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How Johnson Controls Powers Its Way Through the Cleantech Revolution

<p>While cleantech often conjures an image of the lone entrepreneur struggling to bring new technology to market, companies like Johnson Controls are changing that view. &quot;Cleantech&quot; no longer equals &quot;startup,&quot; as old-line companies increase their green profile.</p>

It's just another one of your typical entrepreneurial stories. A 36-year-old professor sits at home vexed by a common problem. His wife complains it's a waste of time and asks why he doesn't focus on something important. He perseveres, patents his inventions, and finds angel financing. Before long, he gets some early adopters from local government institutions to pilot his invention. And the rest is history -- another cleantech success story in the making.

The twist is, that story took place 125 years ago. I looked up Warren Johnson's life after attending Johnson Controls' recent "Cleantech Analyst Day" and came away fascinated. It's been only a few years since that the vision of cleantech emerged about venture capital and underfunded start-ups (which was not that different from Mr. Johnson's day). But as Joel Makower wrote in this year's State of Green Business report, the worlds of clean technology and green business "seemed like a Venn diagram that was yet to be -- that is, two circles trying to overlap." For a large part of Johnson Controls business, that Venn diagram has become an almost a perfect circle.

Nearly half of Johnson Controls' (JCI) business could fall under the cleantech label. (The other half provides components to the automotive industry.) And while the theme of the "analyst day" was clean technology, the real topic was energy, or more specifically energy systems. Warren Johnson's early thermostat could not operate without mechanical dampers and flues, and the current offerings from JCI require the same systems-oriented approach. This is true of its battery business as well as its building efficiency division.

Batteries Start-Stop a Market

JCI's Power Solutions group develops batteries and battery systems and represents both the history of the company and one of the keys to its future. On the one hand, stock market analysts want to talk about lead-acid batteries because that's where the current money is made. And the press wants to write about lithium-ion (Li-on) batteries because that's what is being used in plug-in hybrid electric vehicles (PHEV) and electric vehicles (EV). As one executive predicted about consumer purchasing habits over the next five to ten years, "Everyone will talk about electric vehicles, but people will buy hybrids."

Supporting this assertion is a recent JD Power study predicting that in 2015, xEV (a category comprised of hybrid, plug-in hybrid, and electric vehicles) demand will reach 2 million vehicles, with 88 percent of that demand for hybrids, 9 percent for PHEVs and just 3 percent for pure EVs.

But in Europe, a different market is emerging, a market for what is called "start-stop" technology. Start-stop technology enables an engine to shut-off when it doesn't need to run (such as when you're at a stop light), then seamlessly restart when you're ready to go. (Vehicles using this technology have been around for years, often called "light hybrids" in the U.S. The Chevy Silverado Hybrid, introduced in 2007, is just one example.)

By 2015, the predicted European market for stop-start technology is 16 million vehicles, far surpassing the hybrid market. Governments in Europe are encouraging adoption of the technology, which can provide fuel economy improvements of up to 12 percent (along with associated emissions reductions ). The upside for JCI is that start-stop technology can be implemented using current market solutions based upon lead-acid battery technology.

Will start-stop become popular in the U.S. beyond a relatively few vehicle models? Not likely. Studies show that Europeans are more likely to accept the approach given their tolerance toward interior vehicle climate (where many European cars don't even have air conditioning and so wouldn't be affected when the car shuts down, however briefly). The technology also works better with diesel rather than gasoline fueled engines, again favoring the European market.

Key to all of JCI's battery technologies, however, is a need to work with each car manufacturer to develop battery-based systems that optimize the performance of their vehicles. This not only guides their European strategy but also their Li-on research and manufacturing plans. The company is opening the first Li-on large scale production facility in Holland, Michigan, and is working with customers and suppliers to develop a domestic Li-on industry that will provide cleantech jobs as well as more innovative battery systems.

An Increasing PACE of Growth

The other cleantech division within JCI is Building Efficiency, which includes the Energy Solutions group. JCI's strategy for growing its solutions group is to focus on optimizing buildings, and not just their components. Once again, this leverages the company's systems design approach of bundling energy-efficiency technologies and control systems along with renewable options such as solar, wind, and geothermal energy.

But a tough economy has been a major barrier to growth in this business. During the Sustainable Operations Summit in May, even President Clinton lamented the lack of funding for so-called "negawatts" -- energy-efficiency projects that reduce energy consumption and greenhouse gas emissions.

During an overview of regulatory and legislative issues that could impact the company, JCI's VP of Global Energy and Sustainability Clay Nesler described how PACE (Property Assessed Clean Energy) financing would help overcome stalled funding efforts. According to Pacenow.org, a PACE bond is one where the the cost of efficiency measures and small renewable energy systems are repaid by commercial and residential property owners over 20 years via an annual assessment on their property tax bill. The tax stays with the property, so that if it is sold, the next owners continue the assessment.

The reason PACE bonds are important is that they allow building owners to finance improvements without losing the benefits if they sell the property before the investment provides a payback. The funding is repaid as a part of the property tax and historically property tax defaults are less than 1 percent. As PACE bonds are adopted on a wider basis, they will spur a viral increase in energy efficiency investments in the real estate market.

This will be an important factor for the future of JCI's building efficiency business. As projects such as the retrofit of the Empire State Building provide both publicity and benchmarks of energy-efficiency investments, the company will benefit as investment barriers are lowered. In the next three to five years, the company expects to hire 1,000 new engineers, many of whom will be providing efficiency solutions.

The Eat-Your-Own-Cooking Tour

It's always a pleasure to hear about green business success and JCI is certainly testament to this growing market. But the best part of a future visit to the company (which JCI encourages, predicting approximately 5,000 tourists annually) will be its campus renovation project, where you can see everything they do put to use in one place. It's only a slight exaggeration to call this Disneyland for Facilities Managers.

You can certainly find a number of the highlights called out on JCI's website. Things like nose-to-toes air conditioning (achieved through a raised-floor ventilation system), an extensive use of solar arrays and geothermal systems, lots of daylighting and many other features. But God (or the devil, take your pick) is in the details, especially if you're an employee.

For example, workstations can be easily customized with dedicated temperature and lighting controls. And in a large open space housing 300 employees, you can barely hear any hubbub. That's because in addition to heating and air conditioning, noise-canceling speakers are installed throughout the space as well as within each workstation.

It's only when we get to the central command room that you find out what else is available to the facilities manager. In addition to lighting, temperature, and sound control, the building management system can detect whose entering and leaving the building and who's occupying cubicles and meeting rooms.

If you're curious who caused the lights to go on in the computer room, there's a video record of that. And if you happen to be home when you need to turn on the lights in a section of the building for some reason, there's an app for that on your phone. Better yet, start playing with Microsoft's Surface multi-touch screen as you begin to feel like the king of your real estate portfolio.

While cleantech often conjures an image of the lone entrepreneur struggling to bring new technology to market, companies like Johnson Controls are changing that view. "Cleantech" no longer equals "startup," as old-line companies increase their green profile. In addressing issues such as climate change and energy security, it's companies that have already achieved scale that can make some of the greatest, greenest impacts.

John Davies is Vice President of GreenBiz Intelligence at Greener World Media.

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