Cool Down

Enernoc Helps Keeps Lights on During Heat Waves Through Demand Response

When the electrical grid is under stress, dialing down usage is as important as bringing new power on line. By paying companies to dim the lights during heat waves, a company in Boston operates a giant virtual power plant.

Heat waves have spread across the United States in recent weeks, starting on the West Coast and now bearing down on Eastern cities. Power grids have struggled to put out enough electricity as overheated Americans try to keep cool both at home and at work. If the demand for energy exceeds the capacity of power plants, consider this doomsday scenario: New York City in mid-July without air conditioning.

The best way to ensure that energy supplies stay reliable is to have giant electricity plants on standby that can be fired up at a moment’s notice. But that’s an insanely expensive 20th-century solution. The 21st-century solution is to run a giant, low-cost virtual power plant out of an office in Boston. That’s what EnerNOC (Energy Network Operations Center) does. By paying companies to dial back their electricity usage at times of peak demand, EnerNOC works to assure that peak energy capacity is never exceeded. This approach is called “demand response.” As Gregg Dixon, senior vice president of sales and marketing at EnerNOC puts it, “what demand response allows us to do is less expensively, more cleanly, and more reliably provide for peak demand relief.” Simply put: “We change the way the world uses energy.”

The business model is simple. EnerNOC, a publicly traded firm with a market capitalization of around $431 million, is paid like a power plant to meet a certain capacity when it is called upon. EnerNOC in turn pays users—which it calls “assets”—to curtail power usage during peak-demand events such as a heat wave. Those “assets” in turn not only save on their own energy costs for nonessential uses, they also get paid fees that go right to the bottom line. “It’s a proverbial free lunch,” says Dixon. “When we get involved, you actually pay a little less” on utility bills.

Virtually all utilities today have demand-response programs. And many companies help them organize and run them. But EnerNOC is likely the largest pure-play demand-response firm. The company also has a separate line of business in which it helps large organizations operate their own buildings more efficiently.

EnerNOC’s capacity for demand response is massive. Because it has deals with many utilities and companies, Dixon says EnerNOC can “curtail almost the entire five boroughs’ worth of electricity.” That amounts to a whopping 8,600 megawatts worth of power capacity. For comparison’s sake, that’s 1,800 megawatts larger than the largest U.S. power plant. As energy demand rises with population and developing countries begin to ramp up large-scale business activity, this sort of efficiency may soon be essential to keeping businesses operating and homes lit.

As lucrative as it may be for businesses, utility companies, and EnerNOC itself, demand response also has positive environmental effects. EnerNOC proudly keeps a running ticker of carbon emissions saved through its reduction and efficiency work with customers. Since inception in 2001, Dixon says, the company has saved “over 16 million tons of carbon”—more than the amount the entire country of Lithuania produces each year.

As astounding as these numbers may sound, further coordinated efforts to reduce energy usage promise even more results. While other companies have recently broken into the demand-response market, EnerNOC remains the first and largest of them. With customers like AT&T, Whole Foods, and Pfizer; $278 million in revenue for 2012; and a reach that extends as far as Australia, the company continues to grow. “We are just getting started,” Dixon says.