web-based software and note the thickness and construction type for each wall, floor, and ceiling; the types of insulation, furnace, AC equipment, water heater, and major appliances installed; where moisture and mold might be accumulating and where carbon monoxide might leaking, and the like. All that data generates two products: a physics model of the house and how it processes energy hour by hour, and a set of predictions for energy savings if a number of standard improvements are implemented (better insulation, new ductwork, correctly sized heating and ventilation equipment, high-efficiency lighting, and so forth).

Golden calls Recurve’s energy audits a form of mass customization: adapting known building science to each homeowner’s unique structure. The software’s reports make it easy for auditors to figure out what needs to be done and how much it will cost, and equally easy for clients to decide to pull the trigger.

“When you are moving from a cottage industry to a standardized industry, you need to make sure people are all doing the same thing, and you need data very quickly to help convince the customer,” Golden says. “We found that most people in this industry are spending three or four hours on site and another six or seven hours in the office typing the data back in and doing simulations. We give a sales-ready report to the consumer on site. All the great modeling technology in the world, if nobody actually does the changes, is irrelevant.”

Across six years of testing and iterating—with new releases of the software coming almost every week—the company has also reduced errors in its estimates to a minimum. That’s a necessity when construction crews have a four-day window to complete retrofitting job, or risk upsetting the next month’s schedule. (Each crew is scheduled 10 jobs deep, Golden says.)

And Recurve isn’t keeping its auditing software to itself: home performance contractors in other regions can subscribe to the Web-based system (which also works offline when there’s no Internet connection). Golden says the company plans to focus its own growing auditing and retrofitting operations on California for the time being, where there’s a more predictable set of rebates in place. But it can sell the software nationally, while it waits for utilities and policymakers to set up the mechanisms needed to support forward capacity auctions and other overarching mechanisms for getting more homeowners to retrofit.

“We have lots of different business models open to us,” he says. “The goal has always been, how do we get this into the mass market, so that we can achieve environmental goals. Two or three years ago, before Obama, things were moving a heck of a lot slower. But the reality is that huge players are getting into this industry. And if our goal is to create scale and a return to our investors, we don’t have time to build a huge national footprint. So, to leverage the IP we have most broadly, packaging the software for all players makes a lot of sense.”

Meanwhile, there’s still one energy improvement Recurve can’t help you with: installing solar panels. “It’s the one thing we don’t do,” says Golden. “To be honest, solar is really easy compared to doing this kind of work. There aren’t very many moving parts. And to compete in the solar industry these days, you need to be very, very focused.” Which is one of the points I’ll emphasize in a piece on Oakland, CA-based Sungevity, coming later this week. So stick around, and enjoy the Bay Area’s cool early-autumn weather—no heat or air conditioning required.

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