World Energy Unveils “Demand Response” Auctions, Disrupting a Market Dominated by Boston’s EnerNOC
(Page 4 of 4)
site visits that help to identify all of the ways they can curtail electrical demands, and installing equipment that delivers the full amount of curtailment promised in demand response agreements.
In the absence of such measures, customers wind up leaving money on the table during demand-response events, he argues, even if they did win a higher percentage split. “We have a saying internally, ’80 percent of nothing is nothing,'” Dixon says. “If you get a provider to say they’ll give you 80 percent of the revenue stream but then they don’t communicate it to you when there is a demand response event and you miss it, you get nothing. If you have 1,000 kilowatts of load that you can reduce but you don’t have the technology supporting your program participation, on average that capacity is going to perform far below that.”
But the way Adams sees it, EnerNOC makes far too much of the “nuances” behind demand response. He says utility customers are quickly getting savvy about smart-grid technology.
“I don’t think it would have been possible for us to do what we’re doing three or four years ago, because the markets weren’t as mature,” Adams says. “The initial set-up cost was way too high. But now those costs are coming down, and there are simpler Internet-based solutions that require fewer site visits and less equipment. We didn’t have any CSP say to us, when we announced these auctions with two to three days’ notice, ‘Hey, hold on guys, we’ve got to fly out to Gerber’s Poultry and look at their buildings to see if we can bid.’ They are taking it as an article of faith that they can get the customer ready for the summer season without any big complications.”
To Dan Mees, vice president of corporate communications at World Energy, it’s not surprising that EnerNOC is unenthused about the arrival of auction-based markets in the demand response industry—but he predicts that the Boston company will change its tune eventually. “The analogy is to our experience with the retail energy market, where we have run so many auctions,” says Mees. “When we first started doing it, were all of the suppliers delighted to be put into hypercompetitive auction format and have their margins squeezed? No, they weren’t. But we now work with 400 suppliers around the country and they value us as a channel to market.”
At the moment, the idea that World Energy and EnerNOC will eventually see eye to eye seems optimistic, as a little story from one of World Energy’s early demand response auctions reveals. EnerNOC was one of the bidders in a January auction for a demand response contract with a wastewater treatment facility in the PJM region. “We still don’t know the outcome” of that auction, Gregg Dixon told me. “In fact one of the misperceptions about auctions is that they always end in a finalized agreement. I can almost guarantee that what happened in this case was that somebody was dumb enough to say, ‘We will give you 90 percent of the revenue stream,’ and then when the customer went to contract with them and saw all the fine print around the other 18 points of value, they said, ‘Wait a minute.'”
But according to Andrew Thomas, senior vice president of operations at World Energy, the auction in question led to a finalized agreement—and all participants in the auction, including EnerNOC, got e-mails announcing the outcome weeks ago. “They were definitely notified,” Thomas says. “And in general, we overlay standard terms and conditions to make sure that all of the auction participants are very comfortable. There aren’t any surprises at the end for the seller or for the CSP.”
While EnerNOC and World Energy circle one other warily, major electric consumers interested in profiting from demand response contracts have some new options to think about. With the cost and regulatory difficulties of building new power plants increasing—meaning that utilities are willing to pay more and more for “negawatts”—there’s too much money at stake for major electricity users to ignore the opportunity. Indeed, the demand response market is going to grow to $20 billion a year by 2020, according to Barclays Capital. Yet the percentage of the potential market that has been penetrated by curtailment service providers so far is still in the single digits. So while World Energy may end up forcing EnerNOC and its brethren into accepting a smaller slice of the demand response pie, the pie itself is still huge—and largely uneaten.
Trending on Xconomy
By posting a comment, you agree to our terms and conditions.