May 2009

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Pain, Tipping, and Leverage – The “new” Energy Services Game
The “new” Energy Services Game

Terrence Reynolds
Terrence Reynolds, PE
Control Technologies

Overview

We are creatures of habit. We operate most comfortably within a “status quo”. Social behavioralists describe a phenomenon called “tipping” where an outside disruptive force causes momentum that begins to move public opinion in a new direction, finally tipping majority behavior into a new status quo. The availability and cost of Energy have been disruptive forces in the past. The long lines at gas stations, and the Oil embargos of the 70’s, instability in the Middle East and $4/gallon gasoline in the 00’s created a “hue and cry” for energy conservation, sustainable and renewable sources and independence. However, history has shown that these forces have never before tipped our collective behavior in a way that has created a lasting new reality wherein we carefully conserve our natural resources, and use the technology in our hands to assist in this endeavor.

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There is strong evidence that “tipping” has finally occurred. Money talks. Giants like Cisco, AT&T are investing heavily in a market best described as “Energy Services” (ES). Anto Budiarjo, in a recent presentation, re-quoted Silicon Valley investment expert Juval Lowy, who declared “ It’s like 1992 again…” The “dot com” boom of the mid-90’s was fueled by massive investment in the early 90’s. Now the “killer apps” are Energy Services.

The emergence of the ES market presents significant new opportunities for Control System Integrators (CSI) who grasp the “new rules” and embrace them, and significant threats for those who don’t. New players, attracted opportunities generated by new National priorities including Energy Conservation are leveraging their existing relationships with building owners and operators to capitalize on these opportunities. Traditional relationships between technology suppliers, implementers and end users are changing. Disciplinary lines between those who design and those who build systems are blurring.

This non-technical article focuses on the market forces at work, frames the opportunities (and threats) that are evident and immediate, and suggests business strategies to leverage the CSI’s current status as “Controls Contractor” into that of “Energy Services Provider” to his client base. This multi-faceted issue will be discussed using game analogies, and some “blanket statements” are made in the interest of attempting to illustrate some of the concepts.

Market evolution – Branch Office distribution to Independent Distribution

An evolutionary Controls Industry trend is a de-coupling of the factory from the distribution channel. The manufacturer-owned Branch Office networks of the 70’s and 80’s have in large degree been replaced by non-exclusive relationships with independent CSIs who represent and support one or several different manufacturers’ product lines. As independent distribution grew and Branch Office distribution shrank, the relationship between Control Product Manufacturers and the end-user diminished significantly - the client’s perception today is that the CSI provides him the value in the relationship through his applications skills and his support. In addition, in all but the most recently installed open systems, the CSI, in essence “controls the site”. His product’s communication protocol is proprietary. In order to expand a system, his product must be used. Manufacturers typically do not actively support multiple representatives in a given geographical territory, thus competition for system additions and service does not usually exist.

The evolution of Web Services Technologies

It’s a fact that the Controls Industry has and embraced and continues to utilize the User experience, data communications and network technologies associated with the Internet, for its own purposes. The primary reasons for this are economic – use of the Internet, and the Web is exploding. Development of the tools and standards that facilitate the use of the Web are ubiquitous, and it simply pays (!) to make it easier and easier to “connect” people to each other. All the associated costs with facilitating “connectivity” are dropping daily, from the costs of NIC’s and switches, to the business start up costs of rolling up this expertise into an organization. Along with falling hardware and development costs, the world now relies on solid, reliable, safe and blazing fast connectivity for everything from e-gaming to banking. Look at just about any new DDC product line today and you will likely find that one of the programming tools for the system is Visual Studio. Browser-based User Interfaces are the de facto standard. Digital controllers that use IP LAN as their controller network are either here or just around the corner.

The evolution of SasS

Another fact is that Software as a Service (SaaS) is no longer a “next big thing”. It’s here today. The Internet has been deemed reliable enough, fast enough and secure enough in the minds of consumers. The benefits of “renting” vs. “owning” business efficiency and productivity tools and applications outweigh the risks, and remotely-hosted service providers are becoming ubiquitous. As applied to this discussion, building owners and managers are placing increasing reliance on cloud-based software for managing everything from maintenance history, to tenant services, to document storage and retrieval, to equipment efficiencies, to labor scheduling , to asset tracking, to indoor air quality, to facilities operations, to energy accounting and analysis, to energy usage prediction, to continuous equipment monitoring, to energy conservation measure analysis, to continuous commissioning…… the list is long and growing daily.

Tipping

Now, to the “evolutionary” technology shifts described above, superimpose new National Priorities – Energy Efficiency, Smartgrid, Sustainability, Clean Energy, Carbon Solutions, and for good measure throw in a national economic “death spiral” and resulting stimulus effort that targets these Priorities, and the pace of the evolutionary shifts described above drastically accelerates.

Evolution becomes Revolution - disruptive forces in Supply and Demand

Control Solutions, Inc New priorities, new perspectives and new money create new opportunities. On the consumer side of the Energy and Energy Services (E&ES) markets, Energy is no longer relegated to its traditional role as an overhead item in a Facility Manager’s budget. Energy is now a “C-level” (CEO, COO, CFO) issue – being Green is good business, and saving energy is a Corporate imperative.

On the supply side, large, powerful and non-traditional players like Cisco, GE and AT&T are making major investments into the ES market, developing new products and services and improving the efficiency of existing lines. These new companies have brand recognition with C-level consumers that the traditional players in this market, including Control Product Manufacturers and their distribution channel representatives, do not have. They are leveraging their existing strengths in communication technology, security, ADR, etc. to reduce their entry barriers into the ES Market, and are acquiring the assets and skills necessary to fill an emerging role – the Energy Services Provider.

The new Relationship - “Energy Services Provider”

Unfortunately for the CSI, although his system currently provides most of a client’s automated energy management if there is any, in the current status quo, most C-level consumers do not perceive him as the obvious and unique choice as the new Energy Services Provider. In many cases the CSI has no C-level relationships at all. However it is for sure that at least some of the New Players do have these relationships. In some cases, the relationships exist and have been nurtured due to the importance to the client’s bottom line of the products and/or services that the New Player has historically provided. It’s human nature to pre-suppose that a trust relationship formed with a company that provides good solutions in one “domain” could also provide them in another. Any CSI who has broken into the Mechanical Maintenance business by leveraging his control service client relationship can vouch for the leveraging power of the incumbent. In the real world, it is a good bet that the salesman with the “inside track” will close the sale. At the moment, the client’s most experienced energy services provider does not, in general, have the inside track. The CSI faces an uphill battle.

Stickers and Face time

The good news for CSI’s is that many already possess much of the knowledge required to compete with these New Players. Most importantly, good CSIs actually do understand how to optimize energy consumption, better than any New Player. An experienced CSI has programmed microprocessors that control hundreds of mechanical and electrical systems. He has lived with and worked around the limitations of misapplied system types and equipment over and under sizing. He has defended himself and steered through balancing issues, comfort issues, and design issues. He knows how systems work intimately, because he has “trained” microprocessors to this work.

On the other hand CSI’s have historical perceptions that works against them. Their skill set evolved out of “trade-level” expertise. Commercial control systems were once pneumatic. Although the sophistication of today’s applications and tools require secondary education and degrees in Computer Science and Mechanical Engineering, there is a lingering consumer perception that CSI’s are tradesmen. Also, the historical perspective is as follows: “Buildings and control systems are built by Contractors, and CSI’s are contractors. Buildings are designed by Engineers, not Contractors. The Intellectual property associated with Energy optimization resides within the Engineering skill set, not the Contractors skill set.” Although the reality is that most building design engineers rely on CSI relationships to “ghost write” control and energy management system designs, the C-level consumer’s perception is otherwise, and Energy Services are sold to C-level consumers.

Finally, CSI’s simply do not typically talk to C-level executives – we typically sell to “boiler Bob” or his boss. C-level execs talk to “suits” – those who sell intellectual property as a product. The “suits” have “stickers” – gold ones attached to diplomas, and certifications that vouch for their competency.

The CSI’s challenge is one of perception. In order to get the face time he needs with C-level consumers, he needs to be perceived as someone who is an expert in energy optimization, and “pipe” maintenance. He needs “stickers” of his own that vouch for this competency. Fortunately, today it is easy for a good CSI to acquire these “stickers”. Certified Energy Manager, Certified Demand Side Manager, LEED AP, Lonmark Certified Integrator, Microsoft Certifications, Cisco Certifications are all within reach for the CSI’s organization.

“Stickers” will help get the CSI face time with the C-level consumer. The information that the C-level consumer is interested in listening to is economic, strategic, and what his (the client’s) competition is doing. It is not technical information. Energy information is available on the Internet in a hundred places. Intelligently discussing how the new Stimulus Plan will be broken down, new technologies on the horizon, energy projects underway in the area and the new Energy Services that are available to him will help the CSI establish the new relationship. This relationship and visibility is absolutely necessary if the CSI is going to become the client’s Energy Services provider.

“Pipe” control

Reliable Controls The more traditional players in the ES market, including Commercial Control Product Manufacturers (CCPMs) will not cede new opportunities to the New Players without a battle. The impact on the current “status quo” between CSI, client, and “site control” due to the entry of New Players has yet to be determined, however some hints of significant change are discernable. First, there is strong evidence that the challenge to the status quo will come from “the cloud”, and delivered as SaaS. The conceptual analogy that lends itself to this discussion is “the pipe”, and “the cloud”. Value-added Energy Services are delivered from “the cloud” by the New Players via “the pipe”. The site-located digital control and energy management system connects to the “pipe” and plays an integral role in the client’s ability to realize the benefits of these Value-added Services. “The pipe” is obviously the Internet, enabled by Web Services. The battle that will be fought for who becomes the client’s Energy Services provider will be waged over control of “the pipe”. Whoever wins control of “the pipe” will win the relationship with the client, and become the Energy Services Provider.

A significant negative impact awaits the CSI who doesn’t take steps to “control the pipe”. His current status as control system benefits provider is in jeopardy, and his potential to become the Energy Services benefits provider for his client is in jeopardy. The New Players are selling Value-added services to the C-level consumers that he has no access to. Those New Players that have already established a “pipe” of their own into the building using their “networking domain” expertise, or their “telecommunication domain” expertise, or their “security domain” expertise are convincing C-level consumers that they can also have Energy services delivered using their existing “pipe”. Cisco is a network services and now an energy services provider. AT&T is telecommunications services, and now an energy services provider. Diebold is a security services provider, and…… Should these new players attain significant leverage, the Control Contractors’ client relationship could easily be reduced to “infrastructure maintainer”, with his system perceived as merely the transport vehicle over which the “real value” is delivered from the “cloud” by the New Player.

Knowledge, software and hardware exists that will allow a CSI to establish his own “pipe”. Remotely-hosted user interfaces that include true Supervisory Control and Data Acquisition features are available from several vendors. Control Contractors can host their own “branded” product, from their office or at a data server farm. They can also remarket SCADA as a subscription service through available “wholesalers”. Collaboration with Web developers using standard web tools like iFrame can result in client User experiences form a single URL that integrate standard SCADA functionality with Value-added services proved from “cloud”. Data sharing between SCADA and other remotely hosted Value- added Services is made viable using the same tools that link commercial websites for credit card verification.

Moving the site control system “connection point” from the site back up into the “cloud” allows the CSI to keep New Players from gaining the leverage necessary supplant his site relationship. He becomes the client’s “gatekeeper” between the site and the “cloud”. Remotely-hosted SCADA can provide opportunities for the CSI to offer Automatic Demand Response and remote optimization strategies that are site specific for the client. Additionally, the CSI can maintain and adjust runtime and occupancy schedules, provide continuous monitoring services, and aggregate, integrate and resell cloud-based services to his client.

For those CSIs who don’t possess the desire or capital to make investments in a “pipe” of their own, certain New Players can be natural allies. Some New Players offer products that are less likely to result in unfavorable leverage to the CSI – in some cases the New Player’s deliverable is a status or efficiency report with recommendations that require action by someone to deliver true value. The CSI possesses skills in Project Management, electrical and mechanical construction and most probably service of these systems as well. Careful selection of New Players who will not eventually become the his competitors, then proactively marketing bundled offerings ( to C-level clients) may be the way with which the CSI can establish himself as the site’s Energy Services Provider.

The Opportunities!

It is a sad fact that almost all Facilities Management Systems are designed and implemented under the worst of conditions. New construction projects are designed in haste, installed in haste, commissioned (if at all) in haste, and even maintained in haste….and haste makes waste. From a system’s “birth” in the mind of the Specifying Engineer through the end of a system’s lifecycle, cost has dictated the amount of attention paid to the system. Specifications are typically “boilerplates”, with minimal site-specific or application-specific attention paid. Historically, maintenance budgets have also dictated minimal attention – “keep it running, but don’t fix it….”

Today, it is interesting to listen to spokespersons representing the new National priorities, including organizations like NIST and FERC, talk about how ADR will be rolled out, and the importance of “high performance” control and automation systems to the success of Smartgrid and “real” energy conservation.
The opportunity in this for CSIs is that most of the systems installed today simply do not work very well. Their new importance as the tool with which energy conservation will be achieved means that money will be made available to get them to work. This will mean system upgrades, new point additions, calibration, maintenance contracts.

Additionally, proprietary systems will be recognized for what they are – impediments to connectivity to the cloud. Clients will realize that in order to realize the benefits of SasS, they will have to pay a connection fee. It will be less expensive with an open system, and will yield more value than a closed system. New Players will develop services around open systems because information is more readily available, and they will perceive correctly that the traditional Control Product Manufacturers are their competition. CSI’s who are proficient in Open Systems and who represent multiple proprietary product lines will find opportunities with New Players who perceive them as a “one stop shop” with which to deal to connect buildings to their services.

The impact of Energy Services delivered by SaaS certainly present new challenges to the Control System Integrator, however with the challenges come new opportunities. In this new era of  renewable sources, microgrids and carbon solutions, the CSI and the systems he designs, installs and maintains will play a key role in meeting societal needs for clean, reliable and efficient energy with which to build our future.


About the Author

Terrence R. (“Terry”) Reynolds, PE, CEM, CDSM, LEED AP - After six years with the US Navy as a Sonar Technician, Terry attended and graduated from the University of Connecticut in 1977 with a Bachelors degree in Electrical Engineering, with graduate level courses in Electrical Power Distribution. Honors included Deans List and Engineering Honor Society. He was employed by Johnson Controls as a Sales engineer and Branch Manager in the Commercial and Industrial Controls divisions of the Company in Burlington, Vermont, Albany, New York, Newark, New Jersey, and Philadelphia, Pennsylvania from 1977 to 1988.

In 1988, Terry joined Control Technologies Incorporated (CTI) as a Partner, and is responsible for business development. In the ensuing years CTI has grown from a company of 5 employees with sales of less than a million dollars, to its current size at approximately 200 employees, sales of approximately $25 million dollars and six offices, with locations in Burlington VT, Manchester NH, Great River and Queens, New York, Boston Mass, and Los Angeles, California.

Terry’s areas of technical expertise include process and environmental control system applications, data communications, system integrations, and open communications protocols. Terry holds a Professional Engineers License, is a Certified Energy Engineer, a Certified Demand-Side Management Professional, and a LEED AP. He has presented technical papers, industry perspective at the local, regional and national level. He has served on the Board of Directors for the Lonmark Organization – a national communications standards development group, and the Independent Representative Council – a national consortium of Systems Integrators.

 

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