EnerNOC: The Software Leader You’ve Never Heard Of

Energy is a top three operating expense for many organizations and a top five operating expense for most [1]. Yet despite numerous opportunities to manage their energy spend, most organizations treat energy as a fixed cost, writing checks to their utility companies as their bills roll in each month. EnerNOC, for years a leader in demand response, has recently turned its attention to shifting the energy management paradigm by enabling organizations to use software to make real time decisions about how and when they use energy.

An Evolving Business Model

When EnerNOC was founded in 2001, it primarily created value for customers by facilitating access to grid operator demand response (DR) programs. At a high level, grid operators are charged with providing consumers with reliable access to electricity by balancing electric supply and demand. During times of peak demand (e.g. on a hot July afternoon when A.C. units are running full blast), grid operators must manage this balance either by increasing supply, often by running expensive peaking power plants, or by paying customers to reduce energy usage via DR. EnerNOC enrolls customers in these programs and provides technology to facilitate participation; as a result it captures value by retaining a portion of the significant grid operator payments. Still confused? Here’s the DR 101:

 

https://vimeo.com/61189661

[2]

Recently, demand response has come under fire from generators (whose power plants aren’t being run or built) to the extent that a pending Supreme Court case will ultimately decide the industry’s future [3]. Fortunately, EnerNOC has been working for years to diversify its business model by leveraging the 130,416,429 MB [4] of energy data from its DR customers to capitalize on the $20B market for software enabled energy management solutions [5]. Today EnerNOC would tell you that it is an energy intelligence software (EIS) company, creating value for customers by giving them web access to real time information related to their energy usage and costs, as well as tools and analytics to manage both. The company captures value in the form of monthly subscription payments. EnerNOC now views DR as just a piece of the puzzle, a valuable funding mechanism to allow organizations to begin to holistically tackle the energy line item. Confused again? Today the business looks more like this:

[6]

An Operating Model Designed for Category Creation

Ultimately EnerNOC’s goal is to create and develop the energy intelligence software category. To accomplish this end, EnerNOC’s operating model is focused both on solidifying its DR leadership position and making significant direct investment in its EIS business [5].

Technology Investment: The Network Operations Center (NOC)

At the heart of EnerNOC’s DR operations is its Network Operations Center (NOC). Similar to a utility control room, the NOC is staffed 24 hours a day, seven days a week, 365 days a year, and provides visibility into each asset in EnerNOC’s network. During a DR dispatch, the NOC monitors customer performance via real-time data feeds and makes data available to customers via the web [7]. Not only is this industry leading technology a key competitive differentiator for its DR business, it is also the hub for the customer data that powers its EIS solution.

International Expansion via Acquisition

While EnerNOC continues to invest in technology, it has also sought to reinforce its leadership position through geographic expansion. For example, in 2014, EnerNOC acquired Germany-based Entelios AG [8] and Ireland-based Activation Energy [9], the leading DR providers in their respective countries. With hundreds of millions invested in its technology [10] and nearly fourteen years of expertise in DR, EnerNOC has adopted the strategy of acquiring DR leaders to establish an international customer base to which it can eventually sell its EIS.

Focus on R&D Informed by Customer Insight

With DR as the foundation, EnerNOC executes on its goal of EIS category creation more directly in a number of ways. First and foremost with investment in research and development. EnerNOC employs 161 R&D personnel – more than 10% of its workforce – responsible for developing and enhancing its existing EIS and related solutions as well as engineering and designing new functionality [5]. Moreover, the efforts of the R&D team and, more broadly, the EnerNOC product roadmap are informed by ongoing voice of customer interviews conducted by the sales and marketing functions, ensuring that EnerNOC’s software solutions are addressing the most pressing need of its customers.

Strategic Partnerships to Scale the EIS Business

Finally, EnerNOC seems to have realized that if it is to create a category from scratch and achieve scale before its competitors, it cannot rely purely on organic growth. In addition to the acquisitions made on the DR side of the business, EnerNOC has undertaken a number of acquisitions and strategic partnerships directly related to its EIS business as well. Most notably, EnerNOC recently announced partnerships with solar provider, SunPower to provide EIS to its customers [11] and Tesla to collaborate on the deployment of energy storage systems [12]. Ventures like these give EnerNOC immediate access to new customers and cutting edge technologies as well as associations with leading brands, all of which ultimately allow EnerNOC to quickly and more cost effectively grow its EIS business and provide value to its EIS customers.

In large part because of the fit between its business and operating model, EnerNOC has grown its software customer base from 1,200 to 4,400 in the last year alone. If EnerNOC is able to continue to execute on its operating model, the future may look something like this:

[13]

 

 

Sources:

[1] Forbes Insights, “No More Wasted Energy: The Power of Energy Intelligence Software” (PDF file), downloaded from Forbes website, [http://images.forbes.com/forbesinsights/StudyPDFs/EnerNOC_NoMoreWastedEnergy-Report.pdf], accessed December 4, 2015.

[2] EnerNOC, “What is Demand Response?” Vimeo, published November 4, 2013, [https://vimeo.com/61189661], accessed December 2015.

[3] SCOTUSblog. “EnerNOC, Inc. v. Electric Power Supply Association.” [http://www.scotusblog.com/case-files/cases/enernoc-inc-v-electric-power-supply-association/], accessed December 2015.

[4] EnerNOC. “EnerNOC Homepage.” [http://www.enernoc.com], accessed December 2015.

[5] EnerNOC. 2014 Annual Report. [http://files.shareholder.com/downloads/ENOC/982894191x0x829286/8B65A82D-F01B-46B0-B1C9-DDA13F88D084/ENOC_2014_Annual_Report.pdf], accessed December 2015.

[6] EnerNOC, “How much do you spend on energy each year?” Vimeo, published July, 8, 2014, [https://vimeo.com/100181975], accessed December 2015.

[7] EnerNOC. “The NOC.” [http://www.enernoc.com/our-network/the-noc], accessed December 2015.

[8} EnerNOC. “EnerNOC Acquires Leading European Demand Response Company Entelios AG.” press release, February 13, 2014. EnerNOC website, [http://investor.enernoc.com/releasedetail.cfm?releaseid=825659], accessed December 2015.

[9] EnerNOC. “EnerNOC Acquires Leading Irish Demand Response Company Activation Energy.” press release, February 13, 2014. EnerNOC website, [http://investor.enernoc.com/releasedetail.cfm?releaseid=825658], accessed December 2015.

[10] EnerNOC. “Our Network.” [http://www.enernoc.com/our-network], accessed December 2015.

[11] EnerNOC. “EnerNOC and SunPower Enhance Energy Intelligence of Commercial and Industrial Customers.” press release, March 25, 2015. EnerNOC website, [http://investor.enernoc.com/releasedetail.cfm?releaseid=903264], accessed December 2015.

[12] EnerNOC. “EnerNOC and Tesla to Collaborate on Energy Storage.” press release, May 1, 2015. EnerNOC website, [http://investor.enernoc.com/releasedetail.cfm?releaseid=910188], accessed December 2015.

[13]EnerNOC, “EnerNOC: Changing the Way the World Uses Energy.” YouTube, published August 8, 2013 [https://www.youtube.com/watch?v=43aeFzYMZ5w], accessed December 2015.