Use less power at peak, and pay less? Everyone’s jumping in

For the past century, buying electricity from your utility hasn’t changed much. If you pay a monthly bill, and you really don’t care what time of day you use your power. Whether it’s night or day, who cares?  It costs about the same.

But thanks to something called “demand response,” that’s changing.

Power utilities are now increasingly charging less or offering cash to customers who agree to cut energy use during peak hours — typically in the daytime. The utilities do this because their grids are overloaded, which risks costly blackouts.

It’s a hot sector of the power grid, now that the grid has become smarter, and utilities are able to communicate better with consumers. The practice is growing in popularity among businesses, commercial buildings, big-box retailers and, in some cases, residents.

At heart, demand response is winning raves because it creates win-win situations. Customers can realize big energy savings. Firms can make money selling demand response software that shows users where to make easy cuts. Utilities are saved the trouble and expense of building additional power stations. This, in turn saves the environment from further emissions.

Until now, the kings of that field were companies like EnerNOC, Comverge and CPower. But they’re meeting some formidable  new heavyweight entrants, whicn include Siemens, Honeywell and Silver Spring Networks.

The sector is heating up on a number of fronts.

Last week, fast-grown smart grid communications company Silver Spring announced it would offer demand response technology on top of its smart grid platform, which it sells to utilities to improve their networks. And home energy management company Tendril and defense giant Lockheed Martin announced they would team together to provide demand response technology. And showing that demand response technology is in sexy, CPower, a demand response leader, was acquired in September by utility company Constellation Energy.

Giants like Siemens and Honeywell, which make heating, ventilation and air conditioning (HVAC) systems, also see an opportunity to build demand response technologies on top of their products.Earlier this month, Siemens acquired building management company Site Controls, which makes a demand response technology called SureGrid. Honeywell, meanwhile, acquired demand response company Akuacom earlier this year. Last year, Honeywell also won an $11.4 million grant from the Department of Energy to create an automated demand response program for Southern California Edison.

“The current leaders of demand are coming under serious threat from Honeywell, Siemens, and Silver Spring,” said Steve Minnihan, Lux Research analyst. “The other guys will need to find unique ways to add value.”

Those unique ways of adding value aren’t clear just yet. Some have started offering energy management tools — as EnerNOC does. EnerNOC, the market leader with 4.5 gigawatts under its management, is also pursuing other avenues like carbon emissions tracking. Comverge has done pilots for a comprehensive energy management program and electric-car charging, and is also rebranding its business as “intelligent energy management.” In Tendril’s case, it’s already a home energy management company, and demand response is an added feature.

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Another reason the demand response field is starting to get crowded — besides the obvious market for it — is because it’s not particularly hard to do. Just communicate to the end-user a few simple things: their energy use, what they need to curtail, and the cost benefit for doing so.

“Pretty much anybody doing anything with the meter is offering some demand response,” Minnihan said.

Question mark over the residential market

Comverge already offers consumer efficiency tools. Tendril and Silver Spring are targeting residential customers — Silver Spring’s hardware is installed in millions of smart meters already. But it’s unclear how lucrative this market will be.

Demand response for residential consumers is very rapidly heading to commodization, Minnihan says, suggesting that Tendril’s bet on the residential market is a risky one. “I don’t think it’s a good bet,” he says. Indeed, it’s also something that utilities are doing on their own, without third-party demand response providers.

The key to competing in residential markets, Minnihan said, is automation. Comverge and EnerNOC both offer sophisticated software that allows business users to understand their energy usage — and where to make cuts. But residential consumers aren’t so motivated to pore over the numbers. If companies can figure out a way to automate demand response for residents — taking the effort out of the equation — then residential markets could become a new way to grab business.

Ready for deals: M&A activity

Another trend to watch: Demand response is a market primed for deals. The Akuacom and CPower deals are indicative of the consolidation to come, according to analyst Jevan Fox of Pike Research.

Potential acquisition targets are companies like hot Australian startup BuildingIQ, which makes software that sits on top of building management systems. BuildingIQ’s software makes demand response recommendations (say, shut off lights here or pre-cool the building on a sunny day) by learning a building’s characteristics and predicting outside factors like the weather. “There’s going to be a lot of money changing hands, and a lot of M&A action,” Fox said. “It’s an extremely exciting space.”

Here are some demand response players to keep an eye on:

EnerNOC: Industry leader, 4.5 gigawatts of energy under its management. It has branched out to offer carbon emissions tracking and energy management tools.

Comverge: A top demand response firm also expanding its reach. It recently teamed with Texas utility TXU to create an energy management and smart thermostat program. Interestingly, it also teamed with smart meter maker Itron to test a demand response electric car charging solution.

CPower/Constellation Energy: CPower was a top demand response player and was recently snapped up by Baltimore utility Constellation Energy. It’s a high-profile example of how utilities could be looking to bring demand response in-house.

Silver Spring Networks: A smart grid communications firm that has unique access to utilities and residential customers and announced a demand response offering last week.

Honeywell: Purchased demand response firm Akuacom this year, and poised to be a real contender.

Siemens: Recently acquired Site Controls, which makes SureGrid, a demand response solution. Given Siemen’s heft and expertise, it’s also a potential challenger to the demand response kings.

Tendril/Lockheed Martin: Last week it teamed up to make a demand response offering targeting residents. Lux analyst Steve Minnihan warns against only focusing on the residential market.

BuildingIQ: This startup been bandied about as a potential acquisition target down the line. It’s still in early stages, and makes software that uses weather and building characteristics to predict energy needs and automatically implement energy-efficient demand response solutions. The Department of Energy’s Argonne National Labs is currently piloting the software.

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