8 disruptive companies that utilities should watch in 2014

The traditional electric utility model faces a range of disruptive challenges including distributed generation, energy storage and demand-side management, according to a report Edison Electric Institute issued early this year.

Emerging technology coupled with low natural gas prices, low economic growth and rising rates in some parts of the country may be a “game changer” for the industry, according to the report, which uses the word “threat,” or a version of it, 43 times. Think utilities are worried?

But disruption doesn’t have to be bad. In fact, utilities are working with most of the companies we expect to make waves next year.
1. ENERNOC

EnerNOC’s main business is delivering demand-response resources to utilities and electric power grid operators during periods of peak demand.

The company is having a banner year. Revenue jumped 47% in the first three quarters to $347.5 million while income, not counting one-time items, soared to $59 million from $19 million in the same period last year. The company expects revenue to grow by at least 15% next year.

The majority of EnerNOC’s revenue comes from the mid-Atlantic’s PJM market. The main near-term opportunities are in Texas, California and traditionally regulated states, according to the company.

“We will continue to expand our demand response business by deepening our relationships with existing utility and grid operators and by expanding into other regions beyond the mid-Atlantic, which are significantly underpenetrated,” David Brewster, EnerNOC president said November 7 during an earnings conference call.

What we’re watching: EnerNOC intends to continue investing in Texas so that it can be a major player if a capacity market emerges in the state. The company is also branching into “energy intelligence software” to help large companies control their energy costs.
2. EOS

Startup company Eos is developing low-cost batteries for energy storage.

In November, Eos said it had formed a partnership with Incodema Group to begin making a 1 MW battery that can store 6 MWh. Eos intends to sell the batteries for $1 million/MW, making it competitive with natural gas-fired generation. Eos believes its batteries can help integrate renewables, meet peak load and power electric vehicles.

Eos has lined up several customers including: NRG Energy, an investor in Eos, Consolidated Edison, Enel, GDF SUEZ, National Grid, and Public Service Company of New Mexico.

“Eos’s technology is of strategic interest to NRG as we seek to enhance the value of our generation assets and evaluate novel energy storage business opportunities,” Denise Wilson, NRG executive vice president and president, new businesses, said in May when NRG invested in the company.

What we’re watching: Eos plans to begin delivering batteries to customers in 2014.
3. FIRST SOLAR

First Solar makes thin-film solar panels and develops and builds utility-scale projects. The company expects to ship about 2,700 MW of solar panels this year.

Through three quarters, revenue is up $200 million to $2.5 billion and income jumped to $287.8 million compared with a $250.5 million loss in the same period last year.

Perhaps more importantly, the company’s pipeline of projects in advanced stages of development has grown to about 3,700 MW while First Solar has driven down the cost of its solar panels and made them more efficient. In the last quarter, average conversion efficiency increased 0.6% to 13.3% from a year ago and the cost fell 8 cents/W to 59 cents/W.

“We are now flash-testing modules at our Perrysburg facility with the conversion efficiency of 14.1 percent,” Jim Hughes, First Solar CEO said October 31 on a conference call with analysts. This gives First Solar the “potential to open up new business segments to us and significantly increase our total addressable market.”

What we’re watching: So far, First Solar is meeting its targets for improving the cost and efficiency of its panels. Can they keep it up in 2014?
4. NEST LABS

Privately held Nest makes a smart thermostat that automatically adjusts to activities in a home.

Using the thermostats can cut heating and cooling costs by 19.5% on average, and up to 36%, according to the company, which was started by former Apple executives.

Utilities like NRG’s Reliant and Green Mountain Energy are using Nest thermostats in demand response programs. During a heat wave this summer, Austin Energy increased the temperature in participating customer houses by 1.6 degrees leading to a 56% cut in air conditioning use in those homes, according to Nest.

The market for smart thermostats may be poised for major growth. In an October report, Navigant Research estimated that smart thermostat revenue would climb from $85.5 million in 2013 to $1.4 billion in 2020 worldwide.

“As an industry, residential load management is one of the biggest opportunities that we have to curb spikes in electricity use and when we can make it simple and keep customers comfortable with innovative tools like Nest, it’s a win for NRG and our customers,” David Crane, NRG president and CEO, said on partnering with Nest.

What we’re watching: Nest is building a real-time Web application programing interface for its thermostat and starting next year developers will be able to create apps that use the thermostat.
5. SOLARCITY

SolarCity is the one of the largest residential rooftop solar installers in the U.S.

The company was founded by Lyndon and Peter Rive, cousins of Tesla’s Elon Musk, who is also SolarCity’s chairman.

SolarCity has a financing model that enables homeowners to install rooftop solar systems at little to no upfront cost. The company is also pioneering a new way to raise capital in the solar industry, with SolarCity closing its first bond offering of $54.4 million on Nov. 21. This allows the company to turn its long-term solar contracts into cash.

But unlike most rooftop solar companies which are essentially just financiers, SolarCity chooses to do nearly everything itself. That includes making its own solar panels and doing its own marketing. And the recent acquisitions of Zep Solar and Paramount Solar will help the company do just that.

What we’re watching: SolarCity’s landmark debt offering could pave the way for rapid expansion. And if the company’s next offering is as big as they expect it to be, it could be sign of big things to come for SolarCity.
6. OPOWER

Opower works with utilities to lower energy use by changing customer behavior.

Opower’s programs reduce electric use by 1.5% to 3.5% on average, according to the company. Among Opower’s programs, the company provides utility customers with information on their electric use and shows them how much their peers are using to get them to change their habits. Opower works with utilities in 29 states and their platform reaches about 22 million homes worldwide.

Residential customers could cut their energy use by up to 20% through small behavioral changes, according to a report consulting firm McKinsey released in November.

Opower sees room for growth. In a November report, Opower estimated that 79 million households could save about 19 million MWh a year through cost-effective behavioral energy efficiency programs.

“A breakthrough on the behavioral front, helped by new technology such as smart controls and by social media, could increase the penetration of energy-efficiency products and practices to a majority of households,” McKinsey said in its report.

What we’re watching: Opower believes there is a largely untapped market for behavioral efficiency. We’re going to be watching how they grow next year. Opower is also reportedly planning an IPO, so we’ll be watching whether that comes to fruition and how it impacts their expansion strategy.
7. NRG ENERGY

NRG Energy is already the nation’s biggest merchant generator and retail electricity provider.

But what’s most interesting about the company is its move into distributed generation.

In a widely circulated Bloomberg article, the company’s firebrand CEO David Crane provoked utilities by proclaiming that he’s “working for the day the grid is diminished” and that everyday consumers are realizing they “don’t need the power industry at all.” And in a recent interview with The Atlantic, Crane said the utility business will lose significant market share over the next 20 years as the industry transitions to a distributed model. Crane believes companies such as Google, Apple, Facebook, Amazon and Comcast could wind up being the energy companies of the future.

NRG is currently piloting the Beacon 10, a smart generator that runs on natural gas, biogas and waste. The Beacon 10 can reportedly send power back to the grid, continue powering a home in case of an outage and even store power generated by solar panels. It’s basically an all-in-one distributed generation device.

“They way we are envisioning this is that if we had 10,000 of these machines just in the greater New York City area and we as a company had control of the machines, that becomes a 100-megawatt peak power plant as well,” David Crane told The Atlantic. “We see the machine as more as the centerpiece of a series of products and services that we would sell to you as a homeowner and then we would basically manage your own energy supply at your home. And then if you had extra, we would sell it back to into the grid and share any benefit of that with you.”

What we’re watching: NRG’s move into distributed generation is momentous, if not entirely surprising. Aside from the recent rise of residential rooftop solar, distributed generation has largely served niche markets, so it will be interesting to see if Crane can bring it to the mainstream. NRG Energy’s expansion into the space will serve as a temperature check for distributed generation.
8. CREE

Cree makes light emitting diode (LED) bulbs and other lighting products.

The company’s revenue increased to $391 million in the most recent quarter, up from $315.7 million a year ago. Income jumped to $30.5 million from $16.1 million.

We were just getting used to the compact fluorescent bulbs and along come LEDs. What’s the big deal? Lighting accounts for about 12% of electric use in the U.S., according to the Energy Information Administration. The Department of Energy (DOE) estimates that LED lighting could cut electric use from lights nearly in half by 2030.

CFLs are much more efficient than incandescent bulbs, but LEDs are roughly twice as efficient as CFLs. One of the main drawbacks with LEDs is their price.

Cree this year begin selling a 40-W equivalent bulb for under $10 at Home Depot, and other bulb makers have lowered their prices. In markets with utility rebates, the bulbs sell for $5. DOE expects bulb prices to fall in half by 2017.

“One year ago, the Cree LED bulb was still an R&D idea, and Cree had never sold a branded consumer product,” Charles Swoboda, Cree chairman, president and CEO, told analysts October 22. “We have changed the lighting category and changed consumer perceptions about LED bulb.”

What we’re watching: Cree is adding manufacturing capacity and flexibility to handle increased sales next year. How quickly will sales grow?

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