In early August, EnerNOC announced second-quarter revenue of about $36.2 million, up 8.7% from the same period last year. The provider of demand response (DR) expects to generate between $360 million and $400 million in revenue for the full year of 2013, reaffirming its earlier guidance. However, the company reported a net loss of $34.4 million, higher than the $29.3 million net loss in the same quarter in 2012.
Even though EnerNOC ended the quarter with $102 million in cash and anticipates that this will be its fourth consecutive year of positive cash flow, the expanding losses do not bode well for this major provider of curtailment services. Are these losses a sign that EnerNOC is facing weakening business prospects? Because of the company’s significant involvement as an aggregator in PJM’s capacity market, its revenues have been seriously affected by the sharp drop in prices in PJM’s capacity auction, held in May for the 2016/2017 delivery year. Flat demand growth for electricity, new generation from natural gas, and substantially increased imports of power, primarily from MISO, resulted in lower capacity prices across most of PJM’s territory. For example, in one region, the price decreased from $357 per megawatt-day (MW-day) in the 2015/2016 delivery year to $114.23/MW-day in the 2016/2017 delivery year. According to EnerNOC, the company’s revenue opportunity from PJM declined as much as 55% this year compared to revenues cleared in PJM’s 2015/2016 auction in 2012.
On the Beach
Realizing the potential for continued profitability losses and sluggish revenue growth opportunities, EnerNOC has made a wise move to adopt a strategy to further diversify its business. While the company is actively pursuing new DR opportunities in the United States and Canada, it has also been actively expanding its business internationally, more specifically in the United Kingdom, Australia, and New Zealand, to capitalize on these emerging and fast-growing DR markets. To this end, EnerNOC has developed several new product features, such as the internationalization of its technology platform for non-English-speaking countries. Navigant Research’s report, Market Data: Demand Response, estimates, for example, that Asia Pacific will have nearly 294,000 sites (residential and commercial and industrial) participating in DR in 2013 and will enjoy the fastest growth rate of any region with a 2013-2020 CAGR of 21%. Undoubtedly, EnerNOC will use its presence in Australia and New Zealand as a beachhead to penetrate other major countries in this region, such as China and Japan, which are actively pushing deployment of DR in their commercial and industrial sectors.