December 19, 2008 IDC Report Companies Becoming Increasingly More Focused on Green IT Initiatives
Dec 19, 2008
Author: Administrator
IDC reported this week that companies are becoming increasingly focused on their Green IT initiatives. In its most recent survey amongst 1,500 C-level business and technology executives across 10 industrial countries:
· Energy costs continue to be the most pressing factor driving green IT adoption, with 71% of respondents saying this is their highest priority;
· Amongst U.S. respondents, 77% identified energy as the most important factor behind green adoption of their companies;
· Amongst European respondents, 74% identified energy concerns as the number 1 driver of green initiatives.
The bottom line is that companies are focused on cost savings associated with reducing power consumption, which will continue to drive their plans to invest in energy efficiency.
The greatest potential for energy savings worldwide is with buildings, which consume 40% of global energy and are responsible for about the same percent of CO2 emissions. About half of the energy is for space and water heating while the rest is used for powering appliances and office equipment. Elevators alone can account for 10% of a buildings total energy consumption.
Companies like KONE and General Electric are building products for industrial and commercial sectors that use less energy, and programs are being developed at the state level and federal level here in the U.S. and by government bodies around the world to support energy efficiency efforts through legislation and economic incentives.
Power Efficiency (OTCBB: PEFF) is a "pure play" company that is focused on motor efficiency, developing motor controllers for usage in industrial and commercial appliance applications that reduce energy consumption by 20% to 40% on average.
Its customers include KONE, Mitsubishi Electric, Bloomingdales, Caesar's Palace, Borders, JKF International Airport, Otis Elevator, Macy's, ThyssenKrupp Elevator, Barrick Gold, Cemex, Berry Plastics and Westfield Group. Its E-Save™ technology has demonstrated the ability to reduce energy consumption to the industrial and commercial markets, and we expect that it will continue to build its presence here.
But a more significant opportunity for Power Efficiency is to demonstrate E-Save's viability in the appliance market, where its newly developed single phase technology can be embedded in washing machines, dryers, refrigerators, and other appliances, improving efficiency on tens of millions of appliances each year. In a typical building, without elevators, these appliances represent as much as 27% to 30% of total energy use. In residential homes, the number is greater.
The company's recent announcement with IXYS (Nasdaq: IXYS) is an important step to executing on the opportunity in the appliance market. IXYS is a Silicon Valley semi company with a diversified customer base of companies that build appliances, and a commitment of its own to improving power conversion efficiency. The partnership will set the stage for IXYS to sell and market Power Efficiency's single-phase controller to its customer base which is located throughout North America, Europe and Asia.
How it works:
Lightly-loaded AC motors are very inefficient. E-Save technology reads the load and reduces the amount of power to the motor, and when the load increases, the amount of electricity is instantly increased. This enables the motor to always run at a constant speed (full RPM).
Power Efficiency's technology was installed at Caesar's Palace which resulted in 36% energy savings for the hotel's elevators, and provided it with a 60% internal rate of return on its investment. The U.S. elevator market alone is a $45 million opportunity for Power Efficiency, and it already works with the majors, including Otis, KONE and ThyssenKrupp.
Energy efficiency is rightly perceived as the most immediate way to deal with reducing carbon emissions and energy costs for businesses, and it implementing technologies to achieve it are significantly more cost and resource effective, that investments in developing alternative energy power which also have to be managed under technical challenges such as transmission.
The economics for Power Efficiency are compelling. E-Save typically offers a 3-year (or less) payback on investment, which is reduced significantly with utility rebates (approved by Southern California Edison, Xcel Energy, SDG&E, Nevada Power, Sierra Pacific and Anaheim Public Utilities).
And the economics for the manufacturing industry are compelling as well. Domestic manufacturers spend more than $33 billion on electricity each year, and motors consume more than 60% of that total. Power Efficiency's management estimates that it can save the U.S. manufacturing sector about $1.7 billion per year, with 21 billion kWh reduction, 14 million tons of CO2 reduction, equivalent to 2.65 million cars being taken off the road. This is significant.
The stock currently trades at about $0.14, or a market cap of about $5.6 million. We think that the stock price doesn't reflect Power Efficiency's market opportunity and validation in the marketplace. Our expectation for the business is to continue to develop traction through 2009 and establish a revenue run rate exiting 2009 closer to one times its current market cap. The opportunity, we think, is substantial. A 20% share of the estimated elevator market alone is $9 million. The appliance market opportunity dwarfs this number.
The risk to the story, in our opinion is on the execution side. The technology is clearly validated (see the company's list of customers on its website) on the industrial and commercial side. The IXYS relationship will accelerate the path to validation on the residential appliance side. So we think a reasonable way to value this stock would be to focus on the industrial/commercial business opportunity, which we think is currently about $12 to $15 million annual based on existing applications (which can scale significantly as well), and to discount the residential appliance opportunity until the company hits some milestones on that side of the business, which we expect to see in 2009.
At a $12 million market cap, which we think is reasonable, the implied stock price would be about $0.30. Over the long-term, if the company continues to scale both sides of its business, we think this should be just the beginning.
We are pleased to be working with Power Efficiency from a corporate communications advisory perspective (see disclosure below). The business is well-positioned, we think to capitalize on the attention that is rightly being paid to driving energy efficiency as a priority on a global basis. We expect to see the company's financial performance validate this opportunity.
