AI-Powered Energy & Emissions Savings for Real Estate | Kapacity.io

AI-Powered Efficiency for Building Decarbonization: Kapacity.io's Approach

Y Combinator-supported Kapacity.io is dedicated to accelerating the transition to carbon-neutral buildings. The company leverages artificial intelligence to identify and implement efficiency improvements, encouraging the electrification of commercial real estate and reducing reliance on fossil fuels for heating and cooling.

Machine Learning for Clean Energy Adoption

Kapacity.io incentivizes building owners and occupants to adopt clean energy sources through a software automation layer powered by machine learning. This system facilitates a shift towards sustainable energy usage.

Real-Time Adjustments and Revenue Generation

The startup’s cloud-based software integrates directly with a building’s HVAC systems and electricity meters. It analyzes local energy consumption data to calculate and deploy real-time adjustments to heating and cooling, resulting in both energy and CO2 emissions savings. Crucially, these reductions generate revenue for building owners and tenants, rewarding them for lowering consumption during peak grid demand.

Demand Response and AI Optimization

“We focus on controlling electricity consumption within buildings, specifically targeting heating and cooling systems,” explains CEO and co-founder Jaakko Rauhala, a former energy technology consultant. “We utilize AI and machine learning to optimize energy use and discover the most effective consumption strategies.”

He further clarifies, “The core principle is ‘demand response’ – a system where electricity consumers are compensated for adjusting their energy consumption based on utility demand. For instance, when wind power generation is high, a sudden drop in wind speed can create grid imbalances. Utilities can either activate natural gas turbines or reduce power consumption. Our product accurately estimates the potential for electricity consumption reduction at any given moment, with a primary focus on heating and cooling, which are significant energy consumers.”

Electrification and Renewable Energy Integration

“Our vision is to accelerate the electrification of building stocks by making these investments more financially attractive,” Rauhala adds. “Furthermore, we aim to facilitate greater utilization of renewable electricity by shifting consumption away from fossil fuels, contributing to a greener power grid.”

Applicability in Deregulated Energy Markets

Kapacity’s approach is most effective in deregulated energy markets. These markets allow third parties to offer energy-saving services, and manage energy demand fluctuations through auction processes overseen by transmission system operators to ensure grid stability.

Addressing Renewable Energy Volatility

Energy demand fluctuates regardless of the source, but renewable energy sources introduce greater volatility. Production from sources like wind power is inherently less predictable than traditional generation methods. As global efforts to combat climate change intensify and carbon emission reduction targets become more critical, there’s increasing pressure to transition from fossil fuels to cleaner, renewable alternatives. The real estate sector, a major CO2 emitter, is a key focus for this “greening” initiative.

Smart Solutions for a Complex Grid

This shift towards decarbonization and renewable energy is expected to drive demand for intelligent solutions to manage the increasing complexity and volatility of the energy supply.

Demand Response as an Alternative to Storage

“Increased wind and solar power necessitate balancing the power grid, which often leads to discussions about electricity storage,” says Rauhala. “Demand response, as we implement it, offers an alternative to large-scale battery storage. We already have numerous electricity-consuming devices, and that number will only grow with electrification. Adjusting their consumption is more efficient than investing billions in new storage systems.”

“While electricity storage will be necessary, we prioritize maximizing overall system efficiency by utilizing existing grid infrastructure,” he emphasizes.

Maintaining Thermal Comfort

A key consideration is the potential for discomfort if heating or cooling systems are adjusted too aggressively. However, Kapacity believes that small, carefully managed adjustments – such as temporarily disabling boilers or coolers for short periods – can go unnoticed by building occupants.

Efficiency Services and Peak Shaving

“Our objective is for customers and occupants to be unaware of these adjustments, remaining within the normal range of temperature fluctuations,” Rauhala states. The company offers services like peak-shaving, which automatically reduces energy usage during peak demand to lower costs.

Algorithms for Dynamic Adjustments

Kapacity’s algorithms are designed to dynamically adjust building heating and cooling without compromising “thermal comfort.” Co-founder and COO Sonja Salo, with a PhD in demand response and research experience at UC Berkeley, brings specialized expertise in this area.

Pilot Program Results

Early pilot programs have demonstrated promising results, with Kapacity achieving a 25% reduction in electricity costs and a 10% reduction in CO2 emissions. These initial tests have been conducted in the company’s home market.

Focus on Heat Pump Technology

Co-founder Rami El Geneidy’s PhD research focused on smart algorithms for demand response involving heat pumps, which are another key area of technological focus for the team.

Heat Pumps and Market Expansion

Heat pumps are a low-carbon technology widely used in Nordic countries for heating. Their adoption is growing globally as countries seek greener alternatives to traditional heating systems. The U.K., with its plans to install hundreds of thousands of heat pumps annually, is a key target market for Kapacity, along with the European Union and the U.S.

Expanding Beyond Commercial Real Estate

While the initial focus is on the commercial real estate sector, the company is also interested in residential buildings, noting that the core technology is adaptable to various building types.

“We’ve concentrated on larger buildings – multifamily buildings, large office spaces, and certain industrial or commercial properties. We aren’t currently targeting single-family homes,” Rauhala explains. “We are exploring that possibility, but our current pilots are in larger buildings.”

Funding and Future Plans

Founded last year, Kapacity secured a pre-seed funding round from Nordic Makers and subsequently received backing from Y Combinator. The company will present at the accelerator’s demo day next week. Rauhala declined to comment on future fundraising plans.

Pilot Projects and Commercial Deals

Kapacity has completed five pilot projects over the past seven months with commercial landlords, utilities, real estate developers, and engineering companies in Finland. The company expects to finalize its first commercial deals with pilot customers this year.

The Value Proposition for Electrification

“Our customers are interested in our product because it makes electrification more affordable. They are compensated for adjusting their consumption, lowering operating costs and making investments, such as switching from natural gas boilers to heat pumps, more attractive,” Rauhala explains. “Connecting a new heat pump to our service reduces operating costs, benefiting everyone involved.”

“We also shift electricity consumption away from periods of high CO2 emissions, prioritizing times when renewable energy is more abundant. This is our emission reduction strategy – consuming electricity when it’s cleaner.”

Limitations and Data Requirements

Kapacity’s software-based approach has limitations. It requires customers to have the ability to remotely collect energy consumption (and potentially temperature) data from their buildings, often through IoT devices.

“We need basic information about the heating system – its operating percentage. Indoor temperature data is helpful but not essential,” says Rauhala.

The system is less effective in buildings primarily powered by natural gas or oil, where electricity is only used for lighting. Air conditioning, cooling, or heat pump systems must be in place for significant savings to be realized.

A Path to Decarbonization

“An older building relying on oil or natural gas is a prime candidate for decarbonization. Installing heat pumps is a viable option, and our product can help estimate the costs and demonstrate potential savings through demand response,” Rauhala continues.

Data Privacy and Security

Rauhala assures that Kapacity’s approach does not involve intrusive surveillance of building occupants. “We do not collect personal data subject to GDPR regulations,” he states.

Competitive Landscape and Differentiation

Kapacity is not alone in applying AI to energy savings in commercial buildings. Companies like Dabbel in Düsseldorf are also exploring this space. However, Rauhala highlights Kapacity’s focus on real-time adjustments and heat pump technologies as key differentiators.

“We are developing a system for near real-time control, providing valuable services to the power grid through rapid adjustments,” he says. “Our focus on heat pump technologies, particularly in the Nordics where they are common, gives us a significant advantage.”

Heat Pumps: A Key Technology

“Heat pumps are more technically complex than natural gas boilers, requiring specialized considerations. We are concentrating our efforts on understanding how to integrate demand response with new heat pump systems,” Rauhala adds. “We believe heat pumps are an excellent solution for decarbonizing the global building stock, and we want to be at the forefront of that transformation.”

Global Market Opportunities

The Nordics lead in heat pump installations, including ground source heat pumps that can entirely replace fossil fuel consumption. The U.K.’s push for heat pump adoption and its growing renewable energy capacity create promising opportunities. Rauhala also anticipates a growing market in the U.S., with cities like Seattle banning fossil fuels in new buildings.

“The potential value of electricity used for heating and cooling is in the tens of billions of dollars annually in the U.S. and EU, and we expect this market to grow significantly.”

Business Model and Future Outlook

Kapacity plans to utilize a SaaS model for its cloud software, with the option of taking a commission on savings or generated income. “We may also offer a fixed-fee service for some customers, but we anticipate that most will prefer a commission-based arrangement,” Rauhala adds.

Even if the world successfully transitions to 100% renewable energy, Kapacity’s control software would still provide value by optimizing energy costs for its customers. “We’d be very happy,” Rauhala says. “Demand response currently reduces emissions by offsetting fossil fuel power generation. In a fully renewable system, it would still optimize energy costs, making the transition faster and more efficient.”