The investor appeal of a better air conditioner

Artificial intelligence is getting a lot of attention for its staggering electricity demands. But it's not the primary driver of global electricity growth.

A bigger factor, says the International Energy Agency, is cooling. And in a warming world, the rapid adoption of air conditioning makes the sector appealing to both startups and investors. 

Transaera, a startup founded in 2018 to develop energy-efficient AC units, today announced an oversubscribed $8.2 million seed round led by Clean Energy Ventures, adding to the $2.3 million in Department of Energy grant funding the company had already secured. The round’s investors also include Energy Impact Partners and MassMutual Ventures. 

The company is manufacturing units equipped with a novel technology that can be easily swapped with an old AC system, potentially reducing overall electricity consumption by up to 40%. Its current focus is commercial AC, though the tech can be applied to residential units as well. These two traits give it the potential to scale up quickly, which appealed to investors in a crowded market.

David Miller, co-founder and managing partner at Clean Energy Ventures, told Latitude Media that the number of heating, ventilation, and air conditioning companies and technologies he’s looked at “is in the triple digits.” 

“You need the combination of a technology and an approach that's going to save a very significant amount of energy and with that a very significant amount of cost,” he said. “But beyond just cost, it has to be easy to adopt, easy to install, easy to maintain, because we want technologies that are going to go far beyond a niche and become globally adopted at scale.”

Sorin Grama, CEO and co-founder of Transaera, calls it “a plug-and-play solution” that allows the installer to remove the old air conditioning unit, and replace it with a new, more energy-efficient one with no need for new hardware or skills. Before founding Transaera, Grama founded a company in India with atechnology for food refrigeration in areas without regular power. He also was a co-founder of Greentown Labs. 

“You have to make these systems fit within the confines of the customers’ infrastructure,” Grama said. “Engineers can come up with all kinds of crazy, amazing ideas, but [if they] never have practical uses…they'll never be adopted.”

Inside the new air conditioning system is a novel, absorbent material — “kind of like the one you’d find in a shoebox,” Grama said — that’s key to Transaera’s promise of energy savings. The material is a metal-organic framework: a powder that works as a “desiccant on steroids” and absorbs humidity, he added.

Humidity makes heat particularly difficult to bear, and air conditioning’s job is to suck it out of a room. Traditional air conditioning cools the air until the moisture becomes water, sets a temperature that’s too cold for comfort, requiring the AC unit to then heat the air back up to an agreeable temperature. 

With the powder absorbing the humidity instead, the AC unit does not need to lower the air temperature as much. Transaera then recycles some of the AC unit’s waste heat to “dry” the absorbent material. 

The technology is particularly suited to commercial buildings, Grama said. Transaera is currently in the pilot phase with several customers, including one large online retailer. Its current revenue model is based on selling the hardware, though its long-term plans also include selling the components that handle the dehumidification process to major HVAC manufacturers. 

‘Fundamental hardware innovation’

Transaera caught the attention of Clean Energy Ventures, an investor with expertise in helping startups develop hardware. The VC, which closed its second flagship fund earlier this year, is focused on technology companies “with the potential to mitigate 2.5 gigatons of carbon emissions” by 2050.

“At the end of the day, it's very challenging for a software-only solution to do that in a unique way,” Miller said. “Usually, you need some type of fundamental hardware innovation.”

Grama said there is only a small subset of VCs that understand hardware. Air conditioning is a particularly difficult subset — and a complex market to break into. 

“Air conditioning is a difficult market and difficult equipment to build and install,” he said. “It’s a 100-year-old industry that has been innovating and increasing efficiency over time.”

According to the IEA, “the combination of rising incomes and increasing global temperatures generate more than 1,200 terawatt hours of extra global demand for cooling by 2035,” which is “an amount greater than the entire Middle East’s electricity use today.” Nevertheless, Grama thinks cooling is an overlooked story, especially as AI electricity demand gets so much attention.

“This incoming wave of air conditioning demand is going to put additional stress on the grid,” he said. “In India, there are ten new air conditioners sold every second. It's a staggering amount of demand, especially in the developing world, where the world is getting hotter and people need air conditioning to live comfortably. It's no longer a luxury, it's a necessity.”