An area of growing concern for rate-payer funded energy efficiency program managers and
policymakers is how to reach the small commercial marketplace. As a prototypical “hard-to-
reach” customer class, the small commercial market presents significant challenges for energy
efficiency programs.
First, the market is deeply fragmented. Ownership is exceedingly diffuse and localized; tenants
tend to be small (and, perhaps at times, undercapitalized) businesses with a single location;
lien holders are disproportionately smaller community banks; contractors and maintenance
personnel are small operators; and the buildings themselves may have extremely distinctive
lighting and HVAC systems, usually pieced together in highly individualized combinations.
Therefore, nothing lends itself to aggregation and all of these elements drive up the acquisition
and delivery costs for small commercial programs.
Second, owners can face considerable hurdles in accessing financing for efficiency investments.
In many cases, the financial crisis has reduced valuations of these small properties. Moreover,
the financial crisis seems to have curtailed lender interest in this space – especially loans
secured by junior liens.
Despite these hurdles, this marketplace cannot be ignored. Small properties represent the vast
majority of commercial buildings. According to the U.S. Energy Information Administration, 95
percent of all commercial buildings in the United States have less than 50,000 square feet.
Financing programs, particularly on-bill programs, can be effective tools for reaching this
segment.
The U.S. Department of Energy and municipalities are exploring new policies to spur
investment, such as building ratings systems. Benchmarking methodologies are virtually non-
existent right now, but work is underway to remedy this issue.
Financial intermediaries, particularly Community Development Financial Institutions (CDFIs),
are developing new models for engaging owners. CDFIs have been adept at segmenting the
market and targeting discreet types of owners and tenants with customized program offerings.
Utilities increasingly recognize the opportunity presented by this marketplace and are
beginning to explore new ways to reach it. The potential is simply too large to ignore,
especially as lighting standards make meeting energy efficiency portfolio goals more difficult.
All of these initiatives indicate a renewed focus on the small commercial building marketplace
and, hopefully, a growing number of pilots and partnerships demonstrating cost-effective
models for delivering energy efficiency programs to this space. No one can reasonably
expect a “tipping point” to materialize any time soon, but a coordinated approach among
these different actors may well demonstrate that the small commercial segment is
indeed “reachable.”

An area of growing concern for rate-payer funded energy efficiency program managers and policymakers is how to reach the small commercial marketplace. As a prototypical “hard-to-reach” customer class, the small commercial market presents significant challenges for energy efficiency programs.


First, the market is deeply fragmented. Ownership is exceedingly diffuse and localized; tenants tend to be small (and, perhaps at times, undercapitalized) businesses with a single location; lien holders are disproportionately smaller community banks; contractors and maintenance personnel are small operators; and the buildings themselves may have extremely distinctive lighting and HVAC systems, usually pieced together in highly individualized combinations. Therefore, nothing lends itself to aggregation and all of these elements drive up the acquisitionand delivery costs for small commercial programs.


Second, owners can face considerable hurdles in accessing financing for efficiency investments. In many cases, the financial crisis has reduced valuations of these small properties. Moreover,the financial crisis seems to have curtailed lender interest in this space – especially loans secured by junior liens.


Despite these hurdles, this marketplace cannot be ignored. Small properties represent the vast majority of commercial buildings. According to the U.S. Energy Information Administration, 95 percent of all commercial buildings in the United States have less than 50,000 square feet.


Financing programs, particularly on-bill programs, can be effective tools for reaching this segment. The U.S. Department of Energy and municipalities are exploring new policies to spur investment, such as building ratings systems. Benchmarking methodologies are virtually non-existent right now, but work is underway to remedy this issue.
Financial intermediaries, particularly Community Development Financial Institutions (CDFIs),are developing new models for engaging owners. CDFIs have been adept at segmenting themarket and targeting discreet types of owners and tenants with customized program offerings.


Utilities increasingly recognize the opportunity presented by this marketplace and are beginning to explore new ways to reach it. The potential is simply too large to ignore, especially as lighting standards make meeting energy efficiency portfolio goals more difficult.

All of these initiatives indicate a renewed focus on the small commercial building marketplace and, hopefully, a growing number of pilots and partnerships demonstrating cost-effective models for delivering energy efficiency programs to this space. No one can reasonably expect a “tipping point” to materialize any time soon, but a coordinated approach among these different actors may well demonstrate that the small commercial segment is indeed “reachable.”