On Wednesday we published a profile of EnerNOC (NASDAQ: [[ticker:ENOC]]), the Boston-based company whose rip-roaring 2007 IPO got investors excited about the idea of using new Internet-based control capabilities to reduce electricity consumption at key commercial and industrial sites during times of peak demand. (In effect, companies that join EnerNOC’s “demand reduction” pool get paid for agreeing to dim the lights or shut down assembly lines on short notice when utilities need to divert the power elsewhere.)
The first few weeks of 2008 haven’t been as kind to EnerNOC’s share price as 2007 was. But president and co-founder David Brewster, 36, says that the company is making rapid headway convincing utilities that demand reduction is just as reliable a “resource” as new generating plants, and he says observers can expect to see the company add plenty of new customers and expand into new geographies this year.
In our full hour-long interview, transcribed below (and edited just a bit for length), Brewster and I talked about the challenges EnerNOC has faced getting utilities and electrical consumers to take its approach to demand reduction seriously; how the company came up with “value-added” services such as energy procurement; and how it’s dealing with questions from public utility commissions in places like California, where officials still seem uncertain about how to regulate demand-reduction contracts.
Xconomy: You guys have been through some big events over the last year—the IPO and the acquisition of MDEnergy, just to name a couple. That’s all fun stuff to talk about. But I could really use your account of what it’s been like here since the beginning—in particular, what challenges you’ve run into taking the basic idea and implementing it. What obstacles have you had to overcome, and what kinds of friction points are still out there?
David Brewster: It’s hard to speak to what the challenges are since the inception, since we’ve been on an incredible trajectory of growth, and so the challenges have constantly changed and they continue to change. There have been hundreds if not thousands of them that we’ve run through over the years and they continue to change on a regular basis. But I’d say that some of the consistent challenges we have, have to do with being a market maker, being a category maker for a new idea—a new way to think about the electric power industry. And in that sense there’s been sort of a constant responsibility to prove that what we do is comparable to the traditional mode of meeting peak power demands.
Traditional utilities or grid operators would work with supply side resources—peaking power plants—and continually build up supply ahead of demand for electricity. Obviously the electric power industry is the life’s blood of our economy and electric power managers are not risk-takers, and are not allowed to be risk-takers because their job is to keep the lights on for all of us. So getting these folks to adopt change has been a challenge.
We have always looked at ourselves as a city on a hill—all eyes are on us, and we need to make sure we are delivering an incredibly reliable, cost effective, environmentally responsible solution because we know the burden is on us to prove this is as good or better than the traditional modes of meeting peak power demands. But as we’ve grown and as we’ve had hundreds of demand response events in our history we now have a body of work that we can point to that really makes knocking down that barrier so much easier. Now, instead of having a concept in a PowerPoint presentation, we have reams of actual data to demonstrate how quickly we are able to respond to grid emergencies, how reliably we are able to respond. That’s been huge, in terms of building that body of work to defend and justify the value of the resource that we provide.
I’ve been talking about our customers, the grid operators and utilities, but what we then need to do is then go aggregate commercial and industrial customers into our network to provide this resource. And we have a similar thing on that side of the equation. The first commercial and industrial (C&I) customers we talked to thought it sounded too good to be true that they would get paid to participate in electricity markets. But now we have over 2,000 customer sites in our network. It’s much easier to sell, for example, to a supermarket chain or a data center when they can look and see that 12 of their competitors are already participating in the program. It almost becomes a competitive necessity for them to participate, as opposed to them taking a leap of faith.
But by no means are we through those challenges. We still have a very serious responsibility and challenge to convince public utility commissions and utilities that this is something that they need, that we’re going to be there to help keep the lights on.
X: What were the things that people were most skeptical about? Before you actually had a set of customer sites, and before you had a record to show people, were people skeptical that there was actually capacity that could be extracted in terms of demand reduction? Or were people skeptical that you could actually pull off a change in demand at the right moment, when it was needed?
DB: It was certainly the latter. Everybody recognizes that there is humongous capacity potential in terms of the ability for customers to respond to crisis signals or emergency events on the electric power grid. I think the challenge for us stems from the fact that what we are doing was not
