Carbon Lighthouse improves building energy efficiency to save its clients money, and to combat climate change. Stanford University, Tesla Motors, and Kilroy Realty are just several of the organizations it has worked with so far. CEO and co-founder Brenden Millstein answered some questions about its approach and technology.
How and when did you have the idea to start your company? Did you have prior experience in energy efficiency?
Solving climate change has been a passion of mine since high school. In my senior year I took a Nuclear Engineering class at UC Berkeley and fell in love. Here was a way to use math to improve the lives of billions, and unlike in education the financial incentives were aligned: we could hand people money to do the right thing. That’s been my cause ever since, and I went off to Harvard to study physics with Raphael Rosen, my Physics lab partner and also best friend since kindergarten.
Fast forward a decade and we launched Carbon Lighthouse with the simple but audacious goal of stopping climate change. Our guiding belief was that massive scale can only be achieved by making it highly profitable and easy for customers to act. We were well prepared to do so.
Previously, Raphael helped grow a solar company from 3 people and no projects to 15 people and $25mm in projects. I had co-administered a $90mm energy efficiency program for the City of New York. By combining our physics and data backgrounds, business backgrounds, and knowledge of energy efficiency and solar we were able to successfully get Carbon Lighthouse off the ground.
To date, we’ve worked in 450 buildings in 10 US states and eliminated the emissions of 3 power plants. Three down, 49,997 left to go.
Did you create your own data collection and analysis to go with your sensors? It sounds like your sensor systems and data collection are much more flexible and precise than what are typically used in building management, and if that is the case, how did you create your system and strategy?
Funny story: we did not create our data and analytics system by following our business plan. We created our system out of panic. Our first customer – a private school in Oakland – had done a lot of efficiency work before we showed up. There was no low hanging fruit left. There’s wasn’t even medium hanging or high hanging fruit. The orchard had been harvested. But we’d already signed a contract promising to deliver energy savings.
So being nerdy physicists, we thought if we bought some sensors and started measuring everything maybe we’d find something in the data everyone else had missed. And we did! We saved something like 5% of the whole building’s energy use. With each new building we used more sensors. And with each additional sensor we found more energy savings. As time went by we needed to develop software just to handle the amount of data we collected.
Today, we use machine learning algorithms running across our data in the cloud, cutting up to 30% of whole building energy use just by optimizing existing equipment.
Not only can we cut 30% of energy use, our platform enables us to do it about 10x more cost-effectively than traditional efficiency firms. While we’ve worked very effectively in buildings as large as 1.2 million square feet, we’ve also worked profitably and effectively in buildings as small as 20,000 square feet. Johnsons Controls’, Siemens’, and Honeywell’s energy groups can only work profitably in buildings larger than 250,000 square feet. There are fewer than 50,000 buildings in the entire country that are larger than 250,000 square feet, but almost one million commercial and industrial buildings under 250,000 square feet.
It turns out that early moment of panic paid off.
You make buildings more energy-efficient and save the owners money by reducing energy costs. How do you do that?
We take the opportunities surfaced by our data and match them against their financial outcomes, bringing together the world of science and the world of finance. This delivers the highest value financial outcome for the customer.
After installing our platform, the system continuously crawls the data looking for tradeoffs and optimizations. This could be something like “turn this fan up, which has a penalty, but will enable us to turn two pumps down, net saving 25%.” Ten minutes later the system will make a new adjustment.
Importantly – and what makes us different from a typical one-time energy savings effort – is we continue to take action throughout the duration of our contracts with customers, enabling us to guarantee the financials for the full term. If savings are less than expected, we write customers a check.
Your site mentions NOI. What is that and why does it matter?
NOI is important because it lets us resolve the landlord tenant split incentive, a hurdle that has plagued energy efficiency companies for decades.
NOI stands for “Net Operating Income.” It’s how landlords measure the profit of their buildings. In most commercial office buildings, however, cutting energy use does not increase NOI. Typically, the Landlord needs to pay for energy projects but the tenants get the benefits. Thus, landlords have no direct incentive to do energy efficiency.
Carbon Lighthouse resolves this in two ways: First, we deliver energy savings through a services contract that is passed through to tenants, saving tenants money immediately while costing the landlord nothing. Next, we pay rent to the landlord directly so we can access our sensors and controls, providing the landlord with a new income stream and directly boosting NOI.
We’re the only energy company we know of to fully resolve the landlord-tenant split incentive. Providing tenants and landlords both with more money is a key part of how we’ve worked in so many buildings and eliminated the emissions from three power plants in such a short time.
When you first started, were you self-financed or did you receive support from external sources?
We won ~$300k in grants and fellowships right out of the gates from a group of amazing supporters including Echoing Green, the Stanford Social Innovation Fellowship, and Stanford StartX. Using this seed capital, we grew profitably based on customer revenue alone until 2014. By 2014 we had enough data from our early projects to confirm that everything was working, so we raised our first equity capital and were 7x oversubscribed in just 7 weeks.
Since launch we’ve grown revenues and CO2 impact slightly faster than Moore’s Law. So if we can keep that up for the next 20 years we’ll be all set with climate change.
How did you get your first two or three customers?
We called all our friends and extended families to ask if they knew anyone who owned or knew someone who might own a commercial office building. Then we called their friends, and so on. We made more than two-thousand calls during the first two months of business, and after calling a friend of a friend of a friend of a friend, we had our first customer.
Do you make your own sensors, or if not, where do you get them?
Thankfully there’s a robust sensor supply chain so we haven’t had to do any of our own manufacturing. We use about a dozen different companies’ sensors and tools.
Are your customers mainly in the US, or do you also have some in other countries?
In 2012 we did a couple of projects in the Caribbean, including work at Richard Branson’s private island, Necker Island. Getting crates full of strange-looking sensors and wires through customs is quite tough. For now, we’re USA-focused. There’s plenty of climate change to stop here at home.
Image Credit: Carbon Lighthouse