Tuesday, April 20, 2010

What Kind of Business Could I Build Around Energy Dashboards?

In a previous post, I wrote a bit about why so many smart grid cleantech companies were focusing their efforts on utilities instead of consumers: the power of big numbers leverages small efficiencies into large $ amounts.

With that knowledge, what kind of business could I build around selling energy dashboards to the utilities?

A few assumptions, some of which are probably pretty optimistic just to simplify things without really changing the conclusion (I hope):
  • I want to run a business based on annuities (utilities pay me a "subscription") rather than hardware and s/w services (utilities buy my h/w and s/w directly).
  • I manage to get 100% of electric utilities in CA to put my product in 100% of customers' buildings [~12.9M customers]
  • The utilities agree to pay me 50% of the saved costs of generation [~$17.82/customer*yr]
  • A customer dashboard costs my business $35 installed.
  • I take out 15% profit and have 10% overhead costs to run finance, HR, facilities, etc. 
  • 35% of my workforce is engineering or other functions not directly customer facing / supporting.
  • It costs $200k/yr to hire, compensate and retain each employee on average.
 Two key numbers come out of this:
  • $453M - The cost to install the equipment at all the customers' locations. That's serious start up capital or a very slow ramp of the business. Starting isn't going to be easy.
  • 23,000 - The number of customers per non-engineering employee that would have to be supported assuming I could start the company, pay off my debt and get to a steady state. If I'm paid actual savings, that means I need to get all the customers to actively use their dashboards and change behavior. The challenge of getting a diverse population (the state of CA) to sustainably change behavior over time with such a ratio is staggering.
As of that weren't enough, it would make sense for the power utility to shift their baseline over time rather than pay me for the same level of performance forever as it would be cheaper to address the problem themselves. This means that I'd not only have to get people to achieve good energy savings (target 10% on average - per the previous post), I'd have to increase this over time to avoid going out of business or avoid drastically shrinking the business.

I think I can throw this business plan out as a case where annuities are a bad business model.

However, that $453M number does suggest that selling h/w and analysis / customer feedback infrastructure to the utilities might be a better way to go. Maybe I could even write a game to make engagement fun.

Photo credit: Leften on Flickr ... not a picture of CA ...