Poor economy boosts energy-efficiency firms

By Adveith Nair - Analysis

BANGALORE (Reuters) - Energy efficiency companies, which help businesses save on electricity bills, could see demand for their services rise as more firms look to cut costs in a recessionary environment.

Companies like EnerNOC Inc (ENOC.O) and Comverge Inc (COMV.O) -- called demand-response companies for their role in limiting electricity use during peak demand -- employ technology to manage large companies' power usage and control their costs.

Their software can automatically adjust an air conditioner's temperature or turn off a swimming pool pump when power supplies are tight.

These companies reduce prices for suppliers and end users by lowering end user demand at peak times. They reduce load on the electrical system, thus, freeing up capacity and improving system reliability.

Shares of these companies have been battered during the past year. While EnerNOC's stock has lost about 66 percent in the last 12 months, Comverge shares are off 74 percent from a year ago.

In a recent interview with Reuters, EnerNOC Chief Executive Tim Healy said he expects 2009 to be a growth year, and that the company would benefit from the ongoing financial turmoil.

"Traditionally, the bulk of our revenue comes from our utility customers," Healy told Reuters, adding that he expects growth in 2009 to come from a combination of both utilities as well as EnerNOC's commercial, industrial and institutional customers.

Oppenheimer analyst Sam Dubinsky agrees. "We believe uptake from commercial and industrial customers will remain strong, especially in a recession/budget constrained environment," he wrote in a note to clients.

Demand response requires little up-front investment and can result in significant electricity cost savings, he added.

The good thing about demand response, Raymond James' Pavel Molchanov said, was that there is an additional revenue fee that customers are able to get from their utility for reducing consumption during peak demand.

Utilities pay EnerNOC a fee for managing a certain amount of capacity on their demand-response network. EnerNOC then passes on part of the money to end-users who agree to limit consumption when required.

"We share some of the revenue (coming from utilities) with the commercial, industrial and institutional entities in our network. Only a few have reinvested that money with EnerNOC, but we're seeing the number as well as the amount being reinvested grow significantly," Healy said.

LESS POWER?

On the flip side, however, there are fears that the slowdown might hurt power demand.

"The economic weakness means demand for power is lower, which causes utilities to lose revenue and cut their capital spending," Cowen & Co analyst Robert Stone said.