Until recently, renewable energy was a losing investment for real estate developers. Now Toronto and other municipalities are enacting legislation to cut emissions, and Diverso Energy’s radical new business model guarantees renewable energy that is profitable and reduces construction costs.
It was 2012, and Tim Weber had a problem. He’d committed himself to renewable geothermal energy for over ten years, but was still struggling to get developers to accept it as a viable and cost-effective means of heating and cooling large buildings.
He consistently encountered the same two objections: the cost of installation and the developers’ perception of the technology as complicated and risky. “Those barriers needed to be removed if there was any chance of the technology competing in the mainstream,” he recalls.
It wasn’t long before he and a few like-minded industry professionals, all believing in the great potential of the technology, came together as partners and co-founders and launched Diverso Energy.
Renewable energy and real estate, Weber quickly saw, worked on different business models, with energy focusing on the long term and real estate on the relatively short term. Diverso’s business model, by contrast with these established views, took a radical step when the founders devised a way to make geothermal a short-term profitable choice. They had to overcome this existing opinion of many developers that geothermal (together with other renewable energy sources) was an unattractive real estate investment (albeit a more environmentally responsible one), due to high installation costs, construction risk and a long payback.
Weber admits that, at first glance, geothermal presents more challenges than wind or solar. “You can’t build a geothermal borefield in a factory,” he remarks, which leads to costs which cannot be streamlined through economies of scale or similar measures.
A model that works
But in Diverso’s new business model, which overturned the previous major objections, the company designs, builds, owns and operates just like any other utility but on a much smaller scale. “We look at it as infrastructure, and we invest in it, and we take responsibility for it, we own it, and then we essentially sell that energy back to the building owner,” says Weber.
“Economics and profit have always been in competition with sustainability and green technology,” he admits. “What we’re looking at is morphing those two things together… creating what we believe to be a true green economy.” Now Diverso provides reliable, renewable energy at a cost affordable and attractive to developers, while also reducing buildings’ greenhouse gas emissions by an average of 80 percent.
The early days, as is common in business, were a learning experience, Weber recalls, particularly through working with developers and studying their business models more closely. This close relationship led to a solid partnership with developers based on complete understanding, which continues to the present day.
The consequence is that today a growing number of developers are learning to appreciate Diverso’s approach to renewable energy as providing a source for utility heating and cooling, as the company positions itself as a renewable energy pioneer but, primarily, a utility provider.
Diverso will typically predrill multiple holes to an average depth of 600 feet under the building’s footprint before any excavation or shoring work is done by the developer. This creates a heat sink under the building, which provides a consistent and predictable source of both heating and cooling – unlike wind and solar power, which are subject to external weather factors.
“Geothermal’s not really creating energy, that’s a bit of a misunderstanding,” Weber explains. “We are storing energy in the ground.” With this ground heat exchanger, Diverso eliminates a building’s need for cooling towers or heating boilers, saving the developer both money and space.
Diverso’s boreholes are deep below ground, posing no danger to other underground infrastructure such as water mains, power cables and subway lines. Many of Diverso’s client buildings have three to four levels of underground parking, leaving little room for further subterranean construction. “Our limitations are the same limitations of the building,” Weber remarks. But Diverso’s technology minimizes installed equipment, allowing developers to allocate roof space or increase salable or leasable GFA, significantly enhancing developers’ profitability.
Carrying it out
Diverso has already seen considerable success in large projects in the Toronto area. The Plant, a renovated former bakery in Toronto’s gentrifying Liberty Village, provides 120,000 square feet of mixed-use commercial and residential space, with condos above retail and office space. According to the agreement with developer, Windmill Development, Diverso will build, own, and maintain and operate the plant’s geothermal system for 30 years.
Westwood Gardens, in nearby Richmond Hill, presents a similar example. This is a much larger property – over 300,000 square feet of luxury condos. Thanks to Diverso’s unique business model, Collecdev was able to save money on construction costs and focus on delivering a low-carbon building for its unit purchasers.
While these are just two examples of Diverso’s success, the company’s portfolio ranges across the Toronto area and beyond, with many other projects in operation as well as the design and planning phase. These brownfield projects prove that, while it might be assumed that Diverso can only drill its boreholes in a greenfield environment, the company’s bread-and-butter remains high-density urban development projects.
And as the company expands throughout Toronto and other cities, it will further engage in both greenfield and brownfield new construction and renovation projects.
Eating it too
Beyond partisan politics – as renewable energy and climate change become increasingly polarizing issues – Diverso is proving that you can have your cake and eat it too. “We believe, truly, that you can be both sustainable and profitable, and the concept of having to ‘pick or choose’ is really something of the past,” remarks fellow partner and co-founder Jon Mesquita. “When you look at developers who engage us, they’re doing it because it’s profitable.”
Ironically, it is this very benefit that has caused Diverso difficulty in marketing its services to large developers. “Not only is it a new technology to them, which makes them nervous, but our business model is something they’ve never experienced either,” Weber says. Big companies with integrated business practices based on many years of tradition tend to find Diverso’s business model even more daunting.
Mesquita recounts multiple meetings during which, when he would pitch Diverso’s business model, developers would listen but politely decline just because it was so different, he recalls hearing. While he admits this reluctance is frustrating, he understands developers’ resistance to embrace Diverso’s radical new model. “It’s like going to a Ford production line and asking them to do something slightly different.”
But, finally, the construction industry is changing. Mesquita remarks that, with more cities embracing carbon-neutral initiatives and renewable energy, traditional techniques can no longer be applied. “The status quo is no longer an option, at least in Toronto and New York,” he says. “Now it’s a question of asking, ‘What change represents the least risk and the least cost?’ Inevitably, every single time, we come up at the top of that list, because we reduce their construction budgets, and we take on all that risk.”
To better assuage developer concerns, Diverso has partnered with the Montreal-based fund Eolectric Capital, ensuring a steady stream of investment and guaranteeing that Diverso’s projects will remain viable and not be a drain on its clients.
Jon Mesquita muses on how this partnership was necessary to facilitate Diverso’s growth. “One of the pieces that we needed was access to capital, along with alignment with a financial partner that had a similar perspective… on the technology in the market itself. Eolectric Capital presents a perfect fit for that.”
With experience funding wind and biogas projects, Eolectric represents a perfect match for Diverso, as it motivates the company to design and build projects not for rapid turnover but for long-term ownership. “They really do represent that stability, that long-term view,” Mesquita says of Diverso’s new partners. “So when we engage developers, they’re confident knowing that we’re going to deliver, we’re going to be there for the long term.”
As a young company just emerging from the development and innovation stage, Diverso also has the luxury of attracting talented young employees to its ranks. Mesquita remarks how Diverso’s history makes it a natural choice to help lead Toronto’s and other cities’ carbon neutralization initiatives. “When we enter a state where developers are required to build zero-carbon or near zero-carbon buildings, we’re extremely well-positioned to be a disruptive force.”
So Weber is now reaping the benefits of his and his colleagues’ hard work, proud to see Diverso building respect amongst its peers. As such respect grows, so too does Diverso’s attractiveness to new graduates. “You’re a young person looking to get into the renewable space; why wouldn’t you want to join a company that is considered a leader in the industry?”
As Diverso looks to the future, Weber says the company will continue working with small and medium-sized developers, as these are naturally more responsive to change; after all, he remarks, a speedboat turns more rapidly than a cruise ship. As these developers continue to demonstrate the effectiveness and increased profitability of Diverso’s approach, larger developers are now taking notice. Backed by the additional resources and credibility provided by Eolectric Capital, the company is poised for expansion throughout Toronto and other North American cities with zero-carbon initiatives, such as New York, Vancouver and Los Angeles.
In addition, Weber points out how Diverso was specifically designed for easy scalability, making expansion simple. When Diverso enters a new city, he says, “We don’t need to ‘set up shop.’ We don’t have that infrastructure.”
Diverso has successfully bridged the gap between technology and economy, simplifying geothermal heating and cooling for developers. “We know how to predict problems, get out in front of them, and guide the team to make sure the overall experience is really good,” Mesquita says. Diverso’s close coordination with condo developers helps ease the installation process, as the developer and Diverso are both in for the long haul. Thanks to its vast experience, Diverso removes significant variables from the construction process, ensuring construction goes more smoothly.
“Right from beginning to end,” Mesquita concludes, “we’re focused on being the company that inspires confidence and delivers certainty.”