This week’s Green Scene column in Crain’s Chicago Business: Chicago startup aims to turn buildings into batteries

A local energy-efficiency technology startup is helping commercial property owners turn their buildings into batteries.

Chicago-based Clean Urban Energy developed a software platform that enables buildings to store excess thermal energy in their own concrete and drywall and then tap it later or push it back to the grid for utilities to use elsewhere.

The three entrepreneurs who launched CUE figured the rising cost of electricity would inspire commercial building owners and managers to seek out their service as a way to better manage energy costs, says Rich Earley, executive chairman and one of the co-founders. Mr. Earley, 42, had a string of prior hits in taking several information technology software businesses from concept to commercialization.

CUE was awarded $75,000 and first place at the Clean Energy Challenge earlier this month at the Polsky Center for Entrepreneurship at the University of Chicago Booth School of Business. The event was co-sponsored by the Polsky Center and the Clean Energy Trust, a Chicago non-profit that identifies promising young companies and scientists working on new ideas with commercial potential in the clean-tech sector. A panel of judges, including mostly Chicago-based venture-capital funds and other investment advisers, heard pitches from a handful of companies in the start-up stage before making its decision to pick two winners in that category. The cash prize was provided by the Clean Energy Trust as part of a three-year, $1.05-million grant it was awarded by the U.S. Department of Energy.

Vince Cushing and other founders, family and friends raised the initial $1 million for CUE to pursue the research and prove out the concept of the technology, explains Mr. Earley. The company then raised $975,000 in a second seed round from the same group of investors, plus added two Silicon Valley seed venture funds. From there, CUE turned the technology into a product.

Clean Urban Energy tested its technology on 12 buildings in downtown Chicago (for a combined total of 12 million square feet) in 2008 and 2009 and found that it was able to achieve energy savings ranging from 20% to 30%, says Mr. Earley. Since then, two of those buildings have converted into paying customers. CUE is on track to post $5 million in recurring licensing fees by the end of 2011, with projected growth to $80 million in revenue by fiscal 2014, he says.

The company is now in the midst of raising $5 million from venture funds to build out the team and scale things up, he adds.

Crain’s caught up with Mr. Earley between financing pitches to learn more about the company.

Crain’s: How is CUE’s technology poised to solve significant energy-efficiency problems in the U.S. today?

Mr. Earley: Every major U.S. city has two major energy problems: high-priced electricity and a shortage of grid-level storage. For building owners, if you can cut their electricity bills by 20% to 30%, and for utilities and ISOs (International Organization for Standardization), if we can provide them with grid storage at $20 per/kilowatt installed, then we’ve helped relieve two of the biggest challenges caused by urban grid transmission and distribution congestion.

Rich Earley (photo credit Chris Bentley / Clean Energy Trust)

Crain’s: Can you briefly describe how the company’s technology works?

Mr. Earley: Our platform integrates building operations with grid operations and markets. We do this integration via our predictive optimization engine, which considers real-time market inputs like forecasted electricity pricing and weather and key building inputs like how its thermal mass holds energy to drive an optimal building operating strategy.

In essence, we turn buildings into batteries by harnessing a building’s inherent ability to hold energy in its concrete, its drywall and use it as storage and then determine the optimal time to charge the battery by pre-cooling or pre-heating it at the optimal market price and conditions. This capability drives 20% to 30% energy savings for buildings and delivers a low-cost storage capacity to grid operators, all without capital expense or impact on tenant comfort.

Crain’s: What is your target market?

Mr. Earley: We’re targeting buildings in the top 20 U.S. cities, representing 5.4 billion square feet in all downtown major metropolitan areas combined. Chicago is just a start. We already have customer prospects in the pipeline in New York, Miami, Houston, Los Angeles and San Francisco.

We also have two of our biggest deals in Beijing and Riyadh. They found us, we didn’t look for them. The problem is much bigger overseas because the price of electricity there is much higher than here in the U.S. They need these solutions more than we do. We already have a channel partner in Saudi Arabia, and we plan on using joint-venture partnerships elsewhere. We’re really focusing our efforts in the U.S.

Crain’s: Do you intend to keep your company’s headquarters in Chicago if you get more venture-capital funding from California?

Mr. Earley: We’ll keep our headquarters here. Many Silicon Valley VCs want you to relocate the company closer to keep an eye on their investments. You can counterbalance that with some investment money in Chicago.

It’s essential to keep companies like us in Chicago. As the Clean Energy Trust has shown, Chicago certainly has the infrastructure, laboratory research and venture support to build these clean-tech companies right here.

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