Demand Response IPOs Get Warm Welcome

It would appear that the cat's out of the bag regarding energy efficiency/ smart grid technology, and particularly its subsector demand response. First, the successful IPO by Comverge (COMV), and now DR rival EnerNOC (ENOC) has made a similarly big splash in the public markets.

Both companies are venture-backed efforts in the DR space, so it's a good sign to venture investors that the public market exit option should be open to "boring" energy efficiency technologies going forward. It probably reflects a recognition of the strong economics presented by energy efficiency -- the best way to make a kilowatt-hour is not to use one in the first place (admittedly, we've been beating this drum for a while now, apologies for being repetitive). Hopefully these companies continue to provide strong comps going forward.

The thing to note about both companies and their competitors is that they will need to continue to build an ecosystem of smart grid/ energy automation technologies in order to support their growth. DR services are gaining acceptance by major utilities (and no less importantly, their governing Public Utility Commissions). But right now, most DR services (speaking only about all such providers overall) entail literally picking up a phone or paging or emailing a facility manager, who then individually turns down power usage (or turns on a backup generator) during the period of the "event."

It's a relatively low-tech ESCO-like approach that will need to become more automated over time in order to access more than early adopter markets. I would expect a period of some consolidation -- both horizontal and vertical -- as the freshly-capitalized DR industry seeks to put together a truly integrated, comprehensive, tech-enabled service offering for utility customers.

COMV since IPO:

ENOC since IPO: