According to our recent report on building automation systems, the market for building automation controls today totals over $75 billion per year.  There’s still room for growth, however, not just in developing regions but even in North America and Western Europe.  Automation systems and controls relating to HVAC and lighting are not always required by code, but they can play an important role in maintaining high levels of energy efficiency.  As LEED certifications soar (recently passing 2 billion square feet of commercial certified space worldwide) and organizations look to reduce their energy consumption and carbon emissions, such controls are one of the key enabling technologies that achieve high levels of energy performance in buildings.  Although some of this growth is due to the increasing stringency of building energy efficiency regulations, such as the EU Energy Performance of Buildings Directive, which will require all new construction in Europe to achieve nearly zero-energy levels by 2021, much of the investment in building automation controls will be voluntary, as companies aim to improve energy efficiency in their building portfolios.

At the same time, building automation systems are becoming more intelligent.  Increasingly, controls are not designed to be “set and left” but are connected to a building management system (BMS) that continuously monitors data streams from building controls and feeds them into energy displays that help facilities managers and other decision-makers gain visibility into how their buildings are performing.  This is enabled by the convergence of IT with building controls, a process that, despite arriving later to the building industry than to other industries like telecom, is now transforming the way energy is managed in buildings.  Controls were originally imagined as standalone devices that would to some extent take control of building energy out of occupants’ hands to “make sure the lights got turned off.”  The new wave of intelligent controls, ironically, aims to put control over controls back in the occupants’ hands, albeit under the guidance of sophisticated BMS and building energy management systems.

BAS Market Size by Region, World Markets, 2011-2021

These advances in building automation technology are occurring just as demand for higher levels of energy efficiency is rising.  As a result, Pike Research expects the market for building automation systems to grow to $146 billion in 2021 – a near doubling of the market today.  Much of this growth will come from rapid construction activity in China, where 2 billion square meters of new space are added every year, and where much of that new space will integrate sophisticated controls over time.  The fastest growth categories will be those that relate directly to energy efficiency, such as lighting controls.  As these devices are rolled out, they will usher in a new generation of intelligent buildings that are less expensive to operate and easier to manage than ever before.

C3, the energy management software firm, announced on May 1 that it is acquiring Efficiency 2.0, a software company whose software-as-a-service (SaaS) product focuses on improving the efficiency of residential and small business customers.  This move rounds out C3’s portfolio of utility energy management services, which has until now focused on large commercial and industrial customers.

If you’re familiar with OPOWER, then you’ve seen the role that some energy management software firms are looking to play in helping utilities meet their demand-side management (DSM) goals for energy efficiency.  Efficiency 2.0 aims to aggregate residential and small commercial sites – some of the hardest-to-reach customers in energy efficiency programs – and document the results in a way that helps utilities comply with efficiency mandates and qualify for incentives from their state public utility commissions.

C3 has been very busy since it formally opened its doors to the public last August, as I covered on our blog, with both its utility and corporate customers.  The firm is already working with Pacific Gas & Electric, for whom it provides a white-labeled version of its software to help PG&E’s account managers identify and implement energy conservation measures with PG&E’s largest commercial and industrial customers.  The acquisition of Efficiency 2.0 rounds out C3’s offering for utilities by helping it address a full range of customer types, ranging from individual homeowners to facilities with peak loads in the hundreds of kilowatts.  Through the acquisition, C3 and Efficiency 2.0 now boast a combined customer base of fourteen utilities, in addition to many other corporate customers.

Many firms in the energy management world have been eyeing utilities as potential customers.  For example, Pulse Energy, the Vancouver-based software firm, has retooled its entire strategy to focus on utility customers rather than building owners.  The business model for energy management is considerably different for utilities, as utilities benefit less from energy cost reductions (as building owners do) and more from increased visibility into and control over customers’ energy consumption as well as from compliance with energy efficiency mandates.  Through this acquisition, C3 is one of the few (if not the only) vendors that can address a utility’s entire customer base using a single platform.

The news of yet another acquisition in the energy management space also takes the era of the energy management startup, which has been gestating over the last few years, one step closer to its natural conclusion, when virtually all startups will either be acquired or close their doors.  C3’s executives, many of whom were previously in executive roles at Siebel Systems, the software firm that Oracle acquired in 2005 for $5.8 billion, know that as well as anyone.  Demand for energy management solutions for utilities will continue to mature over the next few years, and, as it does, companies like C3 will be well-positioned to help utilities improve their customers’ energy efficiency.

In the 1980s and 1990s, vendors of HVAC equipment, oil and gas, and others entered the energy service company (ESCO) market, using end-to-end energy efficiency solutions as a platform to sell “stuff.”  In the early 2000s, many of these service providers divested their service lines to re-focus on their core businesses, leaving integration up to others.

In recent years, however, a range of new players are entering – or re-entering – the energy efficiency services market.  In our report, Energy Efficient Buildings: Global Outlook, Pike Research forecasts that the market for energy efficiency technology and services will grow to $103 billion by 2017, up from $68 billion in 2011.  As the market for energy efficiency services grows, many players are finding that to compete for energy efficiency business – whether through procurement procedures in the public sector or outsourced energy efficiency services for commercial property owners and managers – they need to move further down the value chain and not only sell products, but also integrate those products into a complete solution.

One way to make the transition from manufacturing to integration is through acquisition.  Eaton Corporation, for example, made its move into the energy efficiency services space with its 2010 acquisition of EMC Engineers.  That paved the way for Eaton to achieve a certification as a Qualified ESCO by the U.S. Department of Energy in 2011, allowing it to access the federal energy efficiency services market as well.

Meanwhile, a number of other firms that don’t necessarily fit the traditional HVAC or property services profile have also been building on their product lines with new energy efficiency service businesses.   In February, Hess, the Woodbridge, NJ-based oil and gas giant that’s better known for selling gallons of gasoline, announced the launch of Hess Energy Solutions.

The motivations for getting into energy efficiency services relate mostly to the opportunity to expand further down the energy efficiency value chain and to bring in higher-margin work.  When sales of stuff plateau, or gaining market share becomes increasingly difficult, some firms see services as the logical extension of existing product lines.  The global economic downturn encouraged the development of service lines as many manufacturing firms have had difficulty maintaining product sales levels at pre-recession levels.  In addition, many services offer higher margins than product sales do, so folding a service business into a business’ broader portfolio can yield a higher average profit margin for the business as a whole.

Although it’s by no means one of the newest technologies in today’s energy management toolbox, submeters are starting to play an increasingly important role in the drive to squeeze every bit of efficiency out of buildings.  While sleek energy visualization dashboards have been all the rage at events like the annual Consumer Electronics Show, submeters are quietly working behind the scenes, providing facility managers with deep, actionable insight into how energy is used in their buildings and how it can be optimized.

Historically, submetering technology has fallen into two broad categories.  The first is basic tenant billing or cost allocation, in which submeters measure the energy consumption of individual building tenants, pieces of equipment, or individual buildings within a larger campus, typically in kilowatt-hours.  The second is deeper energy and power quality monitoring that tracks a wider range of concerns such as current and voltage, particularly in commercial and industrial facilities.

However, submetering has to date been far from mainstream practice.  Since submeters alone do not save energy but can be used as a tool to identify energy-saving opportunities, some building owners have been reluctant to pay the up-front costs associated with their installation.  And installing submeters is illegal in commercial buildings in some states, and banned by many utilities out of fear that landlords will form micro-utilities and overcharge their tenants for energy.

The market for submetering technology and services, however, has heated up over the last few years.  Submeters are right at the heart of a paradigm shift in the way executives think about energy, from an unavoidable cost of doing business to an asset to be managed.  “You can’t manage what you don’t measure” has become a rallying cry for companies and organizations focused on reducing their energy consumption, and few technologies are better poised to measure how energy is used in buildings than submeters.  Much of the activity is focused on submetering’s energy and power quality functions, leveraging submeters’ ability to provide real-time monitoring of HVAC, lighting, and other critical equipment and systems.  An effective submeter system is like having an army of energy auditors with deep analytical capabilities taking building energy measurements every 15 minutes.  That level of monitoring and control holds great appeal to business decision-makers.

Major acquisitions in the last few years, such as Honeywell’s acquisition of E-Mon and Leviton’s acquisition of IMS, both in 2010, suggest that energy efficiency service providers see submetering as a crucial part of the energy management equation.  Today, submetering can save building owners 10-15% on energy consumption just by diagnosing inefficiencies in the way buildings are operated and commissioned.  In the long term, submetering will continue to be an indispensable technology for corporate energy management initiatives.