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Smart cities will need smart buildings — buildings which know when to adjust the thermostat. Australian startup BuildingIQ, a finalist in the GreenBeat 2009 innovation competition, plans to play a big role in realizing that future.

Think of BuildingIQ’s product as a brain that makes buildings smarter. The software sits on top of existing heating, ventilation, and air conditioning (HVAC) and building management systems. It efficiently and automatically regulates temperatures by factoring in environmental characteristics, like the weather forecast and humidity, and building characteristics, like how well the building holds heat or cold, what occupants are likely to be wearing, and how air flows inside.

It also accounts for energy costs, which normally vary throughout the day. So, for example, if the weather forecast says it’s going to be hot tomorrow, BuildingIQ’s system can precool the building the night before, taking advantage of cheap energy purchased in  off-peak hours. Or if there’s money to made by reducing energy usage during peak hours  — some utilities provide incentives for doing so — then the system can predict and implement solutions to take advantage of that.

“The dilemma is in order for the smart grid potential to be realized, you not only have to have intelligence built in at the utility, you actually have to have intelligence out in the buildings and in homes,”  said CEO Michael Zimmerman.

“Our system is real-time predictive control, so it’s making decisions on the fly based on ability to forecast internal and external factors,” he added. “We’re actually a system that’s inside the building that understands things like comfort and energy use and all that. It’s precise.”

Another plus for BuildingIQ’s systems is that they don’t require a large capital investment. Users pay a subscription fee, which might add up to a few dollars on top of an energy bill that’s already been reduced. The company’s recent trial in Sydney, Australia, resulted in 30 percent peak-load energy reduction without increasing tenant complaints about office temperature, Zimmerman told VentureBeat.

“We’re trying to get the most out of existing systems that are in place,” Zimmerman said. “The better job you do at forecasting, the better you can manage your energy costs.”

Building efficiency is an area that is ripe for innovation and investment. Serious Materials recently moved into the building energy management market, citing an EPA report that found 30 percent of energy use in commercial buildings is wasted. Financial services company TIAA-CREF and cleantech investment firm Good Energies announced over the weekend they are partnering to invest $50 million in venture capital towards energy efficient and green building technologies.

Lighting startup Lumenergi has also banked on commercial smart lighting systems that automatically readjust throughout the day, pointing out that lighting makes up 23 percent of all energy use in the U.S. And BuildingIQ, for its part, says that commercial buildings make up 20 percent of all energy consumption in the U.S.

The company has caught the attention of the Department of Energy’s Argonne National Laboratories, which is piloting the software at its facilities — BuildingIQ’s first U.S. installation. The company is planning a move into the U.S. market with yet-to-be-announced installations at corporate and institutionally-owned real estate, and partnerships with third-party sellers.

BuildingIQ’s software can also handle demand response events, an issue most buildings are not well-prepared for. In demand response (a sector that’s heating up lately with players like Comverge and EnerNOC), utilities provide financial incentives for large buildings to reduce their energy use during peak hours, which in turns reduces strain on the grid and keeps utilities from investing in more power plants.

Utilities send out a demand response request to buildings, which must find ways to reduce energy usage — which to date, Zimmeran says most buildings react to with rudimentary and imprecise methods.

“Typically someone’s getting an email, phone call or text and they’re just shutting off a chiller or turning of the lights or shutting down part of the building,” said Zimmermann. “They’re making some extreme moves they don’t know exactly, how much energy it saves, how uncomfortable tenants will be.”

BuildingIQ’s DRiQ system generates targeted recommendations in demand-response events, based on all the software has learned about the building’s energy use and thermal characteristics.

And that ability to learn — not just to process information, but to analyze and react to it — is how the spaces where we work begin to get smart.

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