Deal Radar 2009: EnerNOC

Continuing our coverage of Cleantech, today’s Deal Radar features Boston-based EnerNOC. Founded in 2001 by Tim Healy and David Brewster, EnerNOC is an energy management solution provider. Though it provides technology-enabled energy management solutions such as monitoring-based commissioning and energy procurement services, its primary business is Demand Response (DR). The company aggregates excess electrical capacity at various industrial customers and sells it to utilities.

The company feels that it is founded on creativity and innovation on two main fronts: business model innovation and technology innovation. Though it agrees that the basic concept of DR isn’t new, it’s on the technology front that EnerNOC’s unique approach to DR becomes evident. Its Network Operations Center (NOC) lets EnerNOC curtail the power of end-user load from the grid with a few clicks of the mouse, irrespective of the location of the end-user site, and the center remotely aggregates load to provide DR capacity when and where it is needed. From its NOC, EnerNOC can initiate curtailment in any one, or several, of its active regions.

The company’s business model is simple. In a regulated market, EnerNOC contracts with utilities for a specific number of megawatts. Those utilities pay EnerNOC on a kW/h basis. EnerNOC then contracts with individual commercial and industrial customers, getting them to agree to reduce electricity usage when called upon, in exchange for a percentage of the money that is being paid to EnerNOC. In an open market, prices are set by the ISO/RTO and aggregators like EnerNOC bid capacity into the market. There is the same revenue sharing model with C&I customers for either open or regulated markets.

The company operates in all open DR markets, and currently participates in several US states and regions: California, New Mexico, Arizona, Texas, New England, New York, PJM (the mid-Atlantic states of Pennsylvania, New Jersey and Maryland), and Florida. EnerNOC targets utilities that have increasing peak demand and have challenges associated with traditional supply-side resources. On the C&I side, they target commercial, industrial, and institutional organizations that are large energy consumers, such as universities, hospitals, commercial office spaces, big-box retailers and grocery stores.

It’s estimated that demand response can meet 5-10% of peak demand, so by 2030, that is equivalent to  approximately 120 GWs of opportunity for DR. However, given the inconsistent nature of traditional DR concepts, EnerNOC did face glitches in the beginning. Not only did the company have to prove its concept, but it also had to dispel the industry’s misconception that aggregated DR was ineffective, impractical, uneconomical and unreliable.

Today EnerNOC is an established market leader with over 1,760 megawatts under management across 3,400 customer sites as of September 2008. The company continues to expect to have between 2,000 and 2,200 megawatts of demand response capacity under management by the end of 2008. On January 6, 2009, the company announced a contract with the Phoenix-based Salt River Project (SRP) to provide up to 50 megawatts of demand response capacity under a three-year contract with an option to extend, at SRP’s discretion, the initial three-year term for an additional three-year period or longer.

EnerNOC had humble beginnings as Healy and Brewster self-financed the idea on personal credit cards. The company has raised over $10 million in venture capital: a $2.6 million Series A from Draper Fisher Jurvetson, Draper Fisher Jurvetson New England and Braemar Power & Communications
Partners in 2003; and a $7.75 million Series B from Foundation Capital as the lead investor, with participation from first-round investors, in 2005. In May 2007, the company made its initial public offering and was named one of New England’s top IPOs of the year by the Association for Corporate Growth Boston and Mass High Tech.

Though EnerNOC hasn’t released its Q4 earnings yet, it expects 2008 gross margin to be higher than the full year 2007 gross margin of 36% and expects to generate positive cash flow from operations in the second half of 2009, with 2010 being its first full year of profitability.

Related Readings:
*Deal Radar 2008: Carbonetworks
*Global Warming and Phase Changes

This segment is a part in the series : Deal Radar 2009