🎧 #118: Simplifying decarbonization with Aaron Block

“There's a lot of complexity that goes into building a technology that simplifies things for people."

—Aaron Block

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Episode 118 is a conversation with Aaron Block, Founder and CEO of Allumia.

Summary

We talked about creating simplicity in the commercial buildings market and how that can unlock decarbonization. A huge part of that is the role of electric utilities as a vital driver of adoption, so we talked about how their role needs to evolve. Finally, we talked about how Allumia’s software platform connects the end customer, the utility, and the supply chain of implementers to get decarbonization done.

So without further ado, please enjoy the Nexus podcast with Aaron Block.

A message from our partner, Montgomery Technologies:

Cybersecurity, change management, remote access, and data integrity across 8-10 siloed systems per building presents a significant challenge for CRE operations. Just knowing where everything is, how it is connected, and where it is connected can be too much for thinly-staffed corporate IT departments, whose primary function is to oversee the corporate network.

🎥 Watch this quick explainer video to learn how a converged network fills this gap, solves for all the above, and is the first step to enabling a Smart Building.

Mentions and Links

1. The Untapped 87%: Simplifying Controls Technology for Small Buildings (2:11)
2. Allumia (6:17)
3. Duke Energy (10:23)
4. Planet Money Podcast (1:03:35)
5. One Hundred Years of Solitude by Gabriel Garcia Marquez (1:03:48)
6. The Age of Edison by Ernest Freeberg (1:03:54)

You can find Aaron on LinkedIn.

Enjoy!

Highlights

• Aaron’s background (2:50)
• The #1 way to unlock decarbonization of commercial buildings (17:19)
• The problem is complexity (28:16)
• How energy as a service differs from the ESCO model (38:55)
• Fuel switching (50:43)
• Current tech making it simple (55:05)
• Carveouts (1:03:11)

A message from our partner, enVerid Systems:

Improving indoor air quality (IAQ) with optimized ventilation and air cleaning need not conflict with building decarbonization and climate resilience goals.

Read enVerid's new white paper, How to Achieve Sustainable Indoor Air Quality, to learn how a four-step Clean First approach can be used to design and operate low-energy, high-IAQ, climate resilient buildings of the future.

👋 That's all for this week. See you next Thursday!

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Music credit: Dream Big by Audiobinger—licensed under an Attribution-NonCommercial-ShareAlike License.

Full transcript

Note: transcript was created using an imperfect machine learning tool and lightly edited by a human (so you can get the gist). Please forgive errors!

[00:00:33] James Dice: Our first sponsor on the show had to be Montgomery technologies. Their COO Joe grasper, Doni is easily. The number one fan of the show. No offense, of course, to any of you, other hardcore listeners out there, but Joe listens to every episode sometimes more than once. And then he gives me his feedback via email. Good, bad, or otherwise.

Joe as a podcast host dream. And I think you've made me a much better interviewer. Jonas team liked to remind all of you of [00:01:00] the importance of the network layer and the smart building stack. Technology installed in buildings placed a heavy burden on commercial real estate operations teams.

Cybersecurity change management road, access data. Integrity across all the different siloed systems in the building presents a significant challenge, just knowing where everything is, how it is connected, where it is connected can be too much for thinly staffed, corporate it departments. Their primary function is to oversee the corporate network, not all of these systems in the network.

So learn how a converged network fills this gap. By clicking the link in the show notes, it shows how a converged network solves for all of the above and is the first step to enabling a smarter building.

[00:01:39] James Dice: This episode is a conversation with Aaron block, founder and CEO of Olympia. We talked about creating simplicity in the commercial buildings market and how that can unlock de-carbonization. A huge part of that is the role of electric utilities as a vital driver of adoption. So we talked about how their role needs to evolve. And finally, we talked about how Illumio has software platform connects the [00:02:00] end customer that utility and the supply chain of implementers to get decarbonisation done.

And a quick announcement before we start. If you'd like this conversation, you want to check out our white paper called untapped 87%. It's at www.next step, nexus labs.online/white papers. So without further ado, please enjoy the nexus podcast with Aaron block.

[00:02:23] James Dice: Hello, Aaron, welcome to the show. Can you introduce yourself?

[00:02:26] Aaron Block: Hi. Yeah. Great. Thanks for having me on I'm Aaron block CEO and founder OFIA and I'm really excited to be on and, and talk about energy efficiency, energy efficiency as a service and, and how we put that to work to combat climate change.

[00:02:42] James Dice: There you go.

Let's start not there. Let's start with your, your background. Uh, can you talk about what you did before Illumina and then maybe go all the way back? What's your, what's your background?

[00:02:55] Aaron Block: Uh, sure. I mean, I think, you know, my, my background's a lot less interesting than, than energy [00:03:00] efficiency as a service, which maybe isn't saying like, can we start this over?

I wanna bad mouth myself or energy efficiency as a service . Um, but yeah, you know, Happy to happy to roll back the clock and, and talk a little bit about my background and, and how I got to where I am and how got to, to where it is. Um, yeah, and I think it really, you know, it all started, it all started for me back in college, uh, when I accidentally enrolled myself in an economics class instead of an English class , uh, and, and discovered that I really liked the principles of economics.

I really liked that way of thinking about the world, uh, and sort of, how do you deal with, uh, optimization of the distribution of scarce resources and, and sort of how you put those pieces together? Uh, but I was at the time, uh, a very long haired hippie, and I sort of set out to figure out how to harmonize a lot of [00:04:00] my, uh, personal philosophy with what I felt was sort of.

Giving into the demand and studying economics and, and where I settled was was energy economics. And sort of, how do you go about using the principles of economics to drive a sustainable future from, from an energy standpoint, uh, renewable efficiency in the light. Uh, and so right after college, I joined a smart grid startup out in DC, a very well funded, uh, smart grid startup, where I joined the strategy team.

And I think, you know, it probably should be a, a red flag to any recent grad out there. If a startup is, is hiring a 20 year old to write their corporate strategy, there might be something slightly amiss there, but of course I had all of the hubris of a 20 year old. And so I didn't, didn't pick up on that, um, spent about 8, 9, 9 months at that company.

Uh, and then the startup or the, the strategy team from that company spun out. And we co-founded together. [00:05:00] Our first company, which is called skyline innovation. So was focused on doing solar water heating as a service solar hot water as a service in the early days of sort of solar finance. 1.0 back when, when financing commercial solar was, was cool the first time around.

Uh, and we grew that up into being the largest develop of commercial, solar, water heating in the country, which if you pick a small enough pond, you can be the biggest fish. And, uh, that, that pond, the pond that is solar hot water is, is basically a puddle. So, um, we picked a, we picked a small pond. We got to be the biggest fish.

And then that company started to evolve in the direction of energy, brokerage and retail energy, which is a, a very cool, very interesting space. But not one that I was particularly interested in pursuing. I was interested in continuing to develop the, the as a service model and figuring out how do [00:06:00] you make it simpler and easier for small businesses in particular, to opt into sustainability?

What are the, the roadblocks that you can take out of the way with a service model? So is that company evolved into the, the retail brokerage space? I spun out and, and founded Iya really focused on delivering energy efficiency as a service. So moved out of the generation space, moved out of the hot water space into energy efficiency, uh, really focused on, on providing energy efficiency, energy, efficient lighting in particular to small businesses.

Uh, and we worked on that started as a one person company, uh, focused on, on buildings that I could ride my bike to from downtown Seattle. knocking on doors and saying, Hey, We believe that you would save a ton of money upgrading to led lighting. We know that your time and your money is best spent doing whatever it is you do for business.

If that's selling groceries [00:07:00] or flipping hamburgers or making airplane parts. So we'll design the system for you. We'll upgrade, you know, we'll manage the, upgrade, the contractor, doing the installation. We'll provide a revenue grade meter that measures how much energy you're saving in one, and will bill you for just a portion of the savings.

So the idea was sort of take the ESCO model and simplify it down to a place where small businesses could opt into it because there's the ESCO model. Again, is great, but it does have a couple of problems. One is that in order to really understand what you're buying into, you need to have a dedicated energy manager.

You need to have somebody who can understand a fairly complex IPM VP model that may span across several, several spreadsheets, several workbooks. Uh, and introduces things like thermodynamic modeling of a building, the owner of five burger Kings, or an independent manufacturer of Corgan, cardboard products is not gonna be [00:08:00] able to understand that.

And so what we really looked to solve was okay, you know, how do we simplify that down to the level where that, you know, small, regional business owner, that mom and pop shop can understand it. And, and we really found that the, the metering was a key there, sort of giving them this auditable piece of technology that they could look at and understand the savings.

It also meant that we could really streamline the sales process and the delivery process. We don't have a really elaborate contract that gets negotiated every time we have a very stock contract. And so that made it profitable for us to actually manage. Those contracts and to, to be able to build projects that were 20, 30, $50,000 in size, whereas your standard ESCO contract is very often $5 million in up mm-hmm , you know, there's so much bespoke development there, not just in the design of the system, but the negotiation of the contract, the development of the IP MVP model [00:09:00] that they really can't afford to serve that small and midsize or what I call the mass market commercial industrial customer.

It isn't, it isn't cost effective for them to go after that marketplace. And so it just wasn't being served. Um, that model was fairly effective for us. We got our feet into about 15 states, sort of doing direct sales, going out to these customers and offering them energy efficiency, upgrades. And we really realized, you know, we learned that, uh, if you're gonna build 50,000 hundred thousand dollars projects in Seattle and Cincinnati and Savannah, Georgia, you want all of those projects to look the same, feel the same cash flow, the same, have the same risk and return profile, the same maintenance characteristics, all of the same documentation.

And you need to do that without ever putting your own feed on site because there isn't enough margin and a $50,000 deal to fly somebody from Seattle to Savannah, Georgia. Uh, so we built a bunch of technology to sort of [00:10:00] automate and standardize that process. So we knew that all of our projects were being built to the same standards through the same processes, with the same documentation.

And that really led us sort of accelerate our growth and, and, and build a portfolio of projects that were maintainable for a long time, as well as being cost effective, uh, to build up front. And that is, you know, in 20 18, 20 19, when duke energy reached out to us and said, Hey, we see what you're doing with this efficiency as a service thing.

We wanna do it too. Let's figure out how we work together. And initially we set out to sort of, you know, co-brand a product go out to the market with duke and alum's efficiency of the service offering. And very quickly realized that that Duke's brand equity, their access to customers, their presence in the market was, was better than ours was ever gonna be.

Right. They've been in business for a hundred years. So their customers trusted energy expert, trusted energy advisor. They can gain access to [00:11:00] customers in a way with a level of trust at a speed that, that Illumina just never could. But what they lacked was the ability to sort of turn that customer relationship into an ongoing revenue generating, uh, relationship beyond just telling.

Kilowatt hours. And so what we started to do was provide our, our platform, our software, our IOT, and our services support to them so that they could provide their own efficiency at the service offering to the market. And now duke has a program called direct efficiency. It's Duke's efficiency at the service offering.

Olus really, really driving that forward. Um, and that's, that was really the Genesis of the change Foria. And since then, we've, we've evolved from providing direct efficiency as a service to the market, to providing the tools to other entities who wanna utilize their brand, want to utilize their position in the market as either a trusted energy expert or a trusted facilities expert, or a cost savings [00:12:00] expert.

They've got a large customer base. They wanna leverage that and we can put the tools in their hands to, to put a, an efficiency of the service or decarbonization as a service offering, uh, into their customer facilities.

[00:12:12] James Dice: Got it. So the evolution from. One dude on a bike, trying to save the world to helping utilities, to helping everybody that wants to sort of do energy efficiency at scale.

[00:12:25] Aaron Block: Yeah. Yeah. And, uh, yeah, it's, it's a long and, and slow evolution, but I think, you know, our goal now is to be helping people who are, who are in that position to help a large number of people to give them the tools, to do that, to invest into carbonizing their communities, to put resources behind a carbonizing, their communities.

And very often that is the utility. Who's a trusted energy expert who can walk in the door, you know, at a, at a national scale national [00:13:00] account client or at that mom and pop regional corrugated cardboard manufacturer and say, you're really good at pumping out branded cardboard boxes day after day after day.

I know everything there is to know about energy via generation, transmission distribution. And frankly, I probably know more than you do about the energy efficient ways to consume energy. So let me design the system for you. Let me take this problem off of your plate. And you just focus on doing what you do best, which is running your business, right?

And that's really a value that I think that that utilities can be providing. Similarly, I think, you know, re and property managers are in a, a similar position to provide value to their, uh, their portfolio of, of buildings, rather than sort of putting that on the building owner or the tenants to figure out what the right energy efficient equipment is.

You know, those are really trusted [00:14:00] facilities, experts, and let's just give them the tools to provide a ideally CapEx free way to install sustainable upgrades in those facilities. Totally eliminate the barriers to, to make those upgrades happen.

[00:14:16] James Dice: So I wanna unpack all of this, but I want to go back. I'd be remiss if I didn't ask you a follow up question on the, um, solar, thermal, solar hot water thing.

Cause that was a phase of clean tech that has seemed to have passed. Am am I read about that? How do people view solar, thermal, solar hot water today?

[00:14:37] Aaron Block: Uh, I don't, I think that as much as I like it, uh, solar hot water was never cool. uh, it was, and that's, that's why we sort of found a niche in, right. It was because solar PB is so much more interesting, so much more magical.

There wasn't a lot of people paying attention to solar hot water and you [00:15:00] can't, there's no very few district energy projects in the us. So you can't sell. Heated water back to the grid, right? You have to store it all on site. So the, the number of applications is, is much more niche. I don't know that I'd say that it is dead or that it's passed, but it is, it, it remains niche and I think will remain niche forever.

Uh, and I think as, as heat pump technology continues to improve as PV technology continues to improve more and more, it will make sense to use heat pumps, to, to heat, water, and power. Those heat pumps through, through PV, but solar hot water technology is so dead, simple and such a no brainer for the places that it is applicable.

That it is a shame that it isn't getting deployed.

[00:15:53] James Dice: Yeah, actually, I don't think I've said this in the podcast before my senior project. So I was mechanical engineering student. [00:16:00] Um, my senior project was to build a solar hot water, solar, thermal pasteurizer for low income, um,

[00:16:08] Aaron Block: applications, um,

[00:16:10] James Dice: you know, developing country applications.

Um, we were able to, I can't remember exactly how hot we were able to get the water, but something like 165 degrees Fahrenheit, I think

[00:16:21] Aaron Block: sounds about right. I mean, you gotta get it. Yeah. You gotta

[00:16:24] James Dice: keep, we built it all with just like spare parts as well. So that was the whole concept, you know, find a broken window on the side of the road and, you know, build it with some two by fours.

[00:16:35] Aaron Block: Well, and that's just it, right? I mean, the technology is there's. You don't have to electron dope a Silicon wafer. You can put a, you know, a broken window over some black piping in your. 60% of the way there. Yeah.

[00:16:52] James Dice: Yeah. Yeah. And we used a thermostatic valve to open the water when it was hot enough [00:17:00] and it was a radiator valve from a car.

So you'd just be able to reuse that as well. As long as there were cars and windows, we were able to to make it work, make it work. Yeah. So, um, I was a big believer at that point in time. Uh, that was a fun project, so, okay. So let's, let's get into the meat of, let's dive into kind of what you said earlier as this, this intro Toia you and I first met when we, when I was writing this, um, white paper on how come we don't have more building technologies in smaller buildings.

Right. And that includes energy. I, I, I include the energy efficiency in that. Like, why don't we have energy efficient technologies? Why don't we have controls? Why don't we have all types of smart building technologies is kind of how I was looking at that problem. um, and you came in and really helped me kind of frame the entire white paper around this discussion of complexity and simplicity.

Right. So can you just talk about kind of why you see [00:18:00] simplicity or removing complexity as the sort of number one way to unlock? It's really the number one way to unlock a lot of things, but really what you're focused on is decarbonization. So can you tell me how you think about that?

[00:18:14] Aaron Block: Yeah, I do see complexity as the number one hurdle to realizing the carbonization in the commercial and industrial space, and particularly in sort of the mass market commercial and industrial space that, that IIA deals with.

I think, you know, as you go upmarket into state university systems, the federal government hospitals, and the like what is sort of colloquially called the, the much market there's enough expertise on hand to really take on those building technologies and, and to carbonization in general, there's people who can sort of be dedicated to understanding it.

There are mechanical and electrical engineers on staff. And when you get a little bit down market from there into the mass market, that Lumia deals with there's just too much, too many other things [00:19:00] going on relative to the, the deal. Value mm-hmm right. If you, if you run a small business, you don't have a dedicated energy manager and you're, you have to spend your time focused on what generates revenue for the business, right?

You have to be really focused on, on the top line. And so small business owners, small building owners, they don't have the time to understand what the decarbonization options are that are available to them, to what the financing options are available to them. Quite frankly, how to evaluate the quality of, of potential installation partners that are available to them.

And so people, I think, look Atia a lot as a finance company, as a project finance entity, and they look at efficiency as a service as a way to eliminate the capital expenditure. Of doing an energy efficiency upgrade or doing a [00:20:00] decarbonization upgrade, but really what Illia is and what energy efficiency as the services or efficiency of the services is a method of simplifying the problem.

And yes, finance is the most visible of those complexities. How are you gonna pay for this upgrade? But it actually is the entire wraparound suite of services. It is. We're gonna come into your facility and we're gonna identify what the upgrades are, and we're gonna find the appropriate contractor to do the installation.

We're gonna manage them to make sure that that installation is done in the way that it should be done at scale, we're gonna meter this installation to make sure that it is performing for the life of the system in the way that it should we'll provide the maintenance to keep it up. and you, as a business owner, don't have to worry that we're gonna do what we say that we're gonna do, because we're only gonna bill you out of a portion of the [00:21:00] value that you receive.

Right? And so it really is in a lot of ways, shifting all of those burdens of expertise onto the entity who is claiming to be the expert mm-hmm right. You as a regional burger king owner, don't need to know anything about L E D lights or H V a C systems or walk-in refrigeration will take care of all of that for you.

And you focus on doing what is your highest and best value, which is selling walkers. Totally. Um, and, and I think that that's a really powerful. A really powerful motivator for small businesses. And I think when you look at it, who is, who is best suited to provide that simplicity, who is the trusted arbiter of energy expertise.

Very often it is the utility. Um, even when you, aren't going through a, an as a service model, the first person that allowed these business owners think of when they think about doing a [00:22:00] decarbonization upgrade, when they think about doing an efficiency, upgrade is their utility. And they'll call up the utility and say, Hey, you know, I wanna do an L E D lighting upgrade.

My H V a C system is getting ready to fail. I need a replacement. What should I do? And, and right, the, the de facto utility response is here is our list of trade allies, call one of them. And when you decide on what you're gonna do, you can apply to us for a. And that's a huge stumbling block for, for the mass market commercial industrial customer.

They just don't have the time and the wherewithal to manage that sort of thing at scale. And so they, they follow the path of least resistance, which very often is, is not the, the path of decarbonization. It's the path of, uh, status quo. And so a lot of opportunity for energy efficiency, a lot of opportunity for decarbonization just gets [00:23:00] left on the table, the trade allies, aren't getting all the work that they could get the utilities aren't recognizing the savings that they could recognize.

And the customer is spending more than they have to totally. And, you know, the environment suffers as a result. Yeah. So we think it makes sense for the utility to. Push out a simplified model to those, to those customers through and as a service model and go knock on burger king store and say, look, I'm your trusted energy expert.

Let me solve this problem for you. Let me design the system. Let me make sure that it gets installed by quality installers who are doing work in the right way. Let me bill you over time for a portion of the savings that you receive. And since the utility is the one going out and, and sort of pushing this into the market, they can do it in a much more inclusive way.

Uh, when you think back to sort of the [00:24:00] conventional way of, of trying to drive efficiency programs that I just talked about, where the utility waits for somebody to call up and say, Hey, I wanna do this. Uh, and the utility says, okay, well, I'll cut you a rebate. Uh, first of all, you are relying then on the, the non-expert to make all the decisions, right?

The business owner to make the right set of decarbonization decisions. But you're also providing rebates only to the most privileged among the rate payers, right? In order to take on an energy efficiency upgrade, you have to have the bandwidth to evaluate the options, to negotiate with the contractors, to select the equipment, and then to pay a premium.

And yes, the utility may give you a rebate and that rebate may range from 30 to 50% of the cost of your upgrade, but you still have to be ready to cough up 70 to 50% upfront in cash. And so [00:25:00] the folks who are, who are not as well off whose businesses aren't doing as well. Uh, you know, they're still paying into that energy efficiency fund.

They're still paying that rider that lets the utility fund energy efficiency rebates, but they never get the benefit from it. Right? Because they don't have the time, the bandwidth, the cash to manage that process. If the utility can go out to all of their customers and say, look, I know the right answer for you.

The customer based on the trusted energy expert, I also know the right answer for the grid as a whole, right. I, I know where we're gonna see constraints in the future. On our transmission line. I know where we need to alleviate load. The utility can start making a holistic benefit that yes, benefits that end customer and all of the end customers ideally equally, but also benefits the grid in a concerted measured way.

And so I think that putting. [00:26:00] Efficiency as a service to carbonization as a service in the hands of utilities and letting them sort of provide a, a curated solution to the marketplace is really, really valuable, both from an inclusivity standpoint, making decarbonization available to, to everyone and from a net benefit standpoint, because you can drive a lot more sustainability if you are pushing these solutions into the market than you can, if you're waiting for the market to come to you and ask for them.

And the last thing that I'll start say about this for now is I also think that it is, it is good for the trade ally ecosystem for the, the contractor ecosystem, the folks who are doing those installs, because first of all, more jobs are generated. The utility is out selling this into the marketplace alongside or on behalf of those trade allies.

They're gonna be able to generate more deal flow. And so those trade allies can get more work done. [00:27:00] You also then have a, an objective arbiter of what is good and bad work, quality and workmanship and product. And the most damaging thing to good contractors is bad contractors, right? In, in any trust based economy, any trust based economy, you really, the, the biggest damage to good actors is bad actors and not having a transparent marketplace where that end customer is unsure of the value that they're gonna get and is asked to pay upfront regardless of what value they get.

And that's, again, one of those complexities that prevents the mass market commercial industrial customer from engaging decarbonization, they don't know upfront how to tell the quality of the solution that they're gonna get. They don't know how to tell high quality L E D lights or high quality variable frequency drives from low quality ones.

Yeah. They don't know [00:28:00] how to tell a really good lighting contractor from a pretty good lighting contractor. Um, and, and the utility. Isn't a, a great place to be the clearing house for that information. Absolutely.

[00:28:16] James Dice: I wanna circle back real quick on the mass market versus what people in this, in the smart buildings industry typically think of as the buildings industry.

So, um, when we, when we like, have, you know, when we talk about class a offices or we've had Stanford and duke and like, um, those types of building owners, and you mentioned Bush market, so there's, you know, universities as part of that, but also class, a office buildings, these bigger buildings that have more money and more resources like you talked about.

What we're talking about is like the 98% of the other commercial buildings. Right. Um, and very much so. Yeah. What I found when I did my paper is that was something approaching 50% [00:29:00] of the energy use in the United States. Um, so this is a big, big, big problem. Right. And simplicity is, I agree with you, like the, you know, should be like the Keystone to making all of this happen.

So, um, the types of complexity that you mentioned, so that you mentioned financial complexity, right. I don't have the money to spend on this. Right. But then if I'm gonna borrow money, all of that complexity to figuring out how to do that and who to do it with and who to trust, what the term should be and all of that.

Um, you mentioned last time we talked about this three other types of complexity. I'm wondering if you could just walk people through those. There was programmatic. Installation and then value or performance, risk complexity. Could you just walk people through that? I think you already talked about all of them, but just, I, I wanna spell it out

[00:29:55] Aaron Block: clearly.

Absolutely. Yeah. And I think programmatic complexity is [00:30:00] getting back to that utility rebate space, where there are a lot of incentives out there for people to engage in the carbonization activities. There's a lot of, there's a lot of opportunity either for tax credits or for cash rebates, or maybe you get some free consulting, you know, out of your utility.

And that is a complex thing to navigate to the point where, you know, IIA has fortune 100 companies that have asked. Us to manage their, their rebate filings. They're out there doing a bunch of energy efficiency upgrades they're doing with them without the rebates, cuz they don't have the time or the energy or the expertise to take that on.

That's there's even money on the

[00:30:46] James Dice: table because they're just like, I don't know how this works and this takes too long to figure out and all that.

[00:30:52] Aaron Block: Yeah. And it's just managing paperwork and it's navigating a bureaucracy. And if you are a [00:31:00] fortune 100 company with a very publicly stated sustainability goal and money to spend, you can leave that on the table and not feel bad about it.

If you are a mass market customer, if you are not, you know, the class, a office buildings, if you're not the universities, if you're not the multinational corporations, you probably don't have the money to do it. If you don't get some amount of rebates. And even if you do have the. The money to do it. It can just lead to analysis paralysis where you know that there's something out there there's, you know, there's a, a better way to do this.

And if you can't figure it out, you're just not gonna do anything. Mm-hmm, totally right. And so it just keeps getting pushed lower and lower on the stack of papers on your desk. This is something I'll get to eventually mm-hmm similarly that happens in the financial complexity. One of the things that we see a lot, when people look at funding, you know, using debt to fund an energy efficiency upgrade, they [00:32:00] always think they're gonna be able to find a, a better cost of capital, a lower debt rate, and maybe they can, but that takes time.

You have to call bankers, you have to negotiate terms, and it's just not something that's gonna float to the top of your list of priorities. And so it just doesn't get done. So having a really simplified, streamlined way of navigating the. Those programs is really important to getting mass market buy-in.

And so, you know, what IIA does when we're providing either direct to customer efficiency as a service, or we're doing a utility program that is independent of existing rebate programs is we manage all of that process for the end customer so that they don't have to touch any of it. We, we disclose to them, we show them what those rebate dollars are.

We use it to buy down the cost of capital for providing their project, but we handle all of the paperwork. We, we navigate that and that paperwork doesn't need to be [00:33:00] as esoteric as it is. I think, you know, there's a lot of regulatory work around it that probably does in fact require some degree of esoterism, but, uh, it's just sort of, how do you make it easy to opt in?

then the next one was installation complexity, which again, we sort of talked about separating a good proposal from a bad proposal, evaluating the quality of your installation partners, knowing whether or not you're getting a good quote. Uh, you know, that quote is reflective of the value that you'll be receiving.

You know, one of the things that we see when customers bring us projects that they've already started to evaluate on is very often we see quotes, for example, that have in Seattle will see quotes that have an assumed kilowatt hour rate of 20 cents. Now the average, the average price for energy in the city of Seattle is seven and a half to 9 [00:34:00] cents, much lower than, than 20 cents.

But that's not something that an end customer is gonna pick up on. Very quickly. It's not something that they're looking for. They aren't, you know, energy experts and it's not necessarily the result of bad action on behalf of the contractor. Who's producing that proposal. They're just turning out a bunch of proposals very quickly.

Um, and so, you know, that leads to customers eventually feeling like they got misled, which, you know, then permeates the rest of the market, which then makes people hesitant to sort of unpack that. Or, you know, you're gonna have somebody coming into your facility, changing out all of the lights and they're gonna do it overnight.

And how do you know that that's gonna, that work is gonna be done to a quality standard, or they're gonna be switching out the H V a C uh, on your roof, which is, you know, a vital piece of, uh, you know, keeping your tenants happy is that they [00:35:00] feel comfortable in their space. And these are just things that.

Sooner or later you have to do if you're a building owner or a building operator, but isn't sort of your, your core competency. Isn't what you wanna be spending your time doing. Isn't the highest, best use of your time. Uh, and so if you can find a way to sort of take that off of the building, owner's hands makes it much easier for them to engage in it.

Right. And again, sort of being able to come in and say, look, I'm the expert in facilities management, or I'm the expert in energy and energy consumption and sustainability. And so I'm gonna put my money where my mouth is. I'm gonna get paid out of the benefit that this generates for you, uh, that. Again, eliminates that, that big stumbling block, you, aren't asking the customer to take a bet on you with their money.

You're saying I'm gonna make a bet on myself with my own money.

[00:35:53] James Dice: Yeah. And that's where the performance complexity comes in,

[00:35:56] Aaron Block: right? Absolutely. Yeah. I mean, they all sort of [00:36:00] dovetail together pretty tightly, but yeah. And you know, how does a customer know looking at a project, whether you know, this L E D light is as good as that L E D light is a, is a 10 year warranty worth more than a five year warranty on paper.

Yes. But if the, the manufacturer has been in business for three years, as many led lighting manufacturers have been, it's probably not worth anymore. Or, you know, this, this HVAC. Proposal says that I'm gonna save 70% of my total energy consumption. This HVAC proposal says I'm gonna save 30%. And which one of those is, is accurate, which one of those is right?

How do I know who to trust? Um, and if something goes wrong, if, if a light goes out in [00:37:00] three months or three years, who do I call, how do I get it taken care of? Right. Am I now responsible for it? Uh, if my, you know, my, even if I have a great contractor, you know, my, my tie or my, uh, parts and labor warranty, it's one year, what happens if a motor fails on my, my roof in, in three years.

And it's a motor that's three times as expensive as the mm-hmm stock off the shelf motor, because it's a, uh, electronically commutated motor. So again, being able to say, Hey, you know, we're the, the experts in this technology we trust in this solution, we're deploying it at scale across this service territory.

And we're gonna take care of that for you. Yeah. Not just during the installation, not just up front, but you know, for the next seven to 10 years. And if it fails, we'll replace it for you. If it doesn't generate the savings that we told you, it's gonna generate, we won't bill you for [00:38:00] savings that it didn't generate

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[00:38:53] James Dice: love to.

So you've talked about energy efficiency as a service or efficiency of the service. Um, [00:39:00] I'd love to kind of strictly or specifically talk about how that differs from the ESCO model real quick. Um, and to me, the way that you just described the performance risk piece, And the installation complexity piece is, is one of the big differences for me, which is in the ESCO model.

I'm, it's really like a contractual guarantee. It's not, I mean, I've been a part of a lot of performance contracts before, and I've actually sat on the M and V team of one of the biggest ESCOs out there. And what I found was that when I dug into, I was doing annual MV reports, right. For these big universities that have done these tens of million dollar, um, huge performance contracts.

And what I found when I dug into 'em is that it's a contractual guarantee. And, and that's just my fair amount. Don't know if I made that up or what, but like, what I found is when I read the contract, there's no way anyone could prove to [00:40:00] me that I was wrong or that the ESCO was wrong. Right. There's no way you could say that.

The ESCO is owing anything. So it's basically not a guarantee at all. It's just a contract that makes it look like there's a guarantee, um, versus, and really it's basically saying, Hey, we're gonna do this math after the fact. And we get to adjust that math and how that math is done. However, we want pretty much after the fact I'm gonna get a lot of angry emails from ESCOs out there.

but this is how it was for me. Right. I could, I could create this energy model and I could adjust it basically. However I wanted it after the fact, and then the math is gonna get done. And I'm gonna show you that you had energy savings, whether they were there or not, right with energy as a service or efficiency of the service.

What you're basically saying is that we're gonna calculate the savings. And then we're gonna split that with you. Um, can you talk about how those two methods are different? Um, and what other, [00:41:00] I guess, what other ways is efficiency of the service different than the ESCO

[00:41:03] Aaron Block: model? Yeah. I mean, I think, I think you've put a pretty good description on it and it's definitely been my experience with the ESCO model and with a number of current and former, you know, ESCO employees that I've, I've talked with and worked with in the past, your, your description of the M and V team resonates true.

But, you know, I, I don't say that necessarily as a knock on the ESCO world. Cause again, this comes back to the customer's level of expertise and their ability to buy in very often, when you are an ESCO customer, you have a dedicated energy manager, somebody who's able to comment and sort of engage the ESCO TETA te sort of at their, at their level, um, and, and really know, and understand and evaluate what they're getting and the quality of what they're getting.[00:42:00]

And at that point, the performance guarantee. Is almost more of a CYA from a mm-hmm , uh, from an institutional standpoint than it is about that the, the ESCO's gonna pay you back. The ESCO never pays you back. The house always wins, but that's, that's not the point for the ESCO customer at the end of the day.

Um, because they have the expertise to really evaluate that and understand what they're getting.

Another piece there is, is in that MV that, yeah, the, the way that the ESCO model looks at MV is they build, again a very complex thermodynamic I P M P model. And they evaluate that and data points on an annual, or if it's. A rapidly turning model, a quarterly basis to evaluate what those savings are. And there's a bunch of inputs that you can adjust up and down.

And so it's, you know, very hard to, to get an ESCO [00:43:00] model, to, to pay out and sort of the way that I often describe the ESCO model to folks is ESCOs tend to be designed, build contractors, right? And so I'm gonna sell you an facilities upgrade, and I'm gonna build that. I'm gonna install it. You're gonna pay me cash for it.

Now you may go take out debt from a bank to pay cash, or you may pay cash out of your own pocket. If you take debt out from a bank, you're gonna pay that on a monthly basis. You're gonna, you need to go pay down your balance. And if you don't see savings, you're gonna come back and we have an agreement that you can back outta my balance sheet.

Mm-hmm that I will, that I will pay you back. The efficiency as a service model says, no, I, the service provider and the, the trusted energy expert, I'm gonna measure your savings in real time, every minute or every five minutes. And at the end of every month, I'm gonna add up all of those [00:44:00] savings calculations.

And I'm gonna tell you how much I saved you, and you can audit those numbers. You can look at those numbers, but we're gonna split whatever. I can prove that I saved you. So first difference there is, you know, the ESCO says you're gonna save at least $10,000 a year. Uh, and I guarantee that, and if you can prove that you didn't save $10,000, I'll pay you the difference.

And the, as a service model says, I'm not gonna guarantee that I'm gonna save you a dollar, but I will only get paid, say 50 cents of every dollar that I can prove that I do save you. And it is on me to prove that I saved it rather than on you to prove that you didn't save it. So that's one big distinction.

The other again, is sort of that, that metering interval and sort of where that reporting takes place. Um, and then the, the third big distinction there is, you know, to make that M and V [00:45:00] granularity possible. The as a service model, at least as I Lumia has instantiated, it is really more focused on individual measures, right?

The ESCO model really makes sense if you're doing a whole campus with a diverse set of measures, uh, you're doing not just lighting H V a C refrigeration building management systems, but you might be doing window replacements or insulation or redacting things that aren't. Capable of being isolated aren't necessarily capable of being metered that have a, a huge cost and a long payback, but do have a ton of value.

Uh, that's really where sort of the, the ESCO model I think really shines. And it also helps them get to their threshold of, you know, the $5 million that they need to deploy to make it worth their time. Mm-hmm um, but yeah, I think the, the, as a service model works best. If you are isolating specific measures [00:46:00] or a subset of measures and in's case, we really try to target active measures.

So things that that can be actively metered rather than passively modeled. Got it.

[00:46:10] James Dice: Got it. Yeah. And the way that I understand the, as a service model as well, is that I think you mentioned earlier, it started as a, Hey, it is mostly focused on lighting, right? Switching to LEDs. Um, one of the things I wanted to ask you about that was, you know, as we.

Look at what APH building needs to do to decarbonize this roadmap to net zero that needs to happen for every building. Um, there are gonna be some of those bigger, more comprehensive, more holistic measures that need to happen. Right. So can the, as a service model be applied to those types of projects or roadmaps, like you just talked about.

[00:46:53] Aaron Block: Yeah, I think I, the answer is yes. Uh, and there are complexities to [00:47:00] solve, uh, about any given measure and you know, it always, with me comes back to, to complexity. And how do you simplify? I think, you know, right now about 50%. Of our projects these days by value are, are lighting and the remainder are HVAC and refrigeration.

So we've done a pretty good job of diversifying. And I think you'll see, you know, other as a service folks out there diversifying beyond just lighting as well. Uh, it is a, an easy place to start, cuz it is an easy thing to meet her. Mm-hmm um, and the paybacks are pretty good. I think as you get into things that, that are not active measures, things that are passive measures, you do have to deviate a bit from the, the metered solution.

And that does introduce new complexities. It does introduce more of a, a degree of trust, [00:48:00] uh, into the equation because you have to sort of say, Hey, we're gonna model out what you're building looks like with. One type of insulation with another type of insulation.

So I, I do think that it's doable and I, I think that again, that's where having a really trusted advisor in place be it, uh, utility or reap can make that quite a bit simpler. But when you get to those types of transactions, you're also looking at a much larger timescale mm-hmm , you know, the, the payback on fenestrating a building changing out all its windows is 20, 25 years.

Um, yeah, it's a, it's a pretty substantial infrastructure improvement. And so I think you could apply the, the as a service model, but that's where you start to dovetail, I think, into other more traditional financing models, making. More [00:49:00] sense. Okay. Right. That's something that you might refinance a property and use, you know, either a standard refinancing or use pace, uh, property assess clean energy, uh, funds to, to make an upgrade like that.

Got it. I think there's an go ahead. I think there's an interesting bit of a hybrid model out there. I'm sure you've talked about in your podcast before the meats model, metered energy efficiency, transaction structure, um, and that, you know, really is because of the way that it brings in more parties into the transaction and is sort of an up market.

Class a office building type of a solution. It can take a longer view. It is less based on, on, even though it's called the metered energy efficiency transaction structure. It does a lot of things that are [00:50:00] modeled. I think that that can come in and sort of be a counterpoint to pace an additional option. I think for the type of, of market that I Lumia looks to serve to the mass market, that solution is still too complex.

There, there are too many hands in the pie, too many, too many people involved in, in the transaction for it to really make sense for again, your regional corrugated cardboard manufacturer. Yeah. Uh, but I think that's one of the things that's really wonderful about the, the market for decarbonization is no matter who you are at what stage you are.

There is a good solution out there. We just have to, you know, really clarify the messaging around each of them.

[00:50:41] James Dice: Totally. What about for fuel switching? and right when I say, what about, I mean, like, which of these options is best for fuel switching? So like right now I've been, I I'm in that decision fatigue stage on my hot water heater at my house.

And it is, it is like [00:51:00] basically cash flow neutral in that I will see no savings on my utility bill from the switch to a heat pump. Um, but I still wanna do it. And so one of the things I'm like basically stuck with is what model to use. I'm basically serving as the ESCO, right? In that I'm handholding all of these contractors through this process that they've somehow never heard of, um, before

[00:51:27] Aaron Block: Um,

[00:51:28] James Dice: but, um, and that's why I'm just tired of the process and just took a break from it at this point. But if you think about all the small commercial buildings in the mass market, how many of them need to maybe, you know, maybe there won't be a payback to electrification. Where do these different models come in and help there?

[00:51:49] Aaron Block: Yeah, I think that's a really interesting question. And we've started with our, some of our utility partners to get questions about, you know, how do you drive [00:52:00] fuel switching or, or electrification? I think fuel switching is sometimes a dirty word. Yes, it is. Uh, or dirty phrase. Um, and I, I do think right, if there's not a payback, how do you give the customer some sort of incentive to make that change?

Right. Why, why are you gonna put down more money up front if it's not gonna pay itself off? Um, and it's not, I think that, you know, the things like heat pumps don't have a payback. It's just that it's a long timeline to that payback, right? Yeah. Uh, it is, you know, a 15, 20 year. Uh, time horizon. And I guess what I would say is when you look at that, you know, who benefits from a bunch of customers switching from fuel oil or, or natural gas to electricity [00:53:00] consumption, who, who has a, an appetite for assets that are 15, 20 plus years lifespan who's in a good place to evaluate the efficacy of those changes.

The answer to all three of those questions for me is, is the utility utilities, right? And I think it makes sense for the utilities to be getting in a position of saying, Hey, this is something that is good for you as the end customer in the long run. It's good for you in the, as the end customer in the short run.

Cause we aren't gonna be burning natural gas inside your living quarters or working quarters. It's good for the environment cuz we can decarbonize electricity more easily than we can decarbonize your water heater. Or your natural gas fired water heater, let us solve that problem for you and let us provide it to you again on a service basis.

Right? We're gonna, we're gonna bill you for your usage of this asset, just as we bill you for your usage of the rest of [00:54:00] the grid assets on a, on a consumption basis. Uh, I think that makes a ton of sense. Um, and so, you know, again, then it comes down to a question of complexity and simplicity and how do you make it simple for the utility to do that?

How do you make it simple for the utility to identify the appropriate customers, to interface with those customers? To manage the installations? A bunch of small installations, utilities are set up to build one or 2 billion assets, a decade, not a thousand, $50,000 assets a year. So how do you make it easy for them to manage that?

How do you make it easy for them to build for that? How do you make it easy for them to maintain that? And that's, that's really, you know, the technology I think that Olivia's tried to, to develop is, is the platform, the software, the IOT, the services platform that makes it easy to deploy those types of assets at scale.

It's not just about [00:55:00] simplifying for the end customers about simplifying for the provider, for the utility or the

[00:55:04] James Dice: totally. That's a great segue to my last question, which is, um, can you talk about all of the things that you're building from a technology standpoint to make this whole process simple? And, and to me it's like, it's like a marketplace of providers, but also kind of like automating the process to work with the providers.

Right. Um, that's gotta be a, a huge piece of it. There's gotta be a huge piece of it around what are all the like standardizing all of the energy conservation measures. What are all the devices and products I could put into this. Um, and then really just like process automation, right? The step to install this device, the steps to install this device are one through 20, and we're gonna just define all of that out and, and process automate.

All of that. Is, is that kind of what you guys are building [00:56:00] as a technology startup in this space?

[00:56:03] Aaron Block: Yeah, I think you've, you've touched on all most, if not all of the pieces. And I think, you know, the, the quote that always comes to mind when I, uh, when I think about what Illumina is is building is, is Dolly Parton costs a lot of money to look this cheap.

there's, there's, there's a lot of complexity that goes into building a technology that simplifies things for people. OK. And so for us on the, on the software front, it is all about sort of. Workflow and process automation. So first, you know, how do you simplify the segmentation of an identification of customers, right?

How do you make it easy to look across a whole bunch of utility bills or across a geographic space and say here's where our targets are. And then once we go and identify the targets, how do you make it very, very simple and easy to acquire the data [00:57:00] needed to generate a set of, energy conservation measures ECMs.

So what we've done is tried to boil buildings down to what we call sort of a minimum sufficient data set. What is the smallest amount of information that we need to, to capture that doesn't require an expert to be on site, to, to capture that data, put that into our system and then generate a set of recommendations, a set of recommended energy conservation measures, uh, proposals to go with those recommendations contracts.

All branded for our partner. So we can put that in their hands. They can take it and, and go get the customer to sign off on the deal. And then once we have customers sign off on the deal, we actually send that same information out to our installation partners, our trade allies. Um, and I don't know if I'd go so far as to say that we build a marketplace for those trade allies.

We try to work with within the, the utilities sort of pre-approved set of trade allies, because what we wanna be doing is, [00:58:00] is creating, creating opportunities, creating jobs for those utility constituents within that, within that service territory. So we, aren't trying to bring in a bunch of really large national contractors to knock this out.

We wanna be. Sending work out to the local contractors who are on the ground, who know the, know the customers, frankly know the territories and when something goes wrong, can get somebody out there on site to, to repair it quickly. That's a really important constituency for, for utilities to maintain. So that's really what we're trying to use.

The, the deal generation from the utilities to seed these markets of trade allies. And then, you know, eventually give them the opportunity to sell direct efficiency or AEP efficiency as a service or, or whatever you have. Um, but then yeah, once we've selected a trade ally, oh, I guess before we get to there, when we're selecting those trade allies, again, one of [00:59:00] the things I talked about was being able to make sure that the customer is getting a good deal.

So, you know, you, as the utility are, are. Utility as a customer of Lumia have access to a database of projects that have been built and bid in the past. And so we could say, Hey, based on local labor rates and the equipment being installed, this is a great deal. Or this is a little bit expensive. And maybe if we recommend to the trade ally that they use, uh, some other piece of technology, uh, we can bring that down into, uh, a rate that can be paid off more easily by the, the service contract.

Or maybe we can go to the customer and say, Hey, you know, we'd like to do half of the work overnight and half of it's swing shift because that's gonna let us work faster, cheaper, you know, the utility and Lumia, conservative, negotiate those pieces pretty easily. And we know what the levers are to pull both on the customer and the trade ally side to get that best work.

But then yeah, sort of one of the things we've [01:00:00] tried to do once you've selected that, that trade out to move the work forward is to boil the process of, of installation and re, and really it starts during sales, but sales through installation down to a set of milestones, sort of 20 to 30 milestones that are the same for every single project.

So that, you know, again, without having to put feed on site, that every project will have gone through the same steps. It will have the same documentation. It will have the same quality assurance steps. The meter will be installed in the same way at the same time at the beginning of every installation. So you can observe energy efficiency, savings, taking place as more and more equipment gets installed.

Did you know that before you. Foot on site with a contractor, you have a, you know, a letter of authorization signed by the, the customer and that that documentation has been submitted to the permitting authorities. And that when a contract is complete, you've always got [01:01:00] COIs on file. And there's just sort of standardizing and automating that process in a way that takes the capacity for human error out of it.

And then similarly trying to eliminate human error, there's sort of that IOT element where we are providing revenue grade metering that gets installed at the device or at the circuit level. So we can observe in real time savings that are taking place and what is driving those savings. So, you know, like I said, you install that metering at the beginning of the project and you can watch as more and more equipment gets installed.

You can also come back to a customer and say, Hey, you didn't save as much money as we. Thought you would this, this month. And that's because on Mondays, Wednesdays and Fridays, your closing manager has been leaving the lights on overnight and you really might wanna have a conversation with them about that.

And the customer come back to us and say, Hey, actually, we, we started restocking the shelves on Monday, Wednesday, and Friday nights. And, and so he's actually supposed to leave those lights on. It's a real experience that, [01:02:00] that happen with us, but those are sort of the things that providing really granular, detailed, accurate metering can provide you those insights.

And that's, that's really what we're putting together from the technology front. We pair that up with the financing where we can bring in the capital to fund these projects, get paid back out of the savings. And it does really start to shave up into something that is very easy for an end customer to opt into and very easy for a utility to take advantage of, right?

It is a, is a prepackaged solution that they put their name, their branding on, they go sell it into the market and the tools are all there to run, uh, from customer identification, through sales, documentation, project management and long-term service. And, you know, we've also got a, a program stuff that's there to, you know, help people every step of the way, because just like our, efficiency as a service contracts, when we're providing our platform, we get [01:03:00] paid on a success basis.

So we're, we're out there to make sure that. Every program that we build is, is driving as much revenue for our customers as possible because that's how we

[01:03:09] James Dice: get paid. Totally. All right, Aaron, let's close with, Carhouse a podcast book, TV show movie that you'd recommend people check out. It could be related to all this.

It could be totally unrelated to all this. Just something you recommend, uh, people check out.

[01:03:26] Aaron Block: Oh man. I obviously recommend that everybody listen to the nexus podcast, but they already, already are listening. So you should also listen to the planet money podcast. Always an interesting set of information that you could pick up from that. Uh, for books, I always recommend that people not an energy book, but read a hundred years of solitude.

Okay. Uh, that's uh, a classic, but if you want an energy book, I think the age of Edison about the first utilities, which [01:04:00] started out as lighting as a service company, uh, were you paid by the bulb by the month for electric light is a, a very interesting read. Okay. Did they take

[01:04:13] James Dice: it up to present day? How that evolved into what we have today?

[01:04:17] Aaron Block: Uh, they don't get as far as, as the present day. Okay. Um, but they do, it starts with the Pearl street generating station goes through the very deregulated early days of, of utilities where you would have dozens of. Of electric generators in any one city and everybody would be stringing their, their lines on the same poles.

And it was not uncommon to have multiple deaths of linemen per week, because there's just this rat's nest of uninsulated wires dangling above the city, God, uh, to arc lights, where in some cities sort of the first public electric lighting was not in [01:05:00] Candescent bulbs or anything, but these massive arc lamps that they would put up on towers that would illuminate the entire city with this, you know, 6,000 Kelvin lighting.

Super interesting, definitely worth a read. Okay. Awesome.

[01:05:13] James Dice: Awesome. Well, we will put those in the show notes as usual, and I'll probably be ordering at least that one. Uh,

[01:05:21] Aaron Block: when we it's a quick read, it's a quick read.

[01:05:23] James Dice: Cool. Well, Aaron, thanks so much for coming on the show. This has been. Exactly what I hoped it'd be, um, for clarifying complexity, removing complexity.

Thank you so much.

[01:05:34] Aaron Block: Thanks. Thanks for having me. Thanks for listening to me ramble. And what was hopefully, uh, not too complex.