QUOTE AND NEWS
Motley Fool  Mar 14  Comment 
The energy intelligence software company is exploring the potential sale of its business units as well as the company.
Motley Fool  Nov 3  Comment 
The energy intelligence software company is raising its guidance once again.
newratings.com  Nov 3  Comment 
WASHINGTON (dpa-AFX) - EnerNOC Inc. (ENOC) announced earnings for its third quarter that increased from last year. The company said its bottom line came in at $20.63 million, or $0.65 per share. This was up from $12.99 million, or $0.44 per...
newratings.com  Sep 23  Comment 
WASHINGTON (dpa-AFX) - EnerNOC Inc. (ENOC), a provider of energy intelligence software or EIS and demand response solutions, said it is restructuring its subscription-based EIS business to refine its focus to select industry segments and high...




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EnerNOC, Inc. (NASDAQ: ENOC) develops and provides demand response and energy management services as an alternative to building power plants to meet spikes in demand. EnerNOC has the ability to reduce electricity use during peak periods through its network of partnerships with large industrial users.

EnerNOC is a provider of clean and intelligent energy solutions, which include demand response services, energy efficiency, or monitoring-based commissioning, services, energy procurement services and emissions tracking and trading support services. The Company’s customers are commercial, institutional and industrial end-users of energy, as well as electric power grid operators and utilities. As of December 31, 2009, the Company managed over 3,550 megawatts of demand response capacity across an end-use customer base of approximately 2,800 accounts and 6,500 customer sites throughout multiple electric power grids.[1]

The rising cost of fuel for electricity generation has made alternative solutions like demand response increasingly attractive for those looking to purchase power. On the management side of the business, EnerNOC allows large industrial customers to have a detailed view of their power consumption and provides ways to reduce electricity use.[2] [3]

Company Overview

EnerNOC's core business is acting as an intermediary between the utilities that manage local grids and the large consumers in the area. Most of the company's operating revenue comes from contracts with utilities to have EnerNOC on-call and able to reduce demand when necessary. EnerNOC does not have any generation capacity; it reduces consumption at its partner sites, so the grid has enough electricity to meet demand.

Business and Financial Metrics

Second Quarter 2010 Results[4]

During the second quarter of 2010, EnerNOC reported revenues increased 57% year-over-year to $66.5 million. Quarterly net income was $1.1 million, or $0.04 per diluted share, compared to a loss of $5.73 million in the second quarter of 2009. The company generated $7.9 million of cash flow from operating activities during the second quarter.

Industry Background

The Classic Model

The classic model for providing electricity to consumers is by an electric utility which has a monopoly over a certain area and is regulated by a government agency. Theoretically this model is efficient because the electricity business requires a huge infrastructure investment and companies should be able to offer better prices because of their scale. However, this model has been reconsidered in a number of states, most notably California and parts of the Northeast seaboard. These areas now permit electric utilities, which sell the power, to compete for customers. Some laws also forced companies to separate their utility, or customer facing side of the business, from their generation capabilities. This change in regulation, coupled with rapidly growing demand in these same areas, has strained generation and transmission infrastructure to its limits.

The Changing Environment

Electricity demand is forecasted to rise 18% over the next decade in the U.S., while generation capacity is only expected to rise 8%. The combination of strained resources and competitive electricity production and delivery creates situations where spikes in demand cannot be met, creating brownouts or blackouts. EnerNOC estimates that 10% of the electric generation capacity in North America is built for demand spikes that occur less than 1% of the time. Peak demand facilities are also becoming more expensive to construct and operate, given the rise in oil prices and the decreased availability of credit. These factors have increased both the operating and construction costs of peak demand generation facilities.

EnerNOC's Business: Power Management Services

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ENOCs Energy Management Services

EnerNOC's business centers around its network operations center (NOC). The core service it sells, the reliability based demand response, involves a series of steps:

  1. ENOC receives an automatic signal from a customer utility indicating a spike in demand
  2. Send out notifications to staff at large factories and other high demand locations managed by EnerNOC that power consumption will need to be reduced.
  3. Operators at the NOC then remotely reduce demand from the NOC, or monitor the large customers as they reduce demand from their own control center. This is done by dimming lights, scaling down AC or other non-essential equipment. These factories have an incentive to tone down power usage because electricity rates during peak demand hours go through the roof.

Most of EnerNOC's revenue comes utilities through reliability-based contracts while associated costs are payed out to utilities.

  • Utilities give EnerNOC capacity payments for reducing demand when necessary.
  • EnerNOC pays its partners (factories and other large electricity users) for being on-call to reduce demand.
  • When a spike in demand occurs, ENOC pays its partners for the actual reduction in demand, and the customer utility pays ENOC for organizing the demand reduction.

Under price based contracts, large customers (now the factories, not the grid operators) pay EnerNOC to monitor market prices and warn the company of electricity price spikes that increase costs.

Management Contracts with Large Customers

EnerNOC generates its revenue by contracting with institutions that use large amounts of electricity, such as factories. There are three types of contracts, but all center around EnerNOC being able to manage the electricity use of large partners. The majority are reliability-based demand response contracts, which require a large scale partner to agree to scale back electricity use when a grid operator needs additional wattage. Price-based demand response is focused completely on the usage of a partner (now a customer) and doesn't involve the grid. Under these contracts EnerNOC tracks real-time market price data for large users and alerts them when prices are spiking so they can reduce their consumption and lower costs. Ancillary services are short-term solutions for utilities to meet short-term needs in the event of a brief power loss. EnerNOC also differentiates between longer term contracts (contracts) and open market programs (OMPs)

  • Contracts have longer terms, from 3 to 10 years, and have more rigid capacity requirements and fixed prices
  • OMPs are shorter-term contracts with more flexible commitments and pricing that is based on market levels.

Business Segments

Demand Response Solutions[1]

Demand response capacity provides an alternative to building conventional supply-side resources, such as natural gas-fired peaking power plants, to meet infrequent periods of peak demand. The devices that the Company installs at its commercial, institutional and industrial customer sites transmit to it through the Internet electrical consumption data on a 1-minute, 5-minute, 15-minute and hourly basis, which is referred to in the electric power industry as near real-time data. Its software applications analyze the data from individual sites and aggregate data for specific regions. When a demand response event occurs, the Company’s network operations center (NOC) automatically processes the notification coming from the grid operator or utility. Its NOC operators then begin activating procedures to curtail demand from the grid at its commercial, institutional and industrial customer sites.

The Company offers three demand response solutions to serve the needs of grid operators and utilities: reliability-based demand response; price-based demand response, and short-term reserve resources referred to in the electric power industry as ancillary services. The Company provides reliability-based demand response solutions to ISO New England, Inc. (ISO-NE), PJM Interconnection (PJM), the New York Independent System Operator (New York ISO), San Diego Gas and Electric Company (SDG&E), Southern California Edison Company, Electric Reliability Council of Texas (ERCOT) and Pacific Gas and Electric Company, among others. Its price-based demand response solutions enable commercial, institutional and industrial customers to monitor and respond to wholesale electricity market price signals when it is cost-effective for them to do so. This solution is called upon by grid operators and utilities during short-term contingency events, such as the loss of a transmission line or large power plant.

Energy Management Solutions[1]

The Company offers technology-enabled energy management solutions to its commercial, institutional and industrial customers. These solutions include monitoring-based commissioning services, energy procurement services and emissions tracking and trading support services. The Company’s monitoring-based commissioning services are a technology-based energy analytics service designed to help optimize the way buildings operate, measure the impact of energy and environmental decisions, and enhance the comfort of occupants. It offers to its end-use commercial, institutional and industrial customers various services related to procuring and managing commodity supply contracts from competitive energy suppliers. The Company’s emissions tracking and trading support services include a software-based accounting system for its commercial, institutional and industrial customers to monitor, mitigate and monetize their greenhouse gas emissions in response to existing and pending greenhouse gas reporting requirements.

Acquisitions[1]

In June 11, 2009, EnerNOC acquired eQuilibrium Solutions Corporation (eQ), a software company specializing in the development of enterprise sustainability management products and services. On December 4, 2009, the Company acquired Cogent Energy, Inc. (Cogent). In March 2010, the Company acquired SmallFoot, LLC.

Trends and Forces

Increased Costs of Alternatives

Rising fossil fuel prices have made energy alternatives more financially sensible than before. The classic way for grids to meet spikes in demand is to build and operate (or purchase power from) peaking power plants that only operate when the "business as usual" base-load generators can't meet demand. Most of the peaking power plants in the U.S. are natural gas fired plants. Gas plants are popular for this use because their construction cost is relatively low even though operating costs are higher due to high fuel costs.[5] [6] Since the plant is not in continuous operation the low construction cost has justified the price of fuel. However, the rapid rise in the price of natural gas makes this option more costly than before. Grid operators are now taking a step back and examining their options more carefully before they decide to build peaking power plants. EnerNOC's business model is designed with this problem in mind.

Regulatory and Business Acceptance

In the late 1990s and early 2000s there was a wave of experimentation by multiple states with either full or partial energy-market deregulation based on the principle that competition could lower prices for consumers. The nature of electricity production often favors large scale operations and the deregulation programs caused huge price increases in many states [7]. Some of these states have returned to regulation, but a few areas have continued with deregulation, where increased competition has made the model work for both utilities and consumers. EnerNOC can contract in either type of market, but the company has far greater opportunities in a deregulated market, where electric utilities don't produce their own power, but rather purchase from generating companies. Continued interest in deregulation from lawmakers [8] would allow EnerNOC more opportunities to manage the supply/demand discrepancies that occur more often in a deregulated market and provide utilities an alternative to buying expensive peaking power electricity.

Political and Business Support for Energy Management and Conservations

Running alongside this regulatory trend is growing support for energy conservation measures. [9] This changing perception of coal power means that constructing a coal power plants is harder than it used to be [10] Public awareness and concern about the environmental impacts of burning fossil fuels (particulate emissions, climate change, etc.) means that "Going Green" adds significant value to a company's product from the customer's perspective and business recognize that [11] The modern consumer demands responsible practices and values actions by companies to conserve and proposals for new power plants now take this into account[12] This trend puts pressure on companies and lawmakers to demonstrate their concern for sustainable environmental practices, and EnerNOC's energy management is a much simpler way to become sustainable than, say, building a wind farm. The pressure on lawmakers can be seen in the changing standards for where electricity comes from. The portfolio standards that states enforce include demand response as an alternative to building new power plants.

Resource Adequacy Requirements

Resource adequacy filings are not required by all electric utilities, but formal requirements for these plans are becoming increasingly common.[13] This means that utilities must file formal reports detailing how they plan to meet regular demand and also predict unforeseen spikes in demand. Demand response is now a common element of these plans. Based on the amount of power under control by companies like ENOC and competitors, governments can forecast electricity demand and the reserve margin that is available to meet spikes in demand. Many utilities have plans that detail their plans for power procurement, but the California energy crisis made adequacy requirements a prominent concern. These more stringent guidelines will recognize demand response as an important part of managing and supplying electricity. Also, instead of evaluating demand response a direct to competitor to any other energy source a new framework has emerged that looks for the optimal combination of sources. Integrated Resource Plans (IRPs) consider Demand Response as an important element for providing energy but also to reduce load in certain grids that are constrained. Connecticut has an over stressed grid with high prices that have risen dramatically since 2002.[14] This has resulted in a new framework which considers demand response as an important part of the solution. [13]

Competition

EnerNOC faces competition from two directions; similar services and peaking power plants. However neither of these two alternatives have the same scope as EnerNOC's business. ENOC's market share and success against competitors depends on different factors depending on whether the company is competing to a manager for the grid or a manager for a large customer's consumption.Capacity and past performance is essential when selling to the grid, and technological/managerial competence and sophistication is demanded by potential industrial and commercial customers. The price at which load is bought or sold is important in both cases.

Similar Services

Some utilities offer services with the same target market, including load management and demand response. There are also companies that offer services similar to ENOC that operate on a more local scale. These companies include Controls, Kinaxis , and Energy Curtailment Specialists. These demand response programs have all the same technical specifications as ENOC's model but they operate on a local basis and don't provide the same degree of control and information to the demand side consumer. EnerNOC's highly automated system makes their process more streamlined and cost effective.

Peak Power Plants

EnerNOC's benefits from situations in which there are spikes in demand and over stressed grids. Peaking power plants are designed to address the former of these two situations. Peak power plants are typically gas or coal powered and are only used when demand can't be met by standard supply. In a deregulated market ENOC would be competing against these plants to assist the grid in meeting the demand requirements of the customers. These facilities have an advantage over ENOC since they are actually creating power instead of redistributing it. However, these plants can't respond as quickly as demand response can to a rapidly developing situation. They also don't have any capability to assist grids that are overstressed since power plants create power. In situations where a grid needs additional wattage and the grid is already near capacity (there is about as much electricity flowing through the wires as the wires will allow), EnerNOC has a clear advantage since they reduce demand instead of adding more power.



References

  1. 1.0 1.1 1.2 1.3 Reuters: ENOC Company Profile
  2. EIA US Power Generation
  3. BP Statistical Data - Natural Gas
  4. EnerNOC: "EnerNOC Reports Second Quarter 2010 Financial Results" August 4, 2010
  5. BP Statistical Data - Natural Gas
  6. Costs of Building Power Plants - World Nuclear Association
  7. | "Shocking Electricity Prices Follow Deregulation " USA Today
  8. | NY Public Service Comission
  9. | "Energy is Top Economic Issue for Voters" WSJ, July 24th 2008
  10. | "Coal-fired plants' foes power up" Denver Post
  11. | "Green is Good for Business" Corporate Responsibility Officer.
  12. | State Energy Alternatives, U.S Department of Energy
  13. 13.0 13.1 | " New Trends Shaping Demand Response Programs " Electric Power and Light
  14. | "Shocking Electricity Prices Follow Deregulation " USA Today
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