Girding the Grid: How EnerNOC Sold Utilities and Big Electricity Users on Demand Reduction

2/6/08Follow @wroush

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I’m shutting down.’” As a result, demand response came to be seen as an unreliable resource. “It didn’t show up when push came to shove,” Brewster says.

One of the main ways EnerNOC attacked the perception problem was to work with electricity users—the Hannaford supermarket chain was one early participant—to install devices at each site that would allow EnerNOC to take direct control of electrical loads, for example by shutting off non-critical lighting or cooling systems. Explains Brewster, “We can actually push a button from our network operations center here in Boston and effect that change immediately.” In other words, no more Steves. “So what we’ve been able to demonstrate is that [demand reduction] can be a very reliable, quick-to-respond resource, and with that body of work we’ve been able to overcome the initial skepticism.”

EnerNOC LogoBut just as important, EnerNOC had to convince commercial and industrial partners that joining the company’s demand response network would be worth their while. Just for committing to reduce their electrical demand by a certain percentage when needed, these partners get a monthly “capacity payment” from EnerNOC. But on top of that, they earn a “curtailment payment” every time EnerNOC actually pushes the button—and a big part of the company’s sales pitch is that it has developed techniques to calculate those payments accurately.

“There’s a tremendous amount of intellectual property that we’ve developed around ‘baseline methodologies,’ and what I mean by that is, coming up with a baseline that represents the amount of electricity the customer would have been consuming had there not been a demand-response event,” says Brewster. “There has been a lot of heavy lifting and innovation so that we can know, for any day of the week, or any day of the year, what a customer’s energy consumption would be, based on historical data, weather adjustments, and a lot of other things.” During an actual demand reduction event, the company then takes readings from each site to determine the difference between the site’s baseline and the actual kilowatt-hours consumed—data that forms the basis for each customer’s curtailment payment.

As of last fall, EnerNOC had signed up nearly 700 demand response customers representing nearly 1,000 megawatts in potential electricity savings. “Negawatts” is the industry slang for these instantly accessible demand reductions—which the folks at EnerNOC demonstrated for me in person during a tour of the company’s network operations center (the NOC in EnerNOC). With a few keystrokes from one of the company’s network engineers, a pre-recorded warning sounded over the building’s public address system, and about two-thirds of the overhead fluorescent lights shut off. (I wondered briefly—and with a twinge of guilt—how many times EnerNOC’s employees have been plunged into the dark thanks to visiting reporters.)

The company can engineer a similar power reduction at any of its customer’s 2,000 business locations within minutes by zapping instructions over the Internet or cellular-phone connections; a live Google Map on a giant screen at the front of the NOC shows the status of each customer site, while other screens show … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • Ned Tyler

    The closing statement sums-up the long term concern with the viability of EnerNOC — “while still somehow managing to keep the lights on” The central story includes an appropriate description of your visit to EnerNOC, wondering how many times the employees (negative connotation) have to endure demonstrations for visitors. I don’t believe that curtailment solutions that pay for discomfort are sustainable. The peak demand problem on the grid is triggered by multiple day heat wave events (3 or more days). The central risk to the business will be proven over time–How many of these events per year will business endure? Also, I think you should dig deeper I believe there are a significant number of “Steves” in EnerNOC’s customer base.

  • Jim C

    Jim Cramer recommended ENOC last week.

    CAVEAT EMPTOR :)

  • USMG

    The business model makes sense. They provide a service that is significantly less expensive than the alternative (building even more peak capacity). They take advantage of technology. And… their revenue model is almost all annuity based.

    They may continue to attract distractors (good for people who want to slowly accumulate) until they turn cash positive or get profitable because people don’t fully appreciate that they have to spend today on sales and orgaizational growth for contracts which generate revenue over time.

    Salesforce.com (CRM) suffered many of the same negative comments at the exact point in their public life.

    Long term keys will be: Renewal rates and gross margins.

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