EnerNOC and Pulse Energy: Selling it by the negawatt | The Economist

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http://www.economist.com/news/business-and-finance/21635404-demand-response-industry-consolidating-selling-electricity-negawatt

Selling it by the negawatt

WHY sell megawatts when you can sell negawatts? That is the thinking behind the demand-response industry, which pays consumers to curb their electricity use, and then sells the resulting spare capacity back to the grid. On December 2nd, EnerNOC, the sector's biggest software-services firm, which focuses mainly on managing big customers’ electricity demand, announced that it had bought Pulse Energy, a Canadian startup that specialises in offering similar services to small and medium-sized companies. The result, says David Helliwell, Pulse Energy's boss, is a company that can handle everything from the “smallest shoe store to the largest factory”. The size of the deal was not disclosed.

EnerNOC had revenues of $383m last year, 90% from demand response. It has 6,000 customers and reported a year-on-year increase in revenues of nearly 23% for the third quarter of 2014. It has made a series of acquisitions this year, including a German company, Entelios, and an Irish one, Activation Energy. Pulse Energy, for its part, has a million small and medium-sized enterprises on its books that can help EnerNOC boost its scale further.

Demand response will remain the core of the merged business. But EnerNOC is branching out into other areas too, including data management and advising utility firms on how they can manage their customers’ demand better. The most expensive electricity is the power generated at peak times—often using expensive stand-by capacity. Tweaking heating, cooling and pumping systems to shave even a few percentage points off peak consumption can save a lot of money, which utility firms can then pass on to their customers.

EnerNOC’s shopping spree also reflects the growing importance of information technology in the power industry. Data about everything from behavioural patterns (such as domestic power consumption spikes after the end of big sporting events) to the weather (which affects solar and wind generation, and the demand for heating and cooling) can be collected and crunched. Pulse Energy does such things mostly for restaurants and other smaller businesses and advises them on how to reduce their consumption.

But traditional power companies are not taking the challenge from upstarts lightly. A legal spat over how forgone consumption should be priced is heading to America’s Supreme Court. The Federal Energy Regulatory Commission ruled this summer that grid operators should pay demand-response providers the going rate for megawatts. But an industry group, the Electric Power Supply Association, along with other incumbent firms, argues that real energy generated by real power plants should attract a higher price, in order to stimulate much-needed investment. That could slow things down. But it shows no sign of dampening spirits at EnerNOC.