Barbara Vergetis Lundin
Wanda Reder
James McClanahanBig Opportunity for ESCOs in Demand Response Market
By: Pike Research
By Jevan Fox
There are a number of significant Demand Response (DR) market growth drivers, the most significant of which is the growing demand for electricity amid increasing energy costs, especially during periods of peak demand. Pike Research forecasts that the DR market, driven by these key factors, will expand to comprise 62,500 megawatts (MW) under management by 2015. The potential for megawatts under contract to grow at a faster rate depends on how the fragmented DR market evolves.
Market leaders EnerNOC, Comverge and CPower are well positioned to penetrate vertical markets including the larger, more predictable loads in the commercial market. But Pike Research believes the real opportunity is for energy service companies (ESCOs).
ESCOs are naturally attracted to DR because it is an energy efficiency measure they can provide in their turnkey building efficiency plan. The realization of the commercial DR market potential will be driven by economies of scale, which will make larger projects more attractive. Successful ESCOs already have deep vertical industry expertise in relevant commercial segments. We believe that ultimately DR will be seen as an application or a portion of a service portfolio offering. Long term, we expect that this application-oriented approach will make DR less of a standalone business, and it will therefore be included within ESCOs’ end-to-end energy efficiency solutions.
Many ESCOs provide energy management and automation systems with an IT interface that enables DR. However, most ESCOs do not have the algorithms, software and hardware in-house to provide DR. This will change due to factors such as the adoption of open standards, the leading contender of which is OpenADR, which Pike Research believes will in turn drive consolidation in the DR market. OpenADR, the Lawrence Berkeley National Laboratory open IP standard, will enable all electricity-consuming devices to be connected over an open network. This will enable a manageable and scalable network for DR to realize its potential. Currently, major ESCOs provide clients with in-house solutions for most smart components of a building, as defined by American Solar Energy Society and Management Information Services, Inc:
- Building Automation Systems and Energy Management Systems
- Demand Response
- Internet-enabled HVAC controllers and other electronics
- Web-based energy management software
- Electronic lighting management systems and sensors
- Internet-based facilities management
- Energy Information Software
- Software for life-cycle analysis, modeling, accounting
Notably, ESCOs do not directly provide DR, instead only providing enabling systems. We believe that the growing demand for DR will present opportunities for ESCOs to acquire what is sure to be an increasing number of regional and national aggregators.
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Of the total potential commercial DR market, Pike Research believes that approximately 14% is currently under contract, leaving a significant growth opportunity for existing players and new market entrants.
Jevan Fox is a research analyst with Pike Research, a market research and consulting firm that provides in-depth assessment of global clean technology markets.
Related SGN resources ...
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FERC National Assessment of Demand Response Potential (pdf)
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