The fight over the future of demand response is going to be a hot one.
"Demand response is not a free resource. Demand response should not be underpaid," said Tim Healy, CEO of EnerNoc in an interview after earnings today in response to claims that de...
The fight over the future of demand response is going to be a hot one.
"Demand response is not a free resource. Demand response should not be underpaid," said Tim Healy, CEO of EnerNoc in an interview after earnings today in response to claims that demand response companies might be getting over compensated. "We believe it has to be actual, verified megawatts."
The dispute, which came to a head earlier this week, concerns how demand response providers should be compensated and how to calculate how much peak power they are shaving.
PJM, the East Coast grid operator and one of the biggest demand response customers in the nation, uses a somewhat complex calculation. It looks at its five peak days from the year before to determine an individual customer's power consumption. If your factory happened to be consuming 2 megawatts, you are a 2 megawatt company. In a future demand response situation, PJM argues that the customer can get paid for up to two megawatt.
But what if the factory is actually ordinarily a 5 megawatt customer and that the load on the day grid operator took its measurements were unusually light? In a future peak power situation, that customer might shave 3 megawatts EnerNoc believes demand response providers--and their customers--should be compensated for that.
"They (the industrial factory owners) are foregoing a right (to consume electricity) that creates hundreds of millions of dollars of value. The majority of the value being created is being shared by people taking no action," he said. "We want full payment for full credit...If a customer curtails, that customer should be paid for the act of load reduction."
The alternative? The utility can risk a brown-out or fire up expensive peaker plants, if any sit in reserve.
The accounting conducted by EnerNoc and other demand response providers is verified through power meters. Once the order to curtail power goes out, you can see consumption (via the meter) drop. Algorithms also compensate for weather, holidays and other anomalies to ensure that payment for power reduction isn't gratuitous or fortuitous.
"If there is an energy emergency and you need curtailment, you should be paid. We believe this is an issue for underpayments, not an issue of double counting," he added. "There is no market manipulation. Those are silly labels.
"PJM wants people to agree to provide DR for free," he added.
PJM, of course, disagrees. Nonetheless, EnerNoc's argument does seem to have a straightforward appeal. This should be an interesting argument.
On other notes:
--Healy added that EnerNoc's business will grow. It will sign new utilities as well as expand its relationship with existing utilities. Some of the growth, however, will be dented by lower prices. The company predicts that revenue will come to $300 million to $320 million, or a four percent increase -- less than the jump from 2009 to 2010. Net income is expected to come in at 25 cents to 50 cents a share in 2011 or 97 cents to $1.23 per share under non-GAAP rules -- in other words, somewhat in the same range of 2010. That still makes the company the only public smart grid startup to maintain profitability, but this isn't exactly hockey stick growth, either.
Prices may begin to trend up in 2013.
--By 2013, EnerNoc hopes to be garnering 20 percent of its revenue from efficiency and its other platform initiatives. Starting in late 2009, EnerNoc began to acquire other companies to become a full-fledged energy service provider. (Silver Spring Networks began about eight months later.)
Right now, EnerNoc gets around 5 percent of its revenue from its non-demand response businesses.
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