BlocPower: Financing urban clean energy
SuperCollider makes its home in New York City. It’s a great location for us, because it’s great for entrepreneurs. One of our favorite parts about New York’s startup ecosystem is the combination of talent and experience that come together in many companies. We also love that the city provides a launchpad for solving urban energy challenges. Brooklyn-based BlocPower combines these characteristics and more.
After working in politics and community organizing, founder and CEO Donnel Baird met his co-founder Morris Cox while they were both at Columbia Business School (Morris previously worked in finance). Their company provides clean energy services and financing to financially underserved communities in urban areas, in part by aggregating portfolios or “blocs” of projects.
At its heart, BlocPower’s story is a compelling example of human-centered design applied to business model development. They started out with intentional observation of their customers needs and experiences, solving unique problems before raising money from Andreessen Horowitz and Kapor Capital and evolving into a company that uses software, sensors, and data analytics to scale their vision in cities across the country.
We sat down with Morris to learn more about how they’re bringing together communities to solve urban energy challenges:
Why did BlocPower design a solution for this market?
BlocPower is focused on clean energy solutions for building owners in financially underserved urban communities. These are the people, buildings, and communities who’ve had the least amount of investment in building infrastructure while spending the most on energy (on a per square foot basis). The return on a dollar of investment in upgrading energy infrastructure in these communities is significantly higher than any other community.
The community is underserved by the energy industry, by solar companies, by banks, and utilities because of perceived credit risk and the high cost of customer acquisition. Our thesis is that the credit risk is actually significantly lower than other investors recognize and that we can significantly lower customer acquisition and engineering costs through our community organizing approach and our suite of software and hardware tools. Most everyone in these communities pay their energy bill on time, and we use that fact to create profitable projects. Studies show that utility bills are a high priority when people in underserved communities are deciding how to spend their paychecks. Defaults on utility bill payments are less than 1% in this segment.
We finance projects based on those energy bill payments — we collect repayment through the customers’ energy bill. When banks or other investors are afraid to invest in these markets — they’re not recognizing the opportunity to cover repayment through the energy bills. We find projects that offer significant financial, social, and environmental returns to the project investors that we serve. It’s a large untapped opportunity set. This is something that our investors out in Silicon Valley have recognized and they’ve encouraged us to build a software platform to tackle that problem at scale.
How did you confirm your target communities’ needs?
After working with the Obama campaign in 2008, Donnel worked with the Department of Energy to start a free-standing marketplace for energy efficiency. The program was focused on commercial buildings but there was no funding for non-profit buildings. Around that time, he got a call from one of his favorite pastors in central Brooklyn who was operating a large congregation out of this beautiful old Catholic church.
Their energy bills were about 30% of their total annual budget — an unbelievable number. He was faithfully and dutifully paying the oil, gas, and electricity companies but was running out of money for programs. That sparked the idea for BlocPower.
Donnel saw that there was a history of making energy payments, despite the disproportionately high bills. Churches and other old buildings are very inefficient — they’ve got high ceilings, limited insulation — when the pastor turns on the boiler he’s heating up twice the amount of the volume than he actually needs. A lot of it is escaping through the roof and the beautiful stained glass windows.
That’s the opportunity that Donnel brought with him to business school where he and I met. After that experience, Donnel and James Hendon our Director of Business Development searched for additional situations that looked like that. We literally found tens of thousands of churches, synagogues, and mosques in New York City facing similar circumstances. We also identified multiple verticals in these communities — small businesses, other types of non-profits, schools — multi-family buildings are a huge segment, especially smaller multi-family buildings that are ignored.
How did your business model iterate over time?
We needed to develop a process for performing the same set of services that we performed for that original customer — at scale. Each of these buildings is unique. We had to develop custom processes for each of them. In the first 12–18 months, it was hand to hand combat. We would go into a building, identify the problems in person, we would put together custom financing packages — we did a $1.2M project that had donors for a set of Catholic schools. We did a $4.3M proposal for a program to help small businesses recover from Hurricane Sandy. We also had a group of churches in the northwest Bronx that wanted to go green for the last 5 years but hadn’t figure out a way to do it.
After understanding the financing and engineering needs of each of those projects, we knew what the market needed and developed internal tools to solve those problems quickly and efficiently at the lowest cost possible. Early on, we outsourced the engineering to identify the problems in the building — is it the windows, the boiler, the insulation, or all three? That cost us $5k — $10k and took six weeks to six months to get back an engineering report and design for a retrofit.
Since then, we brought on Tooraj Arvajeh, a former senior engineer at a large global firm who was in our MBA class and brought him in-house to develop a systematic program where we use technology to collect data on site, deploy lower cost internal engineers, empower building owners to easily collect data themselves, and leverage publicly available data. We systematized that process so it now costs us $800-$1200 to conduct an engineering analysis to come up with a scope of work for a retrofit within a week’s time.
Those are the types of iterations that we went through at BlocPower to develop our engineering solution. We’ve done similar things on the financing and customer outreach side. Technology and software are key to the next stage of scaling this opportunity.
How do you address the needs of your project investors?
We work with a broad range of investors. The most well-known are Goldman Sachs, Deutsche Bank, and other investment banks. They obviously have a need for financial return. They also need to be a positive member of the community. That might be because of policy like the Community Reinvestment Act or because they recognize the value of social impact on their brand. There are also investors who are driven by environmental returns. Then there are social impact investors who want to improve job creation or reduce a specific problem like asthma rates in the Bronx.
Montefiore Hospital in the Bronx and a group of foundations called the Build Health Challenge want to invest in oil-to-gas conversions and mold and asbestos remediation in multi-family buildings surrounding the hospital. Those issues have contributed to a large number of asthma-related emergency cases to the hospital in the last five years. The building owners benefit financially, but the foundations’ goal isn’t financial return or reduction of CO2 emissions. They want to lower particulate matter in the air and reduce contact with mold and asbestos to get those hospital visits down.
We started out with a custom approach to our investors but as I mentioned we’re building software to scale our financing operation. With $2M in funding from the DOE, we’re building an online marketplace to match the portfolio of projects with investors — who could be the investment banks or even a crowd of community members who want to contribute to their church or a local small business.
That’s the vision for BlocPower; we are a marketplace and platform technology company that develops projects and matches them with investors. We’re attractive to investors because we create financial return (our projects can be around 15% IRR) and social return in one place (1000s of tons of emissions reduced and 100s of jobs created in underserved urban communities)
How has BlocPower been responsive to other user experiences?
We have a project in central Brooklyn that was a Stage 1 winner of the NY Prize for microgrids. We’re implementing a community-owned microgrid to be installed on top of public housing and neighboring critical facilities — hospitals, schools, fire stations, police departments. There were three fundamental challenges for three distinct stakeholder groups.
The first…Public housing residents don’t pay their own utility bills. They’re paid by the US Department of Housing and Urban Development. A successful microgrid is all about energy efficiency. You need to make the consumers aware of their energy consumption and motivate them to lower it. If they’re not paying, it’s hard to motivate them to care about the consumption. That’s why we developed this community ownership aspect so that community members have an equity stake and will get cash for lowering their consumption.
The second problem here is that the local utility Con Edison has a grid infrastructure challenge in this neighborhood. There are two substations that need to be upgraded at the cost of about $1 Billion. The governor challenged them to be more innovative and not pass that cost on to ratepayers. They needed to come up with a solution that lowers consumption on the grid and do it in a way that is going to be profitable for them as a utility company. The ownership structure we developed has them as co-owners alongside the community. They’ll be able to lower consumption on the grid, they’ll own distributed generation for the first time ever on the grid in New York State, and they’ll be able to generate a healthy financial return both as debt and equity investors.
The third challenge is that community is very concerned about CO2 emissions and particulate matter in the air. They don’t want to compromise on air quality and don’t want a lot of natural gas facilities in the neighborhood. Costs are coming down fast, but traditionally the cost of solar is higher initially than the cost of installing a natural gas CHP plant that also provides heat. We came up with a set of solutions — that involved solar, batteries, efficiency, behavior changes — and generated cash flow projections that made sense for the utility and third-party debt investors, all while lowering emissions and adding resiliency against grid outages for the this area.
There are a half dozen stories like that in the city alone. Asthma in the Bronx, solar panels on churches, a wireless mesh network for small businesses affected by Hurricane Sandy. We’ve solved these problems at a local level and have turned them into repeatable processes while identifying community organizations that are dealing with the same problems and opportunities. It’s led to us creating techniques and software tools to solve these problems at scale. We’re getting interest from many governments as a result.
What does the future look like for BlocPower?
BlocPower is on its way to becoming a full service energy concierge platform that allows building owners in urban communities and investors to generate financial returns, energy savings, social impact, and environmental benefit. We’ll do this by generating a network of more than a million community leaders that will be energy champions for our services. We’re scaling up an analytics platform allowing our team to embed sensor technology and data collection services in 100,000 buildings across 20 cities throughout the United States. Our financing arm will manage a $100M clean energy loan fund that will deliver competitive returns to our investors and offer our customers 30–50% savings on their energy bill.
The grid congestion problem we’re solving with our Brooklyn microgrid project exists in other cities and is only going to get worse. Cities are growing. Communities are gentrifying. We’re at greater risk to extreme weather. Many trends and incidents are stressing the grid and the solutions we’re providing are going to be really critical in the coming decade. We’re proving our approach in the hardest market here in New York City and we are going to take that to Philly, DC, Boston, and other cities throughout the US where these challenges exist.
As New Yorkers in the startup ecosystem, we’re glad to see companies that are solving community and energy problems profitably. It will be interesting to watch BlocPower leverage the power of software to achieve scale.