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Investors Back Energy Efficiency in Tough Times, But What About Customers?

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Energy efficiency may be the low-hanging fruit of the cleantech industry, but it’s a hard sell in these tough economic times. A report released today from Johnson Controls (s JCI) and the International Facility Management Association on energy efficiency in buildings says that while businesses in North America are showing more interest in energy efficiency, they aren’t actually following through and spending money on it. According to the report, most businesses just can’t spare the cash right now, which could mean hard times are ahead for startups trying to make it in the energy efficiency industry.


The report shows a 10 percent drop from last year in the expected use of facility capital budgets for energy efficiency projects; spending from overall operating budgets is expected to drop by 6 percent this year. It’s based on a survey of more than 1,400 executives — mostly in the U.S, but some in Canada as well — who are responsible for energy efficiency at their respective businesses.

Some energy efficiency startups are flush with cash— Powerit Solutions said yesterday that it picked up $6 million in new funding— but others could be facing a long drought. Business leaders that were surveyed expressed belief that a turnaround could hinge on more incentives and legislation from the government, and most of those leaders said it could take up to two years for mandates on energy efficiency or carbon reduction to become a reality.

With those mandates in place, and once the economy picks up, things could really start moving. “There’s a lot of pent-up demand, and I think we’re going to see continued investment, because, in many cases, there are paybacks that can occur in a very short period of time,” Don Young, with the International Facility Management Association, said in a webcast today.

Nearly half of the executives surveyed expect a payback period of less than three years, which could give lighting companies such as Luxim a leg up on the energy efficiency competition. Last month, Sunnyvale, Calif.-based Luxim said it raised $12 million in a Series C round of financing for its solid-state plasma lighting. Energy-efficient lighting is one of the easiest switches for building owners to make and tops the list of energy improvements in the survey that have already been implemented, so it’ll probably continue to lead the way in new investments, once those new investments actually start rolling in.

And those surveyed executives could be wrong. With big companies such as Google (s GOOG) making a push on Capitol Hill for energy efficiency, along with its own technology, the expected drought in investment could end sooner rather than later. “I think we’ll see substantial change next year,” said David Myers, who heads up the building efficiency division at Johnson Controls. “I think we’ll see clarity in legislative changes coming up.”

The government also has more to offer than just legislation — it plans to be a customer. Late last year, President Obama said he wants to see energy efficiency upgrades for federal and public school buildings, which could mean a windfall of contracts for up-and-coming technologies.

But what about the recession? “I’ll be an optimist here,” said Myers. “There will be a better economic environment one year from now than we’re facing today.”

Chart courtesy of Johson Controls.