By Jeff St. John
Comverge (NASDAQ:COMV) has just landed its first outside-the-U.S. demand response services contract, and it’s a big one: The company will set up and manage Africa’s first market-based system for trading the ability to turn down power use for money.
Comverge announced the contract with South African utility Eskom on Tuesday, and it’s an interesting new model for a region that lacks the kind of organized demand response markets that exist in the United States.
It’s also a new role for Comverge, which has been struggling to keep up against first-place demand response provider EnerNOC (NASDAQ:ENOC) in its home U.S. markets while seeing its stock lose about 80 percent of its value over the past year. Whether the Eskom deal represents a breakout line of business that can push the company to profitability or a sideshow to its faltering performance at home remains to be seen.
Between now and March 2013, Eskom will pay Norcross, Ga.-based Comverge about $27 million to do two things. First, Comverge will be asked to gather 100 megawatts of curtailable load from midsize commercial and industrial customers to help Eskom, which has struggled to supply power to big industrial customers this year and is facing a long-term generation shortage.
Second, Comverge will use its IntelliSource software to give Eskom a platform to gather up 500 megawatts of demand response capacity from any number of different providers — in essence, becoming the utility’s platform for managing the marketing, dispatch and payment for demand response events.
Eskom is officially running the entire thing as a pilot program for now. But David Ellis, managing director of Comverge’s international business, said in a Tuesday interview that it could grow beyond its initial 500 megawatts to encompass a greater share of South Africa’s potential demand response capacity, as well as potential markets beyond its borders.
“We’ll literally be building an industry in South Africa,” said Ellis, who took over Comverge’s international business from former CFO and interim CEO Michael Picchi in July. “With our services and IntelliSource, we are effectively establishing the market.”
It’s a pretty big new line of endeavor for Comverge, particularly in terms of the software-centric demand response platform development work it will be undertaking on Eskom’s behalf. It sounds a bit like the demand response software management platform that UISOL has done for big grid operators PJM, Midwest ISO and California ISO.
Most of Comverge’s existing business, on the other hand, involves wiring commercial, industrial and residential customers with load-control switches, smart thermostats and other devices. But given the lackluster performance that business has been posting lately, Comverge is no doubt eager to expand into new markets.
Comverge and EnerNOC can be considered the most prominent public companies that can be considered pure-play “smart grid” contenders, and 2011 has not been kind to either company’s share price. But while EnerNOC has rapidly added new business amidst its lackluster stock performance and now has about 7,000 megawatts under management, Comverge’s equivalent figure has barely budged, growing only from 3,541 to 3,731 between Sept. 2010 and Sept. 2011, according to its third quarter 2011 financial report.
Comverge also hasn’t yet been able to mark a quarterly profit, reporting a third-quarter 2011 loss of $900,000 on revenues of $48.6 million, on top of a $15 million loss on revenues of $51 million for the first half of 2011. Earlier this year, the company reduced its annual revenue forecast to $136 million to $141 million, and while it has said it is on track for profitability in 2012 or 2013, investors don’t seem sanguine -- the company’s share price has fallen from around $7 in early 2011 to trade below $2 since October.
On a more positive note, Comverge has been landing more utility customers to its next-generation IntelliSource platform, which has been part of the company’s move to rebrand itself as an “intelligent energy management” technology provider. Comverge now has 19 IntelliSource clients, with named ones including Tampa Electric Company and Pennsylvania’s PECO, Pepco and Pennsylvania Power and Light -- though Comverge is managing a relatively small portion of those utilities’ overall demand response needs.
Eskom, on the other hand, generates and distributes about 95 percent of South Africa’s electricity and about 45 percent of all the power used in Africa -- a measure both of the utility’s cross-border reach and the relatively low penetration of electricity in the continent. Within South Africa, Eskom manages a peak demand of about 37,000 megawatts, and generates the vast majority of its power from coal.
But a combination of growing demand from the country’s big industrial players (including mining, coal and coal-to-liquids industries) and failures and maintenance-related slowdowns at its coal plants, have put the utility in a power crunch. The problems have grown bad enough to cause South Africa to lose its vaunted position as the world’s cheapest electricity provider to Canada earlier this year.
Overall, Eskom has said it may need as much as 1,000 to 2,000 megawatts of demand response to cover its demand-supply mismatch, Ellis said. Beyond the $27 million for the project announced Tuesday, “there is potentially additional revenue we could realize just by playing a role as CSP (curtailment services provider) and playing those megawatts into the marketplace,” he noted.
Beyond South Africa, Comverge isn’t talking much about its international plans. The company launched its international business in June 2010 with a deal with advisor Projects International to target Middle Eastern and North African countries, but has yet to announce any projects.
As for the timeline on the Eskom project, Comverge plans to have its aggregation platform ready by early 2012 and have the 500 megawatts of aggregated load in place by late next year.