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Octus Announces Merger, Investment Agreements

As the opportunity to help building owners slash their utility bills magnifies, in concert with maturation of Octus's retrofit and financing offerings, we took an important step last week, executing definitive agreements to acquire two companies and receive necessary growth capital. Here's a synopsis of the news release (full version here at Yahoo Finance):

Octus, Inc. (OTC.BB:OCTI - News), a leading building efficiency company, today announced the signing of a definitive agreement with Alternative Energy Partners, Inc. (OTC.BB:AEGY - News) to acquire one hundred percent of Élan Energy Corp. and Sunarias Corporation in exchange for common shares of Octus. AEGY previously acquired Élan Energy Corp. and its operating subsidiary, R.L.P. Mechanical Contractors, Inc., in a transaction with a stated value of $5 million, and acquired Sunarias in a transaction with a stated value of $2 million.

In addition, Octus signed a definitive agreement with Lin Han Equity Corporation to transfer majority ownership of Octus to Lin Han, in exchange for common stock in privately-held Healthcare of Today, Inc., and working capital to fund Octus's growth strategy.

"The addition of Élan Energy, a proven, profitable and vibrant HVAC and refrigeration efficiency contractor, immediately boosts Octus's financial strength, customer offerings and market reach," said Octus CEO Chris Soderquist. "Market demand for combined energy and water-saving solutions, coupled with utility company rebates and project financing, has increased steadily in the last few months and these transactions will enable Octus to aggressively pursue existing and new business opportunities."

It's an exciting time to be involved in the energy- and water-efficiency industries. On top of several new developments at Octus, these transactions (targeting a close of March 15, 2011) will propel Octus's growth and enrich our offerings to building owners. More to come.

POTUS on Board with Energy Efficiency

In last week's State of the Union address, President Obama urged Americans to embrace a new energy future:

"Tonight, I challenge you to join me in setting a new goal: by 2035, 80% of America's electricity will come from clean energy sources. Some folks want wind and solar. Others want nuclear, clean coal and natural gas. To meet this goal we will need them all - and I urge Democrats and Republicans to work together to make it happen."

In support of this goal, the President's office today rolled out a vision for making American businesses more energy efficient through the "Better Buildings Initiative." The results? In part:

• 20% by 2020 - Under the President's plan, by 2020, we will make commercial building space in the United States 20% more energy efficient through cost-effective upgrades.
• Energy cost reductions of $40 billion - By making buildings more energy efficient, business owners will reduce energy bills by about $40 billion at today's prices.
  

The President has proffered a long list of initiatives to move us toward a more energy-independent future. Among them:

• New tax incentives for building efficiency, including an amendment to EPAct's section 179(d) to make it more attractive for building owners.
  
• More and better financing opportunities for commercial retrofits.
  
• "Race to Green" for state and municipal governments.
• Better Buildings Challenge for public and private institutions.

Obama's plan has been welcomed with open arms by leading real estate groups, including BOMA, the National Multi Housing Council, and the National Apartment Association. According to BOMA International Chair Ray H. Mackey, Jr.:

"We applaud President Obama's new energy policy to improve energy efficiency in commercial, multi-family and institutional buildings. The initiative includes the critical business incentives, such as the commercial building tax credit and loan guarantees, that are key to meeting the energy efficiency goals of the plan."

The task is monumental, but at Octus we're excited to be a part of the President's plan to improve the quality of life for American citizens and enhance the competitiveness of our economy.

The Future of Energy Efficiency is an Even Sweeter Deal for Business

It is widely known that energy efficiency is a great decision for businesses of all stripes. Reduced expenses, greater cash flow, improved productivity - all at a typical payback period of just 2-4 years. Unfortunately, energy efficiency has historically lacked the glamor and following of "sexier" energy resources like solar. Perhaps because of this, financing options and other incentives for efficiency have lagged comparatively. This may be about to change.

A recent CleanTechnies article - "How to Make Energy Efficiency Affordable" - explores recent developments in project financing that make it easier for businesses to install energy-efficient equipment:

Consider the transaction that Metrus Energy, an EE developer and financer, announced in December with defense manufacturer BAE Systems, Siemens Industry and Bank of America. Under the deal, BAE Systems' facility in Greenlawn, New York will install $2 million in energy efficiency with no upfront payment or capital investment.

This may sound like a traditional energy service performance contract, which also spares the customer from an upfront capital investment. But Bob Hinkle, Metrus Energy CEO, explained that the deal is quite different. Called an energy services agreement, or ESA, it is more akin to a solar power purchase agreement (SPPA), except there is no power to be purchased. What's monetized is energy saved.

"Customers do not have to use their own capital. It is like a power purchase agreement where the customer is charged only for the output," Hinkle said. "But in energy efficiency, the output is not a kilowatt-hour generated; it is a kilowatt-hour saved, or a therm saved."

Better yet, there is a demonstrated interest on the part of investors to make such financing agreements a reality. Clean technology investors country-wide are considering ways to enable energy-saving projects - and share in the profits they produce:

The fund could serve as the third-party owner of the energy efficiency installations, collecting payment from the shared savings achieved by the businesses. [It] could then recycle the profits to pay for other clean technology projects.

Here at Octus, we partnered with Five Star Bank to develop the Building Energy Savings financing program, which we pair with utility cash incentives to produce extremely favorable financial outcomes for our clients. We're also working with clients to get them approved for a lucrative 0% financing program that has recently become available to qualified California businesses. As financial alternatives continue to expand, you can be sure we'll be at the forefront to ensure the companies we work with get the sweetest return possible.

Small Business Energy Efficiency: Utilities Court a Historically Underserved Market

Around the country, a quiet revolution is taking place. Small businesses - who at times have played the part of ugly stepsister in the energy efficiency dance - may finally be getting their invitation to the ball. As utilities seek to reduce their customers' consumption of energy (for regulatory compliance or to postpone costly infrastructure upgrades), they are extending a hand to the 22.9 million small businesses country-wide with incentive programs that better meet the needs of these smaller consumers.

"From the neighborhood pizza parlor, dry cleaner and grocery store to service, health care and technology companies, small businesses have become the cornerstone of our economy. However, with all of this power to drive economies, small businesses have been left out of many cost-saving programs. This is especially true with utility-sponsored energy efficiency programs. Why? Small commercial accounts are very disparate and (until now) have been difficult to segment into actionable groups by utilities. Data about these small commercial accounts are often incomplete and difficult to gather, and yet, this is a sector that has great potential to help the environment by becoming greener -- and add precious dollars to their bottom lines."

A huge sector of the economy whose participation in energy efficiency can make a significant impact on the environment and their own financial health? It's hard to imagine that more effective utility programs haven't yet been delivered. Much of this is due to the split incentive (i.e., many small businesses do not own the properties they utilize, and thus are reluctant to invest in facility improvements) and a lack of quality information:

"Typically, utility data consist of the business' name, primary contact, phone number, address and type of business... This lack of information leads to another roadblock to outreach: the current benchmarking process. Utilities review year-over-year data on a business. Did a specific business use more or less energy last year? Have there been unexplained spikes or troughs in consumption? If there were more data points to consider and analyze, the utility would be in a better position to offer customized information about energy usage and recommend energy-efficiency programs; thus, truly offering something useful and economically sound to the business owner."

Thankfully, new technological developments will make it easier for utilities to build a solid knowledge base about their small commercial customers, which in turn will allow them to offer more customized and enticing incentives that speed attainment of the utility's own goals. And, the financial equation is only improving: Utilities are developing more lucrative rebates and incentives, and new financing programs (such as Octus's Building Energy Savings program, PACE financing, and utility-company on-bill financing) are proliferating.

We at Octus have seen many investor- and municipal-owned utilities get in the game by designing and delivering programs with the small commercial customer in mind - programs such as Roseville Electric's Small Business Commercial Lighting Program, for which Octus was one of four approved energy efficiency specialists. But we believe that the utilities are just warming up. And as their ability to better segment and target this diverse - but enormous - slice of the economy grows, so too will participating small business' bottom lines.

The Common Carbon Metric: A Future Enabler of Building Efficiency Projects?

Last week a client asked about the value of his carbon offset post-implementation of his energy-saving improvements: Is there any monetary value and - if not - when will carbon credits become a currency? It's a common and good question. Much has been discussed about negawatts, white tags, and a soon-to-come market for trading carbon offsets. When such a market will emerge is uncertain, but most all are convinced it will happen.

As the folks over at CleanTechies attest, "buildings represent about one-third of emissions worldwide and provide some of the quickest and most cost-effective ways to reduce carbon emissions." However, the full value of building retrofits has yet to be realized, since carbon management and credit trading can't be effectively implemented without consistent and reliable measurement techniques.

Enter the Common Carbon Metric:

A group of industry players, led by UNEP’s Sustainable Buildings and Climate Initiative has been working over the last few years to address the inconsistencies in carbon measurement techniques around the world. The group has been working to develop clear and transferable carbon metrics (known as the Common Carbon Metric) that can be used to measure carbon reductions in buildings, whether it’s a new office park in Mumbai or a retrofit program in Rio de Janeiro.

One of the group’s recent breakthroughs was to enable Clean Development Mechanism (CDM) projects to use these new metrics in CDM building projects. The CDM is a program that allows Annex I countries (i.e., the majority of developed countries) to invest in carbon reduction projects in developing countries and claim the carbon reductions for their Kyoto Protocol carbon reduction targets.

While building projects have technically been eligible for CDM status for the last ten years, inconsistencies in the methods for measuring carbon from CDM projects have made CDM projects for buildings prohibitively expensive. By making the Common Carbon Metric a viable pathway to measuring and certifying carbon reductions, it will be much easier for developed countries to invest in carbon-reducing building projects in the future.

What does this mean for businesses operating in California, the U.S. and abroad? At the moment, financial and reputational (or branding) motivations are often behind companies' efforts to reduce their emissions and slow the effects of climate change. A major development in carbon measurement - one that allows organizations to capture additional financial gains based on the product of their energy savings - should serve as a catalyst to encourage additional participation in the already low-hanging and tasty fruit of building efficiency.

2011: Building Efficiency Takes Center Stage

As 2010 winds down, it's natural to wonder what we can expect in the upcoming year. At Octus, we're looking to 2011 with an anticipatory eye, particularly in light of the ever-expanding opportunity to slash building utility costs. Great timing, then, to dig into Pike Research's latest report, Building Efficiency: Ten Trends to Watch in 2011 and Beyond.

While the last couple of years have seen a construction market crippled by the global economic downturn, it's interesting to note the market for efficiency-improving retrofits of existing buildings has experienced steady if not robust growth. Why? The report cites the "carrots" of saving money, a desire to earn a green building certification, and organization drive to reduce a carbon footprint - as well as the "sticks" of evolving building codes and similar regulations.

Going forward, Pike engages us to pay particular attention to the following key trends:

1. Energy codes will keep raising the bar - and enforcement is catching up.
2. Mandatory disclosure rules will reward building owners who invest in energy efficiency, while minimizing the "split incentive" problems faced by many leased commercial spaces. (We've discussed California's impending disclosure requirements in a previous post).
3. The pace of building certification will increase, led by LEED.
4. Building energy management systems are in high demand, particularly for large and aging infrastructure.
5. The U.S. ESCO market will see moderate growth and ESCOs in Asia Pacific's developing markets will advance rapidly.
6. Lighting: Not yet the "Year of the LED".
7. The connection between efficient buildings and the smart grid will continue to grow.
8. Increasing number of financing options around the world. (Example: the Octus/Five Star Building Energy Savings project financing program).
9. PACE is a financing option struggling to overcome roadblocks, particularly on the residential front.
10. Systemic conditions, policy choices and practical considerations will continue to present barriers to achieving energy efficiency, but investments in training, information access and technology will gradually overcome many of them.