Energy start-ups see IPOs ahead

Will 2007 be the year for energy efficiency companies? Two start-ups are banking on it.
Written by Michael Kanellos, Contributor
Two start-ups are gearing up to see if Wall Street is excited about energy efficiency and smart electrical grids.

EnerNoc and Comverge, which specialize in technology that automatically and remotely controls electricity consumption, have both filed preliminary papers for initial public offerings with the Securities and Exchange Commission.

Both companies essentially monitor--via computer and/or wireless networks--electrical production and capacity on the grid and electrical consumption in homes, factories or offices. When electrical prices and consumption rise, these systems send signals to thermostats, air conditioning systems or pool heaters to throttle back. The temperature changes a customer might feel are slight: the air conditioning in a particular building may rise only from 69 to 71 degrees Fahrenheit.

Those slight changes at hundreds or thousands of locations, though, can shave peak demand and help cities avert brownouts or blackouts. Although both companies provide similar services, their underlying technologies and customer bases differ.

Using computer networks to curb power consumption is a somewhat new area that has heated up as energy demand has risen. Companies such as Honeywell and General Electric have made sensors that regulate power consumption, but generally, the systems that regulate temperature aren't reacting to problems or changes on the grid.

Besides averting blackouts, these systems also let utilities cut down on power plant construction.

"Because we estimate that over 10 percent of this supply-side infrastructure is typically built to meet peaks in demand that occur, demand response solutions have the potential to offset $5.9 billion per year in projected infrastructure expenditures in the United States and Canada," EnerNoc wrote in its filing with regulatory agencies.

Neither company has provided details on when an IPO might occur, but each disclosed financial information and some customer information. Although both are relatively small and still not turning a profit, they are growing rapidly. Revenue at Comverge nearly doubled in the last two years, rising from $17.9 million in 2004 to $33.9 million in last year--a year in which it lost $6.9 million. The company has long-term contracts with seven utilities that it says could result in cumulative revenue of $201.4 million between 2007 and 2016.

EnerNoc, meanwhile, has seen revenue rise from $800,000 in 2004 to $26.1 million in 2006. The company managed 137 megawatts of electrical capacity by the end of 2005 and now manages 545 megawatts. (A megawatt can serve the electrical needs of about 300 homes.) It operates in 20 states in the U.S.

Other companies in energy efficiency are growing as well. Warren Weiss, a venture capitalist with Foundation Capital, told CNET News.com that Silver Spring Networks, which provides real-time metering for electrical and water utilities, will likely make some significant customer announcements soon. Foundation is an investor in Silver Spring and EnerNoc.

Many scientists believe that advances in energy efficiency could significantly reduce greenhouse gases and won't require startling scientific breakthroughs or massive subsidies to start producing results, unlike alternative energy ideas such as ethanol or wind power.

The belief that progress can be made rapidly comes in part from the fact that the grid right now isn't very efficient. Roughly 62 percent of the energy generated in America gets lost before it reaches the intended user, according to Dan Arvizu, director of the National Renewable Energy Labs.

History shows that efficiency pushes work. In California, regulations imposed in the 1970s have allowed electricity consumption per capita to remain flat in the state. The Department of Energy has estimated that these sort of regulations, pioneered by a physicist named Art Rosenfeld, have saved more than $100 billion over the past 30-plus years nationwide.

Despite the savings, people have a tough time getting excited about energy efficiency. At clean-tech conferences, attendees will pack the room to see an ethanol roundtable. But when the agenda turns to smart grids, a lot of people take a coffee break.

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