Original article appeared on MIT Entrepreneurship review [http://miter.mit.edu/article/building-energy-audits-field-or-virtual]

Cleantech investors have high hopes for the nexus of software and energy—sometimes dubbed “cleanweb,” a term coined by Sunil Paul of Spring Ventures—after disappointing returns on many cleantech investments. Although companies in renewable energy generation and storage are critical for our energy industry to change, innovative software combined with smart business models can have significant impact on our energy consumption. Companies like Zipcar, EnerNOC and OPower reach percentage points of energy savings, without ever constructing a new type of energy generation system.

Given the power of software, where can one most effectively reduce energy consumption? As buildings account for 40% of total U.S. energy consumption, the built environment is a good place to start. But not only for environmental reasons. Energy efficiency is a vast economic opportunity for property owners and service providers, worth $1.2 trillion in this decade, as stated by McKinsey’s 2009 report on energy efficiency.

This huge economic opportunity can be tapped only by first analyzing where energy is used inefficiently—a role that has been traditionally fulfilled by energy auditors, who walk through buildings looking for energy saving opportunities. Armed with only pen and paper, the industry is ready for technological innovation. Two types of companies are trying to bring disruption: companies that build software to help auditors input and process building data and companies that eliminate the auditor altogether by producing virtual assessment software.

kWhOURS, a Boston-based company, falls within the first category. kWhOURS builds an iPad application for energy auditors, to enhance the experience of data collection in the field and to store all collected data in the cloud. From there, energy engineers—the people calculating potential energy savings—can access the data directly. The data is used as an input for energy modeling tools, with the goal to calculate the effects of energy conservation measures—so-called ECMs. kWhOURS finds its customers in the countries’ biggest 50 energy service companies (ESCOs) who make up 23% of the total retrofit market.

A slightly different approach is taken by EcoInsight. Like kWhOURS, EcoInsight produces software tools for energy auditors. The key difference between the products is that EcoInsight eliminates the need for engineers to manually compute and model the energy consumption of a building. The obvious advantage is that this saves engineering work, but can be to a disadvantage as many engineers prefer or even demand to use their own modeling tools. Unlike kWhOURS, EcoInsight’s tool is free.

Virtual energy audits take a different approach. Companies like FirstFuel and Retroficiencyoperate on the premise that through smart analysis of energy data, most opportunities for energy savings can be found without ever physically touching a building. Based on 15 minute interval energy data, weather data and geographical information, virtual energy audits estimate the opportunities for energy savings. Virtual audits have an obvious benefit: no longer do auditors need to roam around buildings for days on end, only to suggest energy conservation measures that could have been found through automated analysis.

FirstFuel is a key player. Founded by Swapnil Shah, a veteran-IT-entrepreneur, FirstFuel recently raised $10 million from Rockport Capital, Nth Power and Battery Ventures. Through its algorithms, FirstFuel is able to analyze opportunities for energy savings, and recommend both operational and retrofit opportunities. This is important, as no-cost operational measures, such as automatically switching off lights when employees go home, are often missed by traditional retrofitters.

Retroficiency holds a firm two-legged stand. Not only does the company offer a “Virtual Energy Assessment,” Retroficiency also offers “Automated Energy Audit,” a software tool for in-the-field auditors. Thereby, Retroficiency holds the potential both to scan large portfolios of buildings as well as deliver in-depth analyses.

Who will win the battle? Today, onsite energy audits exist side-by-side virtual assessments as both products have different value propositions. Virtual audits can not yet deliver the same level of granularity—and hence potential energy savings—as an in-field auditors offer. In order for an ESCO to identify all energy savings opportunities, energy auditors must be deployed. And the most effective way to do so is by arming them with software tools.

However, many real estate owners want a rapid and cheap way of scanning large building portfolios for energy saving potential. With rapidly improving data analysis tools and more data becoming publicly available (through programs like Green Button, virtual assessments are becoming a very interesting product to deliver.

The future is exciting. Whether improved data analysis tools and mapping energy consumption of each device through wireless sensors will eliminate the need for real auditors is to be seen. It is clear that all companies entering the space are adding very real value, as their products were being paid for before fully finished. After all, a $1.2 trillion pie is big enough to share.