How EnerNOC is Evolving Smart Grids and Building Energy Management
How EnerNOC is Evolving Smart Grids and Building Energy Management
When I first met EnerNOC co-founder Tim Healy back in 2007, he was riding high on the results of a successful IPO. Catching up with Healy just a few weeks ago, I was struck by the dimming of the outlook for cleantech in the intervening years.
Five years ago, EnerNOC's IPO was a bellwether in all-too-brief moment of exuberance for cleantech that marked that year. Listing in late May 2007 at a price of $26, EnerNOC's IPO was a hit. The share price surged 20 percent in its first day of trading, and nearly doubled to $50 within six months.
At the time, EnerNOC offered something counterintuitive amidst all the breathless coverage of next-gen solar panels and complex batteries recipes. Rather than generate clean energy, EnerNOC was helping to solve energy shortages by reducing demand.
By taking control of commercial customers' big equipment -- think office building air conditioning systems -- and turning them down briefly during periods of peak demand, EnerNOC could cut its customers' bills by negotiating discounts with utilities. The plan helped utilities too, by giving them a way to cut the risk of costly blackouts.
These days, the atmospherics around cleantech are decidedly less exuberant, damped by partisan bashing, cheap natural gas and especially economic recession. EnerNOC's stock has settled into a range just above $10 in recent months. Yet its business model has thrived and evolved, establishing demand response (or demand reduction, DR) as a fast-growing business and attracting a raft of competitors.
"We were among a small pack at the beginning competing for a land grab in the demand response market," said Healy, the company's CEO and chairman.
By most measures, EnerNOC scored well in that land grab. From a few dozen utility partners in 2007, the company now has contracts with hundreds and has expanded internationally, most recently to the United Kingdom and New Zealand. And its technology has evolved dramatically.
In the early days, said Healy, demand reduction amounted to relatively simple on-or-off decisions. During times of peak demand, equipment would simply be shut off.
"We call that DR with a machete," he said.
These days it's more like DR by microscope and tweezers. The combination of EnerNOC's remote management software and advances in customers' equipment -- from freezers to digital lighting -- make it possible to throttle down demand incrementally, following complex priorities. This ultra-fine control minimizes disruptions to operations, while delivering maximum dollar savings and maintaining grid stability.
This evolution toward automatic response technologies has accelerated DR's business, and opened new opportunities. Where requests for reductions used to arrive a day or hours ahead of anticipated needs, these days contracts call for response times of minutes or seconds.
This is drawing EnerNOC and its peers into the role of automated grid management. The company's recently-inked 150-megawatt DR project with the Alberta (Canada) Electric System Operator delivers not DR per se, but rapid response to grid variations to help maintain stability in the regional grid.
The fast-growing scale of wind and solar in recent few years has opened up a surprising variant for EnerNOC's technology that works in reverse to demand reduction. In the Northwest, the Bonneville Power Administration has experienced periods when its dams and windmills spin out too much power, which can overload the grid. So the BPA has been searching for a way to increase demand on short notice.
EnerNOC is helping it to do so. In a pilot project, EnerNOC can push excess power to commercial facilities to heat up ceramic brick room heaters and/or boost the temperature of water heaters. The technology essentially stores excess electricity as heat, which can be drawn down later.
"We're not just curtailing load. We're ramping load up too," said Healy. In addition to making more heat, making more cold also works. Cold storage facilities, for instance, can pull in surplus juice to chill their facilities to lower temperatures or make more ice, essentially storing excess load as cold.
In addition to grid management, EnerNOC is also using demand reduction as a stepping stone to enter the broader field of energy management, to run the buildings and campuses of its clients. This gives EnerNOC a broader marketplace, for sure, but also brings it into head-on competition with bigger, deeper-pocketed incumbents such as Johnson Controls, IBM and Siemens.
It's been a natural extension of EnerNOC's expertise. As the company has grown, its software engineers have had to master an increasing diversity of software standards, control protocols, and other arcana -- the code that runs offices, buildings, and the machines inside them. Expertise in these software layers has opened up a new frontier the EnerNOC: smart building systems.
"We want to drive towards a goal of 'persistent commissioning,' " said Healy, where EnerNOC provides not just demand reduction services but real-time management of building systems.
The approach permits on-the-fly performance optimization, as well as the ability to detect faults. By mapping regular user patterns -- escalators are always off from midnight 'til 6 a.m., for example -- software can learn to take action if, for instance, an escalator motor energizes at 3 a.m.
"Managers have information systems for their finances, sales, manufacturing, practically every aspect of their operations," said Healy, "Everything except energy. There needs to be better intelligence for the customer and utilities."
Meanwhile, the DR market continues to mature.
"We're seeing sectors coming to us that weren't on our radar a few years ago," said Healy. EnerNOC has recently begun to develop DR services for big farms, orchards and vineyards. They're a natural fit. Big agriculture operations use lots of power to run remote irrigation pumps and other machines. These can be temporarily turned down with little harm to the crops. Installing intelligent sensors and controls on this network of pumps can deliver energy savings and other benefits too, such as reduced labor needs and fault detection.
Another potential growth segment is commercial sites that have until recently been too small to invest in DR: drug stores, convenience shops and gas stations. With all the fridges and display cases, these sites, in aggregate, face sizeable energy bills, yet are often too small to invest individually in smart energy management systems.
"If you could bring a packaged solution to these guys," said Healy, "bundling up a series of outlets, you could see 10 percent or better savings at each site."
I asked if the slow growth of power demand poses a drag on EnerNOC's outlook. After all, during the recession, U.S. electricity consumption actually shrank and has grown only very slowly since. Healy told me overall electric demand growth is secondary to other trends.
First, there's a coming wave of power plant retirements. With the EPA's adoption of mercury rules on Dec. 21, utilities across the nation must shutter scores of their oldest, dirtiest plants, and will have to find alternatives. Secondly, the renewable energy standards now in place in most states drive demand for the sorts of grid stabilization services that EnerNOC is expanding into. Next, utilities continue to scale up spending on efficiency programs, an area where EnerNOC is positioned to help meet goals.
Plus, with overall growth flat, companies are working to shave costs: "One of the common refrains we're hearing from customers is, 'My top line isn't growing, what can I do to cut costs to improve my bottom line?' "
And lastly, even if some factories have eliminated one of three shifts, for instance, they're typically running daytime shifts at max, such that peak demand is still high.
"Even though overall usage is down or flat in some areas, we still continue to see peak records being set," said Healy.
EnerNOC has some $1.3 billion in projects in its pipeline, Healy said. That's roughly five times last year's revenue of $280 million. The healthy pipeline has led many analysts to tag EnerNOC's shares as undervalued. Thinking back to the IPO, Healy couldn't agree more.
For more on EnerNOC, check out this podcast of Chrissy Coughlin's conversation with Tim Healy here for GreenBiz.com.
Photo of control panel from Shutterstock.com.