EnerNOC, the leading US demand response and energy efficiency software provider, has announced its acquisition of two European demand response firms-German-based Entelios AG and Dublin-based Activation Energy.
These acquisitions are expected to accelerate EnerNOC's entry into continental Europe.
Germany and Ireland- A need for demand response
Given the increasing level of intermittent renewable energy resources in its electricity system, Germany is one of Europe's largest potential markets for demand response and energy intelligence software. The country’s need for resources which can balance power supply and demand is escalating.
Entelios has built a technology platform that meets the requirements of all four transmission system operators in Germany to deliver demand response resources to help manage these system imbalances.
Entelios was the first demand response company to successfully deliver load in Germany's high-value secondary reserves market, which today has a total size in excess of 4,000MW.
Activation Energy participates in the single electricity market, a capacity market that spans Ireland. The relative isolation and limited interconnections of the Irish grid, together with increasing amounts of renewable energy, create additional growth opportunities for demand response, including balancing services.
Entelios has begun to expand its presence beyond Germany, and its technology platform is designed to support continued expansion to other European markets. Entelios already has established contracts with major European utilities with significant presence outside of Germany. For example, Entelios signed an agreement in November 2013 with VERBUND, Austria's largest electricity company, to provide commercial and industrial demand response in the VERBUND Power Pool in Austria.
EnerNOC has made a practice of buying its way into new markets and business lines, including its acquisition of Global Energy Partners in California in 2010 and its purchase of Energy Response in Australia, as well as M2M Communications for agricultural equipment demand management, in 2011. It moved into U.K.’s demand response market in 2010, and in December formed a joint venture with Japan’s Marubeni Corp. to land a contract with Tokyo Electric Power Company.
"Europe is ripe for accelerated adoption of demand response and energy intelligence software. Entelios has both the local market expertise and customer base that will help EnerNOC establish an important foothold in continental Europe, consistent with our growth and market diversification strategy," says Tim Healy, Chairman and CEO of EnerNOC.
But, has EnerNoc bitten off more than it can chew? The US and European market conditions are very different from eachother and this may frustrate the firm’s demand response goals for the region.
Can Europe support demand response development?
Demand response is a potential solution to making the electrical system more flexible, and increasing generation capacity, storage and transmission interconnections.
However, the market conditions in most European regions are not yet supportive of demand response programs.
Many challenges remain to transfer an energy market and regulatory framework that has been designed to manage only generation, into one that treats Demand Response on an equal footing, explains Yvonne Boerakker of DNV Kema. She adds: “It is a real challenge to find a profitable and sustainable business model for demand response in Europe.” We covered the various challenges that face demand response development in Europe in our article, Demand Response-Overdue in Europe.
Despite this, there are a number of commercial aggregators that have become active in member states such as the UK, France, and Belgium.
The US vs. Europe
The US energy market is very different from Europe’s. The US energy market already has over ten years of experience with demand response. The volume in these markets grew quickly after capacity markets were developed in which demand response could participate.
The federal government has set clear policies through legislation and interstate regulation which encourages the development of demand response in the US. The regulatory requirements rest on several decades of experience among vertically-integrated utilities and transmission system operators in running demand-response programs. This has supported the growth of a capable private sector demand response industry.
Although there are clear market differences in the structure and operations of the US and European electricity markets, critical lessons can be drawn from the US experience with demand response as US-based companies enter the demand response market in Europe. By doing this, firms will successfully integrate demand response solutions into European energy models.
Taking over two companies that are still in the early developmental stages of their respective European national demand response markets may be a bit of a gamble for EnerNOC. Give the current challenges facing demand response in Europe; we have to ask whether or not EnerNOC will find these growth opportunities worth the price it has paid.