Navigant Research Blog

Comverge Agrees to a $49 Million Buyout

— March 27, 2012

The news that Comverge has accepted a private equity buyout of roughly $49 million does not come as a surprise to anyone who has been watching this company over the last couple of years and hearing rumors about its financial and resource problems.  According to The Wall Street Journal, a recent filing with the Securities and Exchange Commission reported that Comverge’s independent auditor had expressed serious doubt as to whether the company could continue to operate due to lack of cash flow and debt-related issues.

The buyout by the private equity firm H.I.G. Capital will address these immediate financial and liquidity problems, allowing Comverge to continue its operations and to execute its strategic plans.  H.I.G. Capital is offering Comverge shareholders $1.75 a share well below its 52-week high at $5.09.  The Comverge board has approved the definitive agreement, which enables the company to seek other offers during a so-called 30-day “go-shop” period. As of the close of trading on March 26, the stock was up at $1.79 indicating that investors are expecting a higher offer.

Despite its financial woes, Comverge still runs a viable demand response (DR) business.  As one of the largest curtailment service provider (CSP) and outsourcer of residential DR programs in the country, Comverge had $136.4 million in annual revenues in 2011, representing a 14% increase from the previous year’s revenue of $119.4 million. Moreover, the company added more than 800 new megawatts (MW) under management and increased adoption of its enterprise software platform, IntelliSOURCE, with 22 utilities.  Comverge was also chosen by Gulf Power to double the country’s largest residential dynamic pricing program from approximately 8,000 to an expected 16,000 participants over the next four years.  Perhaps most important was Comverge’s recent $27 million international deal with Eskom, the largest electricity provider in Africa, to create and co-manage its first open market for DR resources.

Despite these achievements, which resulted in the company’s best performance ever, it was apparently not enough.  As Comverge’s president and chief executive officer, R. Blake Young, noted on March 15:  “Despite the strongest operational and financial performance in the company’s history, we still require capital to fund our operations, and the Board and management are working diligently on strategic alternatives for obtaining the required capital and financing.”

Pike Research does not believe that Comverge’s financial issues mean that the DR market is in trouble.  Some observers have claimed that the major CSPs are reaching their saturation level, having to seek new market opportunities in order to continue to grow their business. This does not indicate a lack of interest among end-users to participate in DR programs.  Indeed, both Comverge and EnerNOC have been able to increase their customer base as well as MW under management in 2011.  Although it may become tougher to recruit new customers once the low-hanging fruit is picked, there is still ample opportunity in the United States and in other countries to grow a DR business.  Let’s not forget that DR is more than just curtailing loads during peak events; it can accomplish a lot more as it addresses all the different ways that a utility, grid operator or CSP balances supply and demand of electricity by responding to the needs of the grid.  And with the increasing application of automated DR (Auto-DR) by utilities around the world to make it more cost-effective, more reliable, more predictable, and easier to  execute demand response than ever before, the growth prospects look strong.


Comcast, EcoFactor Unite for Cloud-Based Home Energy Management

— March 12, 2012

Cable giant Comcast has a new deal to collaborate with cloud-based solution provider EcoFactor in a bid to move further into home energy management (HEM) and disrupt the role utilities have been trying to play in this space.  The two companies will roll out a new service, integrated with Comcast’s existing Xfinity Home offering, aimed at helping customers reduce energy use and save money.

The core technology from EcoFactor uses data from a home’s “programmable communicating thermostat” (PCT) and learns the heating and cooling patterns of the home’s residents over time.   Once patterns are established, the system makes automatic and incremental adjustments to the thermostat based on real-time weather data, thermal attributes of the house and the residents’ temperature choices.  Once the system gets familiar with user preferences it works to optimize energy use and save money while still keeping the house comfortable.  At any time, the homeowner can override the thermostat.

EcoFactor CEO Roy Johnson says his company’s whole approach is to lower a customer’s energy bill with no impact on comfort.  While not guaranteeing a specific savings amount, the expectation is that a homeowner might save 10% to 15% on energy consumption.

The partnership with Comcast will enable the company to penetrate the home service market even further with its PCT offering and data analytics capability.  Comcast will also benefit from this partnership, by taking advantage of EcoFactor’s impressive data management capability.  Today, the company processes over 4.4 trillion points of data every month for every 1 million PCTs, making 15 billion adjustments to them (including load shifting for demand response events).  It collects ten data points every 60 seconds about the internal home environment, such as current temperature, HVAC condition and status, and more.  Similarly, it acquires ten data points about the external conditions, such as temperature, wind speed, humidity level, cloud cover, etc. from the National Weather Service.  Another plus is that since EcoFactor’s technology is agnostic, a home service provider like Comcast can install any brand of PCT of its own preference.

Clearly, Comcast sees an opportunity to forge a stronger bond with its broadband customers by offering the EcoFactor system along with other Xfinity Home services for security and home control.  Like other multiple system operators (MSOs), such as Time Warner Cable, Cablevision, and Cox Communications), Comcast wants to seize the opportunity to bundle home energy management with its cable and networking solutions, thus doing an end-run around utilities, many of which have been doing HEM system trials but have had little success in moving to large-scale deployments.

Details on when the new EcoFactor service becomes available and pricing won’t be announced until later this year.

The EcoFactor solution nicely complements what Comcast is already offering, but we don’t see a huge uptake by consumers any time soon.  It will take time for Comcast and EcoFactor to get their offering to market, and for the number of customers to scale.  But this partnership should help move HEM out of its doldrums.


Building Automation’s Babel Problem

— January 30, 2012

There’s a lot of promise in energy management systems.  Buildings produce tons of data every minute of the day, and much of it is fed into building automation or building management systems so that facility managers can monitor and control energy and operations.  In our recent report, Building Energy Management Systems, we observe that these systems are starting to take that data one step further by visualizing and quantifying energy in buildings for CEOs, building occupants, and other key decision-makers.  Getting this information to the right users, though, involves pulling data from a number of separate systems (lighting, HVAC, security, etc.), which becomes an exceedingly difficult process when systems communicate using different protocols, such as BACnet, LonWorks, Modbus, and many others.

Here’s the problem: While it is certainly possible to tie together systems (say, an HVAC automation system based on BACnet and a lighting system based on LonWorks) into a single energy management system, the cost of the labor required to integrate systems cannot always be economically justified.  Moreover, in many cases, the automation functionality of two independent systems on different protocols is often higher than a system that integrates the two, as much of the data is lost in translation.

So how did we get to this modern-day building automation Tower of Babel?  BACnet was originally developed in the late 1980s in association with ASHRAE, the HVAC industry association, and is one of the leading protocols in the U.S., particularly for HVAC and lighting control systems.  LonWorks, the other top protocol in the U.S., was developed in the 1990s by Echelon, one of the leading smart grid and automation technology firms in the world.  While BACnet’s association with ASHRAE has curried favor among HVAC vendors, LonWorks has been a favorite among lighting controls manufacturers given its rapid response time.  Other protocols serve other niches or are favored by specific vendors as a way of discouraging mixing-and-matching of products from competitors.

The result is a world in which systems that perform very similar functions can’t communicate with each other.  Imagine if Blackberry owners couldn’t call iPhone owners.  That’s the basic reality in the building automation systems world today.

Last week, Echelon made a major step toward breaking these barriers down through the launch of a suite of tools and products aimed at integrating systems based on LonWorks and BACnet.  This is a particularly fitting move for Echelon, which is the gatekeeper of the LonWorks protocol and is carving out a leading role in developing technologies at the “edge of the grid,” the interface between buildings and the utility distribution network.  Through the platform, which involves hardware, software, and service components to translate between LonWorks and BACnet for rich energy management, Echelon will be able to connect with whole buildings, not just isolated systems within buildings, and prepare them to play a role in overall grid management through demand response and other types of utility programs.

Over time, automation systems will likely shift to IP networks for new buildings, doing away with the polyglot automation world of today.  However, the existing building stock will continue to speak many languages, and solutions such as Echelon’s will play an important role in synthesizing building energy data to make buildings smarter and more energy-efficient.


Ameresco Acquisitions Mark Strong 2011 Finish for Energy Efficient Building

— January 4, 2012

The competitive landscape in the energy efficient building industry has shifted over the last year.  Earlier this month, Ameresco, one of the largest pure energy service companies (ESCOs) in the United States, announced that it had acquired the xChange Point and energy projects businesses (including auto demand response) of Energy and Power Solutions (EPS), an energy management and sustainability firm.

Ameresco has experienced significant growth in the last few years, reaching over $600 million in revenue in 2010, a 44% increase over the previous year.  Its renewable energy business nearly doubled from 2009 to 2010.  In addition, it captured over one-third of the federal ESPC market in 2010, beating out industry stalwarts such as Honeywell and Trane that year.  Ameresco’s acquisitions in the areas of auto demand response and energy management will help enhance the company’s ability to compete in an increasingly IT-driven building services landscape.

This follows on the heels of other major acquisitions over the last twelve months.  Back in March, Schneider Electric acquired Summit Energy, an energy procurement and sustainability services company.  It followed up in June with the acquisition of Viconics, an industrial and commercial HVAC controls vendor.  Johnson Controls made a similar move back in March when it acquired EnergyConnect, a demand response service provider. The list goes on, including Siemens’ acquisitions of Encelium, a lighting and energy management service provider, and Advanced Telemetry, a cloud-based energy management service provider.

These moves lead to two key conclusions about the building space.  The first is that, when faced with the decision of whether to buy or to build, many of the major players are opting to buy, placing them on the map either geographically or technologically, rather than taking the time and invest the resources to build new capabilities.  This is evidence of a rapidly expanding and intensely competitive environment for energy efficiency and energy management, an environment in which the major service providers are looking to plug gaps in their coverage through acquisitions – and quickly.  In some cases, such as the acquisitions by Ameresco and JCI, the objective is to round out their ability to address a specific technology market such as demand response.  In others, such as World Energy’s acquisition of Northeast Energy Solutions, the move helps to expand the parent company’s coverage of a particular region or provide the manpower to capture others.  In any case, the buying spree signals the expansion of the energy efficiency services market.

It also shows that companies are breaking out of their shells in the building efficiency and energy management space to provide a more comprehensive set of solutions than their initial entry points could have provided alone.  This trend has been set by companies like EnerNOC, which has moved beyond its initial demand response solution to a broader set of services including ESCO-like performance contracts and energy procurement over the last few years.

The common thread through these moves is that energy efficiency service providers are aiming to monetize efficiency services across the board.  Yes, an ESCO can provide energy cost savings to building owners through performance contracts, but if it can provide demand response and energy procurement services as well, it can multiply the number of revenue streams coming from a single contract.  Moreover, providing the full suite of services allows the service provider to optimize these services simultaneously, such that the building owner receives the best possible outcome given the complexities of electricity rates, utility regulatory schemes, and wholesale power costs for a particular building in a given territory.  We’ll continue to see these service providers move to comprehensive, monetized efficiency services over the course of the next year.


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