EnerNOC ‘scratching surface’ of demand response market

EnerNOC (Nasdaq:ENOC) CEO Tim Healy is seeing utilities doubling what they spent in 2007-08 on new energy efficient technologies and products.

So he, and some of his competitors, are trying to usher that vision along, filing a protest yesterday with the U.S. Federal Energy Regulatory Commission (FERC) for new market rules to make energy efficiency more appealing to American utilities than building new power generation.

Calling themselves the "Demand Response Supporters," EnerNOC, PJM Industrial Customer Coalition (PJMICC), Comverge, EnergyConnect, Viridity Energy and Wal-Mart say pricing changes will eventually result in a more balanced and sustainable energy grid where customers and grid operators can work together.

For Healy's Boston-based company, which has almost 400 employees providing demand response-related services, doing so potentially opens major new business opportunities.

So what exactly is EnerNOC's business anyway?

Healy sat down with the Cleantech Group last week at its Cleantech Forum XXIII in Boston, offering details about EnerNOC’s technologies that help to curtail electricity usage at peak times and the company's business model.

EnerNOC is working to solve supply needs on the electricity grid, keep prices lower and avoid blackouts as a national and international demand response provider, he said.

Through what the company calls monitoring based commissioning, EnerNOC also provides energy efficiencies using technology to monitor a facility’s operations on a detailed level. EnerNOC then offers a prioritized list of savings possibilities to the customer to drive energy reduction.

His company profits from a subscription system for the program, where, for example, a utility would pay for the first year’s subscription and then the customer would pay for subsequent years.

There’s a $4 billion to $5 billion market opportunity in terms of how much utilities are spending to take advantage of energy efficiencies, including everything from lighting retrofit projects and rebates to stimulus funds and technical incentives.

“Utilities are being bombarded to spend more money on energy efficiency,” he said.

Healy said decoupling and utility incentives help to make up losses from implementing such efficiencies.

With public utilities, decoupling means the separation of a utility's revenue from its sales of kilowatt hours. A rate of return is instead tied with hitting efficiency targets, with rates based on meeting the target at the end of an adjustment period.

Utilities can then be better incented to promote energy efficiency and invest less in new power generation, Healy said.

Healy said if decoupling were to be adopted on a more widespread level, his company—which has already experienced 70 percent to 80 percent growth in the past year—would have enormous opportunities.

The company brought in about $100 million in revenue last year, compared to $180 million in 2009, he said (see Eight cleantech developments to watch for in 2008).

“We’re only scratching the surface of the demand response market,” he said.

In June, EnerNOC acquired eQuilibrium Solutions, a private Boston-based developer of software-as-a-service for enterprise carbon management and energy efficiency for commercial, institutional, and industrial enterprises (see Cash shortage? Not in wind).

EnerNOC said at the time it planned to integrate eQuilibrium’s applications into its existing PowerTrak software platform to expand its service offerings to allow customers to create their own energy efficiency projects in the software, and share the energy, environmental, and financial results in a standardized format. Financial terms were not disclosed.

Healy thinks EnerNOC has the opportunity to be the most technologically advanced demand response leader in the regulated regions of the United States, such as Texas and New York.

But EnerNOC is still learning how it can excel on an international level, although it does have signed customers in Europe, he said.

As a result of the stimulus funds, EnerNOC is in the contract negotiation and signing stage of numerous new deals, he said, without disclosing specifics.

He said the company is also working with about a dozen utilities thinking about implementing demand response.

EnerNOC already provides the federally-owned Tennessee Valley Authority with demand response capacities (see EnerNOC signs contract with Tennessee Valley Authority).

And last year, EnerNOC extended a demand response contract with Southern California Edison (SCE) until 2012 to include up to 110 megawatts of capacity (see EnerNOC in 5 year deal with Southern California Edison and EnerNOC extends contract with SCE).

During periods of peak demand, SCE signals EnerNOC to provide demand response capacity, with EnerNOC remotely initiating demand response measures at participating customers' sites and monitoring performance from its network operations center.

Healy said he’s seeing demand response become a bigger part of the overall market. It helps to improve reliability, is used for reserve purposes and economic dispatch reasons.

“It is being more broadly adopted by utilities and grid operators, not just as an emergency resource, but as an everyday resource,” he said.

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