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BuildingIQ, founded in 2009 with research from Australia’s national research group, optimizes building management systems with a predictive engine using real time data, such as the information from weather services and the power grid. The company also has machine learning algorithms that tweak the system to make the buildings efficient but without making them uncomfortable for tenants. Think of it like the Nest learning thermostat but for commercial buildings.

BuildingIQ’s system can also work with utilities’ demand response programs, or when a utility asks building managers to turn down their energy use at peak times of day (picture a scorching mid-Summer afternoon in Texas). It has partnered with Nevada Energy on a demand response program. BuildingIQ says it can deliver 20-to-30 percent reductions in energy use from the HVAC system.

Check out this video of BuildingIQ CEO Michael Zimmerman explaining how the system works

And me interviewing Zimmerman:

The full round came from Aster Capital — which is a group with funding from Schneider Electric, Alstom and Solvay — Siemens Financial Services (SFS VC) and Paladin Capital.

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Of the more than fifty U.S. middle market energy software transactions that have occurred in 2011, just 25 percent would typically be perceived as “cleantech”.  The remaining 75 percent provide solutions that improve the capabilities and operations of energy market participants, but don’t have a “green” component at the core of the offering. Their software solutions are often tightly integrated with critical energy infrastructure and operational technologies, leverage complex algorithms and data processing engines, and are integral to customer operations and difficult to replace.

Software business models vary from software as a service (“SaaS”) subscription pricing to traditional license and maintenance pricing. Companies that have been able to drive premium valuations typically have high customer retention, track records of increased revenue per customer, and large and growing recurring revenue streams.

While the global energy IT sector is growing at a modest rate, just over 4 percent, it is large, over $100 billion, according to Gartner.  The substantial annual IT budgets of companies in the energy sector create opportunity for middle market solution providers to quickly gain scale and grow at double digit rates. Utilities and other market participants looking for increased efficiency and lower maintenance and IT personnel costs are increasingly directing their IT budgets towards third-party software solutions in favor of antiquated, in-house systems. In addition, an ever more stringent regulatory environment is placing heightened compliance and reporting demands on energy companies that are difficult and costly to meet with existing internal IT resources.

M&A Opportunities

The highest profile M&A transaction in the traditional energy technology sector in 2011 is perhaps Schneider Electric’s acquisition of Telvent, which was valued at $2.0 billion (12 x consensus 2011 EBITDA). Characteristic of many acquisitions in the sector, Telvent provides Schneider with multiple benefits: an attractive recurring revenue stream, and the ability to bring additional technology and capabilities as it pursues energy, oil and gas, water and transportation projects across both Schneider’s and Telvent’s geographic footprints. Schneider expects to generate sales synergies of €250 – €300 million through 2016, representing substantial increases over Telvent’s €753 million in 2010 sales.

Other examples of middle market energy technology transactions outside of cleantech in 2011 include Hellman & Friedman’s acquisition of OpenLink Financial; Welsh Carson’s $500 million acquisition of Triple Point Technology; IHS’s $500 million acquisition of Seismic Micro-Technology; and GE’s acquisition of SmartSignal. Growth equity investors have also been funding the next generation of energy technology companies through private placements in 2011, such as TA Associates and Madrone Capital Partners investing $100+ million in MicroSeismic; Goldman Sachs, Kleiner Perkins, Energy Capital Group, and others investing $60 million in NEOS GeoSolutions; and Kleiner Perkins and Technology Crossover Ventures investing $135 million in OSIsoft.

Expect 2012 to be another very active year in middle market energy technology M&A.  Those firms that may drive M&A activity include recently acquired platforms such as OpenLink and Triple Point, which are backed by fresh capital and new potential add-on acquisition strategies; existing private equity platforms such as P2 Energy (Vista Equity), Quorum Business Solutions (Riverstone) and Energy Solutions International (Oaktree / GFI) that are positioned to complete add-ons; large industrial energy companies such as GE, ABB, Honeywell, Schneider, and Siemens that have historically pursued targets to build on their IT / OT convergence initiatives; and large technology companies such as Oracle, IBM, and SAP that continue to add new vertical capabilities, data and analytics to their diverse software portfolios.

Buoyant debt markets combined with the strong revenue visibility and attractive free cash flow characteristics of companies in the sector should further contribute to private equity activity and new platform companies being established.

Tyler Dewing is a Vice President at Harris Williams & Co. and a member of the firm’s Technology, Media & Telecom (TMT) Group.  Harris Williams & Co. is a leading middle market investment bank with a 20-year legacy in mergers and acquisitions transactions and is actively involved in the energy technology and cleantech industries, among others.  The firm’s TMT Group has extensive industry knowledge and transaction leadership experience spanning the software, internet, digital media, IT services, and communications sectors.  For more information, visit www.harriswilliams.com.

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Schneider also announced on Monday that it plans to buy 74 percent of Luminous Power Technologies, which makes power grid gear — like batteries and inverters — for about $310 million. Luminous is based in New Delhi, India, while Telvent is based in Madrid, Spain, and is 40-percent owned by Spanish conglomerate Abengoa.

Schneider CEO Jean-Pascal Tricoire said on a conference call that the Telvent deal “reinforces Schneider Electric’s positions in three key infrastructure markets: smart grid, efficient infrastructures, and smart cities,” reports Bloomberg. Those three areas are where Schneider’s power gear competitors are ramping up, too, including ABB, Siemens, GE, and even Toshiba.

About a year ago, Swiss electrical equipment giant ABB jumped feet first into the smart grid with the purchase of software maker Ventyx (from Vista Equity Partners) for over $1 billion. Then in January of this year, ABB acquired another smart grid software company Obvient. Siemens has announced a flurry of new projects and partnerships over the past couple of years looking to add on smart grid software, and has a goal to double its current growth rate in the smart grid sector to capture about $8.5 billion in global business over the next five years.

GE has acquired smart meter tech startup Remote Energy Monitoring, as well as Opal Software, which makes software and services for smart grid network testing and management. Toshiba is buying smart meter maker Landis+Gyr for $2.3 billion.

Schneider has made other acquisitions in the past, including through a joint partnership with Alstom, bought the transmission and distribution business of Areva for $3.25 billion. Schneider also bought the energy procurement and energy management provider Summit Energy for $268 million earlier this year.

Schneider’s $2 billion offer — at $40 per share — for Telvent was 16 percent higher than Telvent’s closing share price on Monday, and 36 percent higher than Telvent’s average share over the past 3 months, said Schneider. Telvent had 2010 sales of $1.09 billion, and adjusted EBITDA of $165.96 million. Telvent’s shares rose 15.27 percent on the news of the deal.

The power grid is going digital and will increasingly rely on software, analytics, computing, communications networks and data management. The power gear companies are in a strong position to make these types of purchases, and along with competing with each other, contend with IT giants like Cisco, and building automation companies like Honeywell and Johnson Controls.

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In my latest Weekly Update at GigaOm Pro (subscription required), I cover the implications of the Electric Consumer Right to Know Act, or e-KNOW act, which was introduced by Sen. Mark Udall (D-Colo.) and Sen. Scott Brown (R-Mass.) last month. While the current gridlock in Congress makes passage of any bills uncertain this year, it’s likely that e-KNOW will serve as a template for some kind of eventual federal regulations on energy data.

So what’s in the bill? On many points, e-KNOW seems to echo the California Public Utility Commission’s recent proposed ruling (PDF) on the subject. For example, it mandates that utilities must provide their customers their own energy data in whatever format it’s available, as soon as possible.

It also makes it clear that customers own their own energy data, and are entitled to share it with third parties of their choosing. There’s good reason for smart grid companies to be pleased by a bill that would mandate broad consumer access to energy data, since they’ll need that data to deliver energy control and saving services to customers.

At the same time, e-KNOW follows the lead of the CPUC in requiring that utilities turn over customer data in a way that “provides adequate protections for the security of the information and the privacy of the electric consumer.” Just how utilities are to simultaneously open data to customers and keep that data secure — and how smart grid companies’ plans to use energy data might come into conflict with consumer data privacy policies — remains to be seen.

At the highest level, however, the significance of the e-KNOW Act lies in its move to nationalize a utility regulatory process that now goes on mainly at a state-by-state level. While California is among the first states to lay out such broad proposals for how to balance utility customer energy data access and privacy, other states such as Texas, Pennsylvania and Colorado are also busy working on their own rules. By placing nationwide oversight in the hands of the Federal Energy Regulatory Commission, e-KNOW would create a nationwide set of regulations — a development worth keeping an eye on.

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The USGBC expects to publish its first “Demand Response LEED Pilot Credit” later this spring. Next up will be a series of pilot projects that will bring existing LEED buildings into demand response programs, said Brendan Owens, vice president of LEED technical development at USGBC.

While the pilot projects haven’t been named yet, Owens said they should be able to take part in this summer’s demand response season, to help the USGBC and its partners figure out just what weight to give demand response credits in LEED’s Energy & Atmosphere Credit system.

As for just how many LEED points could be attached to demand response, he said it’s too early to say. While building energy efficiency and onsite renewable energy are currently counted for LEED ratings, “this is the very first time we’ve deliberately gone to the other side of the meter,” he said.

Still, there’s good reason for green building standards to take peak power reductions into account, he said. Utilities are desperate to cut their peak loads, which otherwise have to be met with expensive “peaker” power plants, usually gas-fired turbines, that sometimes only run for a few hundred hours every year. Keeping peak load growth in check can thus have an outsized effect in reducing the overall carbon footprint associated with electricity generation.

To date, demand response hasn’t had as much success in the commercial building market as it’s had in the industrial sector, Owens noted. Factories have lots of energy management and power system systems in place that can be tapped to shave power. Commercial buildings can have a harder time turning down air conditioners or lights to meet demand response calls, both because they lack technology to automate the process and because they don’t want to displease building tenants.

Indeed, the new program could be a key way to expand the share of commercial buildings interested in participating in demand response, he said. USGBC has identified about 4,400 LEED-certified buildings that could be targets for demand response, and LEED-certified buildings add up to some 6 billion square feet, with 1.5 million more square feet per day in new buildings registering for certification, he noted.

LEED building owners — the kind of energy-aware, ratings-motivated customer base — could provide a significant opportunity for utilities and demand response providers trying to expand their markets. Big demand response aggregators such as EnerNOC, Comverge and Constellation Energy will likely be looking at ways to approach the LEED opportunity, as well as big building control players such as Honeywell, Johnson Controls and Schneider Electric that have been making moves into demand response technologies.

In fact, Schneider is on the USGBC committee that’s working on the new demand response credit, and will be playing a role in the pilot projects set to start this summer. Ross Malme, former director of Schneider’s demand response resource center who recently left to become a new partner at consulting firm Skipping Stone (another partner on the project) told me last month that companies are looking forward to being able to market their demand response programs as “sustainability services,” rather than just ways to shave energy use to make money.

Another partner on the USGBC project committee is Lawrence Berkeley National Laboratory’s Demand Response Research Center, home of the technology known as Open Automated Demand Response, or OpenADR. Owens said that the council would prefer participating buildings to have technology in place to automate the way they turn down power in response to demand response signals, though it won’t be required, and having Berkeley Labs on board probably means that OpenADR will be given a chance to fill that role.

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UTC’s report, prepared by The Shpigler Group, takes a rather optimistic view of how popular plug-in cars are going to be. UPDATED: It predicts electricity demand from plug-ins will grow from 146,000 megawatt-hours in 2010 to 2.6 million mWh kWh by 2020.

That’s a fraction of overall grid demand, but it’s largely the way people will plug in their EVs that could make it particularly hard for utilities to deal with the trend. Each plug-in car adds roughly the equivalent of a new house to the local grid’s electricity demand, which is something most neighborhood distribution feeders and substations weren’t built to supply.

Blown transformers, neighborhood blackouts and other problems could emerge as a result of too many EVs in concentrated areas getting plugged into neighborhood garages en masse. Pacific Gas & Electric has identified hot spots like Berkeley — home of the plug-in Toyota Prius hybrid retrofit market — as neighborhoods that might be facing this kind of problem soon.

Beyond the geographical issues, there’s a timing issue, too. If they all start charging when people come home from work — the same time they’re cranking up their household power use — it could crash the grid.

Charge them around midnight, however, and the nation could see plug-ins replace more than half its 254 million existing cars without adding a single new power plant, according to a study from DOE’s National Renewable Energy Laboratory. That’s because lots of 24/7 power generation resources get wasted at night, when everyone goes to bed and power demand peak drops to its minimum level. Again, however, we need technology to help us solve this problem.

Utilities are preparing for future EVs with a host of pilot projects, with the likes of gear providers GE, Siemens, Schneider Electric, and ABB. At the same time, automakers are partnering with these companies in order to build the charging networks they’ll need to sell more EVs in the next decade. Private car-charging networks, such as NRG Energy’s subscription-style EV charging network  in Texas, are also emerging.

Of course, all these issues depend upon how popular plug-in cars will become over the next decade. It’s hard to justify spending hundreds of millions of dollars to build the electric equivalent of a nationwide network of gas stations before you know how many EVs there will be on the road.

The Obama Administration insists that 1 million plug-ins will be on U.S. highways by 2015, but many are more pessimistic. In the meantime, local plug-in networks are being built by intrepid startups serving the small, yet well-connected, audience of EV drivers now on the road.

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Larsh Johnson, CTO of eMeter, said that solving the problem of unreliability due to decentralized energy, “ultimately comes down to financial transactions,” and that metering electricity will be key. Apps will have to keep track of who bought energy and who sold it at every point in the process — “effectively, what’s going on on a wholesale transmission level.” In this way, the smart grid will function like the wholesale energy trading market, but the trading will happen among utilities, power plants and consumers.

Utilities have a great opportunity to use the information they’re gathering from customer meters to operate their grid better, according to Johnson. Hennenberry described a new vision of demand response, sometimes called the killer app of the smart grid. “Because of deregulated marketplaces, demand response is moving toward a more real-time automated activity,” he said.

Renewable energy sources and electric vehicles are accelerating the need for smarter, faster and more automated demand response. As Andrew Tang, the managing director of ABB Ventures, pointed out, electric vehicles not only require a significant amount of energy, but because of people’s work commutes, the demand happens at peak times. Renewable energy sources are not as reliable as base load energy (nuclear, coal or natural gas sources), so Tang said utilities need to have spinning reserves for when those sources aren’t available. Johnson advocated an even more decentralized approach. “I’d argue for personal storage,” he said, so that “if I have solar panels on the roof, if the power fails, I can use it. That’s not the case now.”

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