Kapacity.io, a venture of Y Combinator, is dedicated to accelerating the decarbonization and electrification in buildings. They use AI-generated efficiency savings to encourage commercial real estate to be electrified. This will help buildings move away from reliance upon fossil fuels for their cooling and heating needs.
This is done by offering incentives to owners/occupiers of buildings to switch to clean energy use through a machine-learning-powered software automation layer.
Cloud software from startups integrates with buildings HVAC systems, electricity meters and calculates real-time adjustments to heating/cooling system. This not only generates energy and (CO2) emissions reductions but also generates actual revenue for building owners/tenants who pay them to reduce their consumption at peak times on the grid.
Jaakko Rauhala is a co-founder and CEO of the company. He was a former energy technology consultant. This is called demand response. This is basically a way that electricity consumers can get paid to adjust their energy consumption based on the demand of a utility company.
If there is high wind power production, and suddenly the weather changes or the wind drops, the utility company must balance that reduction. One way is to either fire up natural gas turbines (or reduce power consumption). Our product calculates how much electricity can be reduced at any one minute. Heating and cooling devices consume a lot electricity so we are targeting them.
We see it as a way to help our customers electrify more of their buildings faster, which makes their investments more profitable. In addition, we can help them use more renewable electricity since we can shift the fossil fuels use to other areas. He says that this is how we can push for a greener power grid.
Kapcity's approach can be applied to deregulated energy markets, where third parties can play a role in offering energy saving services. Energy fluctuations are managed through an auction process that involves the trading of surplus energy. This is typically overseen and controlled by a transmission operator to ensure energy producers have enough power to meet customer demand.
The demand for energy can fluctuate depending on the type of energy produced. However, renewable energy sources tends to increase volatility in energy markets because production can be less predictable than legacy energy generation (like nuclear and burning fossil fuels). Wind power, for instance, is dependent on the strength and timing of wind blowing, which can vary and can't be predicted. As economies worldwide increase their efforts to combat climate change and meet critical carbon emission reduction targets, there is increasing pressure to switch to renewable power sources. The real estate industry is a significant source of CO2 and should be considered for greening.
Simultaneously decarbonization and green shift will likely drive demand for smart solutions that help energy grids manage growing complexity and volatility in their energy supply mix.
Rauhala says that more solar and wind power correlates with the demand for power grid balancers. This is why there is so much talk about electricity storage in renewables. The demand response method we use is an alternative to electricity storage units. We were basically saying that there are already a lot electricity-consuming devices, and that electrification will bring more. Before we spend billions of dollars on other systems, we need to reduce their consumption.
He says that although we will require a lot more electricity storage units, we still try to maximize the system efficiency by using what we have in the grid.
Even the most intelligent AI can only adjust the temperature or coolant system to some extent without making building occupants uncomfortable.
Kapacity's idea is that even small adjustments, such as turning off the boilers/coolers five, fifteen, or thirty minutes each, can be largely ignored by building occupants. This allows the startup to offer a variety of efficiency services to its customers, including peak-shaving, which automatically reduces energy consumption to avoid peak consumption and significantly lowers energy costs.
The goal, which is very ambitious, is to ensure that customers and occupants of the buildings don't notice the changes. Rauhala says that the temperature fluctuations would be within the normal range for buildings.
Kapacity's algorithms allow for dynamic adjustments to building heating/cooling, without compromising thermal comfort. Rauhala says Sonja Salo (co-founder and COO) has a PhD in demand reaction, and also researched thermal comfort while visiting researcher at UC Berkley. This makes the area a special focus of the engineer-led founding team.
Kapacity is also offering incentives to commercial real estate owners to sign up to its algorithmic HVAC tweaking. Kapacity claims that its system was able to reduce electricity costs by 25% and CO2 emissions by 10% in pilots. Even though early testing was limited to the home market, it has seen promising results.
Rami El Geneidy was the other co-founder. He researched smart algorithms to respond to heat pumps in demand for his PhD dissertation. Heat pumps are another focus of the tech team, per Rauhala.
The Nordic heat pumps are a low carbon technology used to heat buildings. However, their use is expanding as more countries look for greener options to heat buildings.
The U.K. government, for instance, announced last year a plan to install hundreds of thousand heat pumps annually by 2028. This is in response to the country's transition away from gas boilers and towards heat homes. Rauhala also names the U.K. one of their early target markets, along with the European Union or the U.S. where they expect plenty of demand.
He says that although the primary focus of the company is on commercial real estate, they are also interested to build residential buildings. This is because from a tech core perspective we can build any type of building.
We are focusing on multifamily and larger office buildings as well as larger commercial buildings. We don't do single-family detached houses at the moment. He continues, saying: We have been considering that, but it is an interesting avenue. Our current pilots work in larger buildings.
The Finnish startup was founded in 2013 and received funding from Nordic Makers before being supported by YC. It will present at the accelerators demo days next week. Rauhala will not comment on additional fund raising plans.
Rauhala claims that five pilot projects have been launched in the past seven months. These include commercial landlords, utilities and real estate developers, as well as engineering companies. However, full details of customers are still not being released. Rauhala says they plan to sign their first commercial deal with pilot customers in the coming year.
Our customers are interested in our products because it is cheaper to electrify. They are paid to adjust their consumption, which makes them more profitable. He also tells us that heat pumps can be used to decarbonize buildings. The cost of operating the heat pump that runs on electricity can be reduced if it is connected to our service. This will make it more profitable for everyone to run their systems and electrify their buildings.
Because we shift consumption away from the hours that produce most CO2 emissions, it makes their electricity more sustainable. We try to avoid hours with high levels of fossil fuel-based production and instead try to shift that energy into times when we have more sustainable electricity.
The big question is, how can we increase renewable energy use? And the best way to answer that is by asking when we should consume. When there is more renewable energy in the grid, we should consume electricity. This is the emission reduction technique that we use here.
Kapacity's software-focused approach is not suitable for all buildings. Real estate customers must be able to remotely gather data about their buildings, including temperature and energy consumption, via IoT devices.
We need basic data about the heating system. Is it operating at 100%, 50%, or is it something else? Rauhala says that this information is sufficient. We would also like to know the indoor temperatures. However, this is not a requirement as we can still make basic adjustments without it.
Also, it can't save buildings that run 100% on natural gas or oil. With electricity being used only for lighting (turning off lights when people are inside buildings wouldn't fly); you must have some type of air conditioning, cooling, heat pump system installed (or use of electric hot-water boilers).
He continues, "An old building that runs on natural gas or oil is a target for carbonization." This is a place where heat pumps could be installed. That's where our product could come in. We can tell you how you can lower the operating costs with demand response. Maybe we can do something together.
Rauhala confirms that Kapacity's approach doesn't require building occupant surveillance. Rauhala told TechCrunch that Kapacity does not collect any information that is subject to the GDPR [General Data Protection Regulation]. This demand response does not require us to collect personal data.
Therefore, any guestimates it makes about building occupants' tolerance for temperature fluctuations are not going to be based upon specific individuals, but may factor in aggregated data related to specific industries/commercial profiles.
This startup, based in Helsinki, isn't the only one interested in applying AI to drive energy costs and emissions reductions to the commercial building sector. Another company we spoke to was Dabbel from Dsseldorf. As governments invest more money in decarbonization, more people will be interested in this space.
Rauhala responds to questions about competitive differentiation by pointing out that the focus should be on heat pump and real-time adjustments.
We developed a system that allows us to control the power grid in real-time, and very quickly. He says that this is a great service for the power grid as it allows us to quickly adjust. The other is that we are focusing our efforts on heat pump technologies. Heat pumps in the Nordics are an extremely common and effective way to decarbonize. Understanding how to combine these with demand response with new heatpumps is also where we see many advantages.
The technical requirements of heat pumps are more complex than those of a basic natural gas boiler. Therefore, there are some things that must be considered. He continues, saying that heat pumps are an excellent way to reduce carbon emissions and that we want to help make it happen.
Rauhala says that the Nordics have the highest number of heat pump installations per capita. This includes a lot ground source heat pumps which can completely replace fossil fuel consumption.
Ground source heat pumps can be used to heat your entire building. You don't need any support systems. He says that this is an area in which Europe is more advanced than the U.S.
The U.K. government has been pushing for heat pump installation and incentives are in place to encourage people to replace existing natural gas systems. From our perspective, that's very exciting. There is a lot more wind power in the UK. In fact, there have been times when 100% of renewable electricity has been generated in the U.K. This is actually a good thing. In the long-term, however, the U.S. has already banned the use fossil fuels in new buildings. I am confident that the U.S. market will expand more quickly and open up in the future. There are many opportunities in this space.
Air conditioning is also very common in America, especially in commercial buildings. This is a great opportunity.
He adds that my estimate of how much electricity is used for heating and cooling amounts to tens or billions of dollars each year in the U.S.A and EU. This market is expected to grow rapidly as there's already a lot of electricity used for it.
The startup's cloud software appears to be following a SaaS business model, but they also plan to take a commission from the customers who save money and/or generate income. Rauhala adds that while some customers might find it easier to pay a fixed fee for the service, we believe most will be paying a commission.
If the global shift from fossil fuels were to be hugely successful, and all commercial buildings' gas/oil boilers were replaced by 100% renewable power systems within a short time, there would still be a place for Kapacitys control program to play. This software would generate energy cost savings for its customers even though we (currently pressing) need to reduce carbon emissions would vanish in this hypothetical future.
Rauhala says that we would be happy. We see demand response as a way to reduce emission. However, we still have fossil fuels power systems. If we had a 100% renewable power source, then electricity would not have any effect on reducing emissions. It is all renewable. Ironically, we see this as a way for us to push for a more renewable energy system in the future. It makes that transition even quicker. However, if we have a 100% renewable energy system then we don't have any CO2 emissions to reduce. This is a great goal.