Renewables push a gold mine for demand-response middlemen

On a February night in 2008, the wind died in the usually blustery Texas Panhandle, and a forest of wind turbines there stopped whirring. Power plunged, going from 1,700 megawatts to 300 megawatts in minutes, threatening a statewide blackout.

Alarmed, grid operators rushed to protect the electricity delivery system. Within minutes, electricity going to some major industrial customers was reduced dramatically. Plant lights were dimmed, air-handling systems and refrigerators shut down, and 1,100 megawatts were restored to the grid.

Disaster averted.

Thank "demand response" -- the management of consumers' electric consumption in response to critical supply constraints. In Texas, companies had made arrangements to allow their power to be interrupted in grid emergencies, using go-betweens that link "interruptible customers" with electricity providers.

Demand response is still a mystery to household electricity users, but they are likely to learn about it soon.


Congress is debating proposals that would require utilities to supply escalating amounts of electricity from renewable sources like wind, solar and biomass. The House Energy and Commerce Committee, for example, plans next week to mark up a sweeping energy bill from Democrats Henry Waxman of California and Ed Markey of Massachusetts that includes a renewable electricity standard (RES) of 15 percent by 2020 and requires utilities to ensure 5 percent energy savings through efficiency measures.

More wind and solar means more demand-response business. "The value of demand response is going to become bigger and bigger as we get more variable loads on the system," said David Brewster, president and co-founder of the Boston-based demand-response company EnerNOC Inc.

Since 2001, EnerNOC and at least two other third-party demand-response aggregators -- CPower Inc. and Energy Cutailment Specialists Inc. -- have entered energy-management markets, offering a combined portfolio of 7.7 gigawatts. The demand-response sector was estimated to be worth $1.3 billion in 2008 but is expected to grow to $8 billion by 2014, according to the green technology firm Cleantech Group.

More doors are expected to be open for demand-response aggregators, as "smart grid" initiatives are slated to receive $4.5 billion from the federal economic-stimulus package. Smart grid uses digital technology to save energy, cut costs and boost reliability of the delivery of electricity to consumers.

"We're really only scratching the surface," said Brewster, whose company has added more than 400 megawatts of demand-response capacity this year, bringing its total to 2,700 megawatts. "This is a wide-open opportunity."

'We anticipate continued growth'

EnerNOC was founded in 2001 but has since expanded from the New England area to power markets from coast to coast. It is one of the fastest-growing third-party firms, having more than doubled its power capacity since 2007.

In the first quarter of this year, EnerNOC signed capacity agreements with seven utilities, including Minneapolis-based Xcel Energy and four investor-owned utilities in Maryland; both Minnesota and Maryland have renewable energy standards.

When called to add capacity to the grid, EnerNOC can orchestrate power reductions from any of its 5,000 clients. Companies that participate are guaranteed a monthly check for providing power capacity, plus a premium payment for any energy they help EnerNOC save.

By tapping clients' energy networks, EnerNOC is also able to identify where energy is being wasted in much the same way General Motors Corp.'s OnStar system for cars notifies drivers when a tire is running low.

"After a couple of quarters with an industrial client, we become their trusted energy adviser," Brewster said.

CPower, founded in 2001 as ConsumerPowerline before changing its name in 2008, now manages about 2,000 megawatts of power at commercial, industrial and institutional properties, including about 120,000 residential units. Initially operating in New York and New England, the company has expanded to the mid-Atlantic, Texas, California and Ontario energy markets, and has plans to enter the European market in the coming years, said CEO Gary Fromer.

"We anticipate continued growth with or without carbon legislation," Fromer said, noting that customers are gravitating toward third-party demand-response aggregators as energy markets become more dynamic.

The same is true for regional transmission organizations like PJM Interconnection, the largest in North America. The most recent demand-response survey from the Federal Energy Regulatory Commission shows that PJM has increased payments to curtailment service providers from less than $5 million in 2002 to more than $45 million in 2007.

"We've gotten to a world where that steel plant can be a participant in the energy market and provide great value to the system," Fromer said. "These are valuable resources, and we're far from saturated."

FERC also says demand-response capacity rose to 41,000 megawatts in 2008 -- 3,400 megawatts more than in 2006 -- and now accounts for about 5.8 percent of U.S. peak demand. The trend will likely continue as more homes and businesses are hooked up with advanced "smart" meters needed to facilitate demand response and utilities look for more ways to defer building new power plants.

Carbon curbs

The Waxman-Markey bill would also lead to a price being attached to carbon emissions as a way of curbing global warming. That would pressure utilities to seek more energy efficiency and peak-hour demand-response assets, said Eric Woychik, vice president of regulatory affairs for Comverge, which specializes in home-based demand response.

"Waxman-Markey is an important step to provide a market value for carbon, which becomes integral to resource selection and greater use of green resources," said Woychik, whose company went public in 2007 and recently installed its 5 millionth demand management device.

"Demand response, in particular, is the fastest, cheapest, cleanest resource available."

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