The Lens: Honeywell+Sine, FERC order 2222, Axiom's reincarnation

Hey changemakers!

Welcome to The Lens, a monthly recurring series where I unpack the strategy and context behind the news in as few bullet points as possible.

Enjoy!

1. Honeywell Acquires Sine Group & Sparta Systems

What happened?

• Honeywell acquired Sine Group, an Australian SaaS company that provides mobile-first visitor management, workplace, and supply chain software.
• Then they acquired Sparta Systems, an American SaaS company that provides quality management software (QMS) for the life sciences industry.

Why?

Sine’s occupant engagement1 software has pertinent return-to-work capabilities that enable organizations to manage Covid-19 protocols.2 As Joe Aamidor said,

“Pre-pandemic, tenant amenity apps saw good uptake but questionable ongoing use by tenants and occupants. Now they are much more of a central part of how workers will interact with their workspaces.”

Given that, you might think this is a me-too move focused on the CRE space to catch up to all the other companies engaging tenants (see below). That’s part of it, but the strategy is deeper than that. This fills a big hole in Honeywell’s Forge overlay software offering across all building types, not just offices.

• As one Forge engineer told me, this is about shifting their focus as a company from “device-centric to user-centric”. Sine’s mobile app expertise can help create an app that can serve Honeywell’s core stakeholders (O&M teams of facility managers, technicians, and service providers) as they move throughout the building or log in remotely.

The Sparta acquisition is driven by a strategy Forge’s Chief Product Officer called “extensibility”:

finding a way to describe, through basic extensions, how one sector differs from another, using a language everyone involved can understand. While terminology can vary widely between industries or companies, the core capabilities are not necessarily different. This brings us back to Honeywell's EPM process—finding the common, underlying issues different sectors are dealing with and developing a set of tools that addresses these shared needs.

In other words: Sparta is a sector-specific add-on to Forge for big pharma facilities. Sine is key to a core Forge capability across all sectors, which all have sites with occupants. Sine’s CRE-specific use cases are important, but not the key focus. I think this extensibility concept applies to all types of overlay software.

• Finally, I can’t help but mention some skepticism that Honeywell is fully jumping into the SaaS world. This is surely also driven by selling more traditional hardware (e.g. access control systems that will go hand-in-hand with can occupant app) and service contracts.

The context

• The occupant engagement space is so hot right now due to COVID and CRE landlord motivation to provide a better experience for tenants.3
• Occupant apps are strategically interesting to me because they can sink their teeth into a building without a huge upfront integration with existing systems. For example, the workflows Sine enables would be much better with an access control system integration, but it has several use cases that stand alone by simply facilitating engagement and making certain processes digital. Then they can go deeper from there once it’s already sticky.
• Besides Cohesion and Facilio and ThoughtWire, Forge is setting up to be one of the only overlays I’m aware of to attempt to engage the occupant and the FM team using one comprehensive platform.4 My hypothesis is that comprehensive approaches are better suited to survive because they can more seamlessly enable multi-stakeholder engagement and can take advantage of contextual integration and the gravity of the platform.

2.  FERC passes order 2222 to open up market for DER aggregation5

What happened?

• The United States Federal Energy Regulatory Commission ordered the nation's interstate6 electric grids to develop rules that will allow distributed energy resource (DER) aggregations to participate in these regional markets.
• When implemented, DER aggregations will be paid for the market value they create by shifting energy from expensive to cheap time periods and by providing services that make the power grid more reliable. This will be similar to how a traditional supply-side energy resource, such as a natural gas power plant, bids its capacity into the market.
• What comes next: Regional grid operators must revise their tariffs to establish DERs as a category of market participant.

Why?

• Massive amounts of DERs are being added to the grid. What are DERs? Think energy storage, demand response (DR), energy efficiency, rooftop solar, or electric vehicles (EVs).

These resources can play a vital role in a changing grid system7 and this order says it’s time to reward them accordingly. In short, that role is to adjust loads on the demand-side to meet available supply and in turn, coordinate available DERs to provide power efficiently on the supply-side. UtilityDive summarizes the value for the grid:

Rather than building expensive gas-burning peaker plants, or panicking over the impending shutdown of an aging nuclear power plant, grid operators will be able to turn to the bits and pieces of existing energy infrastructure that, taken together, add up to significant energy storage assets. The interconnected smart devices that help our homes and businesses save energy can become flexible resources for our grids.

• While some DERs do already participate in wholesale energy markets, their participation is still far more limited than their full potential. This has the potential to remove a bunch of market and policy limitations on the growth of flexible demand solutions.
• We need DER participation in the market at scale to decarbonize the electric grid. Order 2222 requires grid operators to set up the financial incentives to drive that growth.

The context

• There is a lot of detailed context around the implementation of this order, how complicated it will be, and when it will be implemented—but the more important piece of context is why this matters for us:
• First, these sorts of moves will drive technology installations and energy projects. Buildings are no longer just consumers—they also produce energy, store it, and participate in energy markets by providing services to the grid. And those trends are moving from theoretical to market-driven.
• Second, these sorts of moves will add momentum to a growing vendor type in our space that more people need to be aware of: aggregators.8
• Aggregators can draw from any number of sources, from water heaters to smart thermostats to a solar development with battery storage to fleets of commercial electric vehicles. The aggregation opportunity that we’ve covered intensively is with advanced supervisory control (ASC).
• I’ve noticed that established players in the smart buildings space are beginning to make moves to either be aggregators themselves or establish partnerships with aggregators.9 For example, Phoenix ET offers ASC-based demand response and has partnered with aggregators CPower, Leap, Enersponse, and Voltus to help monetize that capability.

3. Axiom Exergy dies and reincarnates with ASC-based Axiom Cloud

What happened?

• From 2015-2020, Axiom Exergy raised at least $12.5 million to equip grocery stores with thermal batteries. That company shut down in mid-2020… due to COVID and the realization that the hardware-centric approach wasn’t working.
• Then they reincarnated as a software company focused on advanced supervisory control (ASC) for refrigeration systems in grocery stores. In the words of Emily Kirsch, they’re now using software to turn ice cream into virtual thermal batteries. Here’s a cool chart that shows how it works:

• They’re also one of those overlay software companies mentioned in the previous section that is partnering with aggregators to monetize demand flexibility.
• In January, Axiom Cloud revealed a $1.1 million seed round and announced that the software is already live in dozens of grocery stores, including Whole Foods locations and three other major grocery chains in the U.S. and Canada.

Why?

• Grocery store margins—The net profit of a grocery store roughly equals the energy costs, so the business case is strong (1:1 ratio of energy savings to resulting profit for decision-maker). If you can design a SaaS product that is cashflow positive, it should be a no-brainer (or so the VC’s theory goes).
• The inventory value—Food always needs to be in the right temperature range. If it rises above that for 4 hours, it’s legally unsellable. If it drops below the range and over-cools, it can damage the quality (e.g. TFW you pull your ice cream out of the freezer and it’s over-frozen and tastes like sh*t). That risk of lost inventory could be millions of dollars, and analytics can help.
• Compliance—Due to GHG and ozone protection regulation, refrigerant leaks and compliance are also a big deal.
• The grid benefits—see the previous section!

The context

• While the news of a $1.1M seed round is likely not very compelling to you, let me share why I think this concept should be: the patterns here match the patterns in other building types. This is Honeywell’s10 extensibility at work again. Here are the core overlay concepts that span verticals:
• The buildings are served by siloed, heavily-engrained, slow-moving, hardware- and service-driven incumbents whose software doesn’t use data well, nor does it help the operators accomplish their goals or make their workflows more efficient.
• Enter the overlay software providers, who start by providing analytics software. There are a lot of these in each vertical. Like I said last week, I think the Whole Analytics Product will separate itself from the rest of the herd.
• A much smaller subset of those analytics software providers makes the jump to advanced supervisory control. I think my series of essays on ASC applies across verticals.

• And that means the reasons to be skeptical of Axiom’s approach span verticals:
• It’s limited to just one siloed system in the building, whereas the building is a system of systems serving a specific experience to a human occupant.11
• Advanced supervisory control, in my opinion, is at the top of the hierarchy of needs, and therefore its results depend on everything else down below. Also, if those things down below are done right, there are diminishing returns for the ASC layer.12
• AI-based control is sexy, but, counterintuitively, it is human workflow integration that is the key to scale. The biggest workflow-related obstacle for Axiom is that someone in each store’s value chain currently owns the control sequences for all those refrigerators. Some of those someones have contractual liability for maintaining food temperatures. Where does the AI fit? Once the AI gets inserted, who is at fault when something goes wrong?

That’s all for The Lens this month! Thanks for reading,

—James

P.S. Three questions for ya:

• Did you like this? If so, please hit the like button to give me some feedback. If not, let me know by hitting reply or leaving a comment on Nexus Connect.

• Where am I wrong?
• What news should I turn The Lens on next month?

P.P.S. Thanks to Keith Gipson and Tyson Soutter for answering my nerdy questions on refrigerated retail over the last year.

Footnotes:

1

This refers to how occupants interact with the building—do they have to whip out a badge to get in? With the pandemic still raging and folks starting to return to work, does the company have the technology to screen temperatures at the door without putting another employee or security guard at risk?

2

Including pre-screening, touchless check-in, thermal camera integrations, capacity management, and contact tracing

3

Recent announcements on my radar have been Comfy announcing a partnership with LiquidSpace, a new ArcGIS-based product from Exxon Mobil of all people, JLL launching Jet and investing in HqO, and CBRE’s Host. We’ve also covered startups Facilio and Cohesion, which have a more comprehensive overlay approach. Apps in this space usually also come with space management capabilities, although Sine’s stuff doesn’t mention them.

4

Yes, Comfy does too, but they only engage FMs for hot/cold calls, which is only a sliver of their concerns.

5

Yes, I’m just getting caught up on this news from late 2020. I feel comfortable moving this slow on this one… because the utilities industry moves very slow. It will be years before all the slow-moving regional grid operators actually do anything.

6

This affects wholesale power markets, which refer to the buying and selling of power between generators and resellers. In contrast, the transaction that occurs when buildings purchase and consume electricity takes place in the retail power market. Order 2222 affects the wholesale power markets, NOT the retail markets.

7

ASE summarizes the current state of the grid well:

Currently, grid operators dispatch power to meet demand when it occurs, essentially treating energy demand as fixed. For instance, an operator must request an increase in electricity output to meet increased demand as folks turn on their lights in the evening. This “follow the load” model is expensive and inefficient, as it requires grid operators to build and maintain backup peaker plants in the instance of peak demand. Meanwhile, our energy needs are changing due to a convergence of factors such as digitalization, consumer expectations and demand for services, and policy objectives such as climate emissions reductions and resilience.

8

Go deeper: Matt Golden and I dug into aggregation and virtual power plants on the podcast.

9

Seems like it’s best to look to California for established aggregators

10

I’m stealing this concept from here on out… sorry Honeywell folks. It’s now the Extensibility of the Overlay.

11

As one example, consider HVAC’s interaction with refrigeration: if the store’s humidity is too high, the cases don’t run properly; they will start icing.

12

For example, if you correctly program the local controls you now have redundancy, you have an operational maintenance path to keep this running and you are investing in the site so if you decide to change suppliers or contractors or software providers those savings are yours.