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New threats on the horizon But the DR category is about to get much more competitive and challenging for at least three reasons:
1. Reduced barriers to entry. A portion of EnerNOC's advantage comes from years of "hardwiring" components into the system (thermostats, load control devices, etc.). And "hardwiring" communications channels between itself and utilities. As standards such as openADR come on board, they will eventually make that hardwiring unnecessary. By supporting a few open standards, competitors will be able to tap virtually any device and talk to virtually any utility.
2. Increased competition. All sorts of companies are taking aim at DR. Some are bright, nimble startups (Viridity, People Power, etc.). Others are bright, well-financed giants (Schneider, Honeywell, many others).
3. EnerNOC's overreliance on low hanging fruit. In the DR market, the low hanging fruit is simple load shedding programs with large commercial and industrial customers. The problem with low hanging fruit is... well, that it is so low anybody can grab it. EnerNOC has not aggressively pursued areas with higher barriers to entry -- areas such as residential DR or what I call Demand Response 2.0 (load shaping to assist with the integration of renewables).
EnerNOC has strengths as well
As the sector’s clear leader, EnerNOC has plenty of things on its side, including:
· A rapidly growing market. EnerNOC is PJM's biggest DR supplier and PJM wants more DR delivered in more different programs. Analysts such as Macquarrie's Andrew Wiesel believe PJM’s new rules benefit the large, established players – and EnerNOC is the largest of all.
· The largest portfolio. The bigger the portfolio, the more flexibility to respond to peak events without "fatiguing" customers.
· Account control and midterm contracts. Let's not discount the value of EnerNOC's existing customer contracts and relationships. There are switching costs – physical, financial and psychological – to changing over to a new DR provider.
· Diversification. Though I think EnerNOC has been late to cash in on Demand Response 2.0, it has been early to experiment with adjacent revenue streams, including energy efficiency, carbon accounting and utility services.
· The currency to buy its way forward. As one of the smart grid’s few public companies, EnerNOC can use its stock to buy complementary companies. Just this week, it snapped up Global Energy Partners, a California-based firm that provides energy efficiency and demand response services to utilities. Not only does the move expand EnerNOC’s geographical and customer footprints, it also brings them openADR expertise. Mastering that new standard will be key to surviving some of the threats I mentioned earlier.
As Demand Response 2.0 takes over, the sector will consolidate into a few massive players, ringed by smaller specialty firms. I suspect that EnerNOC will continue to make me look smart by staying at the head of the pack. But with the sector now in the crosshairs of ultra-smart startups AND ultra-rich giants, they will have to work harder than ever to do so.
Use the nearby QuickPoll to share how you think things will turn out. And use the Comment form to explain why.
You may also be interested in …
EnerNOC enters into agreement to acquire Global Energy Partners
UK power networks taps EnerNOC for demand response services
Demand response and smart grid National Town Meeting set for July, 2011
Smart grid message delivered to UN climate change convention
Demand response trends and technologies
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