Redaptive lands $125M to expand no-money-down building efficiency

U.S. commercial and industrial buildings waste an enormous amount of energy — about 30 percent of their total energy use, according to the Environmental Protection Agency. That adds up to about $65 billion per year.

Denver-based startup Redaptive is one of a growing number of ​“energy-as-a-service” companies willing to take on the risk of paying upfront for major energy-efficiency upgrades to curb that waste. But CEO Arvin Vohra knows that this requires a lot of data to prove that those investments are worth it. After all, that’s how Redaptive and its customers and financial backers earn their money back.

“Lack of funding, lack of data to prove a business case, lack of expertise to drive a more efficient and sustainable outcome — that’s where Redaptive comes in,” Vohra said in an interview.

Since its 2015 founding, Redaptive has built a combination of sensors, software and efficiency implementation expertise to prove out this proposition. On Thursday, it landed the latest vote of confidence in its methods — a $125 million financing from Deutsche Bank’s US Private Credit & Infrastructure group.

Redaptive will use that money to finance the same kind of efficiency installations and managed services it’s already deployed at more than 3,000 sites for more than 150 major corporate customers including Cintas, Iron Mountain, McKesson, Saint-Gobain and others. ​“We’re here to make simple things happen,” Vohra said, from installing more efficient lighting and reconfiguring HVAC systems to reduce wasted heating and cooling energy to putting solar panels on buildings where they can earn back their cost in reduced utility bills over time.

“These are things that are very easy to say yes to, but hard to accomplish in real life,” given the competing pressures that companies face in determining where to direct their capital. Redaptive and its financial backers take on that upfront investment and ​“charge per kilowatt-hour saved,” Vohra said. ​“And the rate we charge is lower than the utility bill.”

This is the second major financing for Redaptive’s energy-as-a-service model, following a $50 million financing from Rabobank in 2021. The company itself, which withdrew plans for an initial public offering last year, has raised about $440 million. That includes a $250 million Series E round this year with investors such as the Canada Pension Plan Investment Board, Linse Capital, Honeywell and CBRE, which put the company’s valuation at about $1 billion.

That’s a lot of money, but the potential market for energy-saving investments is huge, Vohra noted. ​“We’re growing so fast, we’ll use the money by next year.” 

Redaptive’s scope of work pales in comparison to that of the giant energy services companies, or ESCOs, that have dominated the shared-savings and performance contracting efficiency business around the world. ​“They have gargantuan positions in traditional energy services business lines,” Vohra said.

But these ESCOs — mostly units of big building equipment vendors like Honeywell, Johnson Controls, Schneider Electric and Siemens, utilities like Duke, Engie, NextEra and NRG, and engineering firms like Ameresco, Burns & McDonnell and Willdan — aren’t designed for the commercial and industrial building markets that Redaptive is going after, he said.

ESCOs have traditionally focused on federal government contracts and the broader​“MUSH” (municipalities, universities, schools and hospitals) market, he continued, adding that those entities typically have much longer timescales for earning back the cost of efficiency retrofits. Corporate property owners, by contrast, tend to view anything longer than a five-year payback as a poor use of their capital.

Traditional ESCO contracts also lack the detailed data that Redaptive’s building energy metering technology can provide, he said. Much of Redaptive’s early work concentrated on designing and installing its own meters to deliver ​“a lot more resolution and a lot more accuracy” than the standard measurement and verification methods used in traditional performance contracting.

Vohra highlighted Honeywell’s investment in Redaptive as an example of how big ESCOs are looking for ways to expand their energy services businesses to commercial and industrial markets where ESCOs have had less success. ​“On the private side, they’ve said, we need a different model — and we need to partner with these guys to make the model work for them.”

Redaptive’s metering data doesn’t just help prove that its efficiency projects are delivering the kilowatt-hour reductions that form the basis of its revenue, he noted. They can also help identify when building equipment is failing to perform optimally — a service that can help building owners save on maintenance and replacement costs as well as improve efficiency.

“Our secret sauce is in the software and the analytics,” he said. Earlier this month, Redaptive launched a new service, dubbed Redaptive One, that combines electricity, gas and water metering data to track efficiency and sustainability metrics across building portfolios — an additional value for companies seeking to meet internal environmental, social and governance (ESG) targets or comply with future regulatory requirements on that front.

Climate change is motivating corporations to get a grip on their building efficiency and carbon footprints, and a growing number of companies are seeking to serve that need. 

The Department of Energy’s Better Buildings Initiative tracks energy-as-a-service investments from startups like San Francisco–based Metrus Energy to multibillion-dollar climate infrastructure investment firms like Annapolis, Maryland–based Hannon Armstrong.

Major building HVAC and electrical equipment vendors like Johnson Controls, Siemens and Schneider Electric have formed joint ventures with infrastructure investors on ​“distributed-energy-as-a-service” offerings that package building efficiency with solar panels, batteries, electric vehicle chargers and other such technologies.

The end goal of many of these energy-as-a-service investments is to enable the value of improvements in thousands of buildings to be securitized, or bundled into financial instruments that can be bought and sold by secondary investors, Vohra noted. Securitization has driven down the cost of financing for home mortgages and auto loans, and has also played a key role in lowering the cost of residential rooftop solar installations.

The trick to securitization is to provide lots of underlying data that financial institutions can use to assess the creditworthiness and risk of a portfolio of disparate building-efficiency and energy projects with very different profiles, Vohra said.

“The backbone of it is bona fide results that aren’t estimated,” he said — something he said Redaptive’s meters and software provide. With the Rabobank and Deutsche Bank financings in hand, ​“we’re at the point where multiple banks have looked under the Redaptive hood and said, ​‘These projects are good.’”