Q&A: EnerNoc cashes in on 'negative watts'

It's not as flashy as solar panels or dramatic as wind turbines, but energy efficiency is fast becoming viewed as a significant "source" of energy. Some people refer to megawatts not used as "negawatts" (for negative watts).

EnerNoc is one of a handful of demand response companies in the field. To ease the load on the power grid during peak times, demand response systems can turn down electricity usage at commercial buildings or consumers' homes.

It's a field that's getting serious attention from policymakers who are looking to avoid constructing new power plants, or reduce the number they need to build.

How does it work? EnerNoc signs on corporate customers who agree to participate in energy efficiency programs. When the power grid is being pushed to its limits, it gets a signal from utilities. It then remotely cuts energy usage at a customer's site, using the Internet as the conduit.

It could be unobtrusive things like dimming the lights at a supermarket for 15 minutes in the middle of the day. But added up, it can make a big difference: EnerNoc now has 1,500 megawatts under management. That's the equivalent of 15 peak power plants, which are typically the dirtiest and most expensive to operate, said Tim Healy, EnerNoc's CEO.

Energy efficiency is also one of the more successful sectors within clean tech. EnerNoc and competitor Comverge have both gone public.

On Monday, EnerNoc acquired South River Consulting, an energy procurement company. And on Wednesday, it announced that it narrowed its quarterly loss on strong demand for demand response and its energy management services.

I visited EnerNoc's network operations center in downtown Boston and spoke with Healy about technology, exactly who owns your utility data, and his company's plans to get into the business of managing corporations' energy usage. Here are excerpts from our talk.

Q: I understand why a utility would want to have a way to lighten the load on the grid. But what's in it for the companies in these energy-efficiency programs?
Healy: We say to them, if we can curtail electricity usage--selectively--which means nonessential use, there's an inductive or incentive payment that we can give you for doing that.

The best example is that you go out to a hotel chain and tell them, "We're going to turn off all the sprinklers, water fountains, and some of lobby lights, but not touch anything else that is critical to hotel guests' comfort or experience."

When you start to do that across thousands of locations like we've done, all of the sudden you can bring thousands of megawatts of capacity onto the grid.

Solar and wind are not dispatchable. But with demand response, we can press a button and get a new supply resource.

What's the business model for a demand response company?
Healy: It's very similar to the way you would buy long-term contracts for energy. We operate long-term agreements to provide capacity to grid operators. They make that payment and we share that payment with our industrial network (of commercial customers). It's just like an insurance premium because they want the supply.

When the grid operator or utility needs us, there is another payment so we are getting two revenue streams.

Energy efficiency has been one of the most successful sectors within clean tech. Why do you think that is?
Healy: It goes back to the technology. Where we really are is at the convergence of data, networking, communications, and energy. We're applying technology and leveraging this ubiquitous communications network that's been built over the last 15 years. With that communications network, we can very cost-effectively get data and apply it in ways that have not been done before.

The Internet is the backbone of this new business application. This has been done before historically, but not very much by leveraging technology. Instead, it was utilities picking up the phone. Our software applications automate what have been human processes in the past.

Policymakers seem to be showing more interest in energy efficiency. Why do you think that is?
Healy: Look at the load growth. It is forecast that we will increase energy usage by between 60 and 100 percent over the next 10 or 15 years. We now make between 700,000 and 800,000 megawatts, and that's going to grow 60 percent between now and 2030 (in the U.S.). That's a lot of electricity and a lot of new power plants...Nearly 50 percent of meeting that load growth can be done through energy efficiency.

Is demand response dependent on any policies or government mandates?
Healy: No, but the regulatory piece is important. What we really need is to make sure that there's a mandate to look first at energy efficiency before you look at anything else. Before a utility goes out to build a new peaking power plant, it should first have to prove, as a matter of law and regulation, that it has done everything possible to look to energy efficiency first and foremost.

It's similar to calling for, for example, a demand response portfolio across the U.S., similar to a renewable energy portfolio standard.

What's next for you in terms of new business?
Healy: Once we have a customer and our network, they look to use the data we're collecting to become a more efficient customer. It's an interesting investment opportunity when you can harness that data and leverage it.

What happens when there's a smart grid infrastructure set up? Can you take advantage of that?
Healy: When people talk about the smart grid, they are talking about advanced metering infrastructure (AMI). Where we come in is that we are the management construct on top of that.

Once your meter can send information back to somebody other than a utility, you can do something with that data, right?
Healy: Yeah. You talk about policy and doing something about data; one of the things that we'd like to see become national policy is that data not be owned by the utility. The commercial, residential, industrial customer should own that data. It's your data. Right now, it's owned by the utility. And if we can change that construct and that data becomes property of the users of energy, you could see a spurt in innovation that you won't necessarily see if it were continued to be owned by utilities.

I'm not sure the utility wants to empower you to figure out how to use less of the product they are selling. So why not have that data belong to folks who are going to be incented, who are the ones who are paying for electricity use?