Reinventing the Built Environment
September 03, 2013 – The sun rises over the downtown Denver, Colorado skyline. (Photo by Dennis Schroeder / NREL)
Overcoming Roadblocks to Commercialization
Author: Bill Farris, Associate Laboratory Director: Innovation, Partnering and Outreach at the National Renewable Energy Laboratory (NREL)
Clean energy and energy efficiency technologies have never been better positioned to make big strides in the energy economy. Generation by wind and solar resources have never been higher, and the gap between renewable electricity price parity with traditional generation is shrinking or, in some cases, non-existent. Non-traditional transportation options are transitioning from futuristic concepts, to real-world market applications. Investment is also slowly returning to the sector with a renewed focus and more strategic players.
With all these wins for clean energy, an opportunity still exists not only in energy generation and distribution, but also in reducing consumption. Energy efficiency technologies have historically faced the least amount of adoption barriers, due to generally lower investment costs and short payback periods. For those risk averse, efficiency plays have been a safe haven.
Buildings represent approximately 41 percent of annual energy consumed in the United States1 and account for nearly 50 percent of our national greenhouse gas emissions2. This is the single largest contributor to carbon emissions—and it comes at a high price. Annual energy costs for commercial buildings alone are approximately $200 billion2.
Innovations in efficiency technologies and design principles could have a big impact on building owners’ bottom line and the overall climate consequences. If buildings in the United States increased efficiency by merely 10 percent, it would be the equivalent of taking about 30 million vehicles off the road2. The opportunities for new efficiency solutions are spurring the formation of startups to commercialize these technologies. Everything from fenestration and day lighting, window heat and light controls, building management systems, HVAC, physical buildings materials and more, are being re-imagined and engineered to tap into the potential energy and cost savings.
While there is a lot of opportunity, there also are a great deal of competition and challenges for small startup companies researching, demonstrating and commercializing these technologies.
Roadblocks to Commercializing Technology
At the earliest research and development phases, many companies receive funding from universities and other research institutions, as well as government grants or private angel investment funding. Technologies that show promise at the lab-scale often seek outside investment capital to prove out their technology through a prototype or pilot demonstration.
For many hardware companies, this transition can prove highly capital intensive and results in what is often referred to as the technology valley of death. The technology is still unproven and is often too risky to attract venture capital. As a result, many promising technologies often fall to the wayside and are unable to progress beyond the prototype stage.
If a startup company does manage to obtain the funding necessary to complete a proof of concept, the next hurdle is realizing the market demand and scalability of the product. Gaining early customer adopters and creating the infrastructure necessary to scale manufacturing and distribution of the technology are key milestones during this stage.
Large amounts of capital can be needed to facilitate company growth, resulting in the second valley of death: commercialization. Gaining your first customer without having paying customers as validation is hard in itself. On top of that is the difficulty of actually meeting initial customer demands, if you are able to build a customer base. Transitioning from limited- to high-volume production requires scalable infrastructure, but you first must have revenue or investment to build this out. Combined, these challenges often mean the end for many startups that cannot make it across the commercialization valley.
Bridging the Gaps
Because of the barriers to commercialization faced by startups, many support programs have been designed to assist and smooth the commercialization process. Incubators and accelerators help to foster startups and connect them with resources necessary for growth. Still, it remains tricky to find the right mix of access to expertise, facilities, and capital to really create a sustainable business that can successfully bring a technology into the market.
A novel solution to this commercialization problem is being piloted through the Wells Fargo Innovation Incubator, or IN2, which is designed to uniquely bridge the valleys of death faced by young technology startups. The program is made possible by a pioneering Agreement for Commercializing Technology (ACT) between Wells Fargo and the Energy Department’s National Renewable Energy Laboratory (NREL), which is facilitating the development of innovative clean energy technologies for use in commercial buildings.
Over five years, the Wells Fargo Foundation will contribute $10 million to establish the IN2 program, which is co-administered by NREL. Regional and national incubator and accelerator programs, along with university groups, recommend and identify companies to apply to the IN2 program. Those accepted into the program are provided up to $250,000 in grant funding. This non-dilutive capital is primarily used for technical assistance to help startups meet key technical development milestones as well as business development services and needs. Utilizing the unique capabilities, facilities and expertise of NREL during this process will be key to supporting these startups as they overcome the technology barriers to commercialization.
Companies that successfully make it through the technical milestones may have the opportunity to pilot their technology within the walls of Wells Fargo, which has nearly 100 million square feet of real estate around the world. Pilots will not only provide real-world technical validation but could help these companies gain vital first customers.
The IN2 program serves a key function to the market by helping to de-risk these early-stage technologies and make a successful entry into the market. The technical work done by NREL will serve as a foundation for further technology development or validating the performance of the technology. This can help companies find customers and attract capital. Any remaining project funding provided to awardees can be used to support the business in non-technical areas such as IP, marketing and new hires.
Wells Fargo is uniquely positioned to fund this program because of its $100 million corporate commitment to sustainability efforts, interest in the built environment due to its vast footprint, significant lending and investment portfolio providing more than $37 billion in environmental finance activities since 2012, as well as an existing relationship with NREL. Wells Fargo has been a continuing sponsor of the NREL Industry Growth Forum, another vehicle designed to support clean energy startups by connecting them with receptive sources of capital. This relationship was the foundation that spurred the desire for further collaboration. The unique public-private partnership that resulted utilizes both partners’ resources to effectively impact the key challenges facing startups.
The program is designed as an open source platform, meaning it makes transparent the players in the process and the milestones being achieved by the companies, so the broader public can follow the progress. Currently the program is focusing on commercial building efficiency technologies and might expand to new areas such as generation and/or residential building technologies.
With programs such as IN2 and other similar programs that seek to address significant gaps and challenges in the clean energy space, we will find ourselves, as a nation, that much closer to achieving a sustainable energy economy. NREL is proud to be a leader and contributor in this exciting and transformative period.
Author: Bill Farris is in charge of NREL’s Innovation, Partnering, and Outreach Directorate. In addition to leading the lab’s internal and external communication and outreach, Bill directs NREL’s efforts to accelerate commercialization and the transfer of laboratory technologies to the marketplace