Applying the EnerNOC Model in Developing Countries

By Samuel Smolkin

During our class discussion of EnerNOC, the majority consensus seemed to be that EnerNOC did not have a very good business model, especially from a long-term viewpoint. While I do not know enough about U.S. energy markets to have a well-founded opinion on the prospects of their business model in the U.S., I think that a similar model could have a lot of potential if applied in developing countries. Even in the absence of refunds from energy companies for reducing usage during peak hours, and even if prices are kept constant (i.e., do not increase during peak hours), the energy cost savings and other benefits which can be provided to businesses in developing countries by EnerNOC’s DemandSMART and EfficiencySMART service lines (SupplySMART and CarbonSMART are less applicable in most developing countries) form a very feasible business model. My opinion is based on several key features of developing countries, discussed below.

Lack of generating capacity. In many developing countries, there is simply not enough capacity for all businesses to operate during peak demand periods. Therefore, for these businesses, it is not just a question of paying higher prices to use electricity during peak hours, but of whether they will be able to operate at all. Therefore, the benefits that could be delivered through energy efficiency improvements (EfficiencySMART) and demand reduction/usage planning (DemandSMART) are much more valuable. In addition to reducing energy costs, these services can provides businesses with the opportunity to create additional revenue – e.g., by increasing the productive capacity of manufacturing plants.

Lack of transmission capacity. Something which we did not discuss in class (presumably because it is not a pressing issue in the U.S.) is transmission capacity. Transmission grids in many developing countries are in a state of high disrepair. So, even where there is enough generating capacity to theoretically meet demand, there may not be enough capacity to actually supply it. Again, this makes EnerNOC’s services more attractive to clients in these countries.

Low-hanging fruit for energy efficiency improvements. This point applies primarily to Eastern Europe and the Former Soviet Union (with which I am most familiar), but is likely true of other developing countries as well. The infrastructure in these countries is extremely energy inefficient. Basic improvements alone – such as insulation, double pane windows, and energy-efficient light bulbs in buildings – would yield significant energy savings. At the same time, awareness of efficiency improving measures is low in these countries, even among business people. This creates a terrific opportunity for a provider of EfficiencySMART services to sell simple, high-savings improvements.

Unavailability of “smart” metering technology. In many developing countries, modern “smart” metering technology is not available. Without adequate metering technology, it is difficult to identify and implement effective energy saving measures. A company like EnerNOC would have a significant first-mover advantage by brining such technology to market. Furthermore, this first mover could take advantage of synergies by selling, installing, and operating (i.e., remotely monitoring energy usage) the new technology. Furthermore, the energy inefficiencies uncovered through improved measurement create a selling point for efficiency EfficiencySMART services.

Potential political support. Energy independence is a high-profile political issue in many developing countries. While most policy aimed at this issue regards increasing domestic generating capacity, if ministries can be taught that improvements to domestic energy efficiency are a cheaper and potentially more effective means of reaching this goal, they can become a powerful promoter of this business. Furthermore, if a company like EnerNOC were to play a role in convincing these ministries, this contact could potentially lead to hugely lucrative public sector contracts to implement DemandSMART and EfficiencySMART measures in government infrastructure and state-owned enterprises. What’s more, development organizations like the EBRD are already working to convince ministries to adopt energy efficiency policies, to some degree of success. Even more, development banks can provide additional financing. The EBRD, for example, finances both providers and purchasers of efficiency improving services in their countries of operations.

This is by no means an exhaustive list of reasons why an EnerNOC-type business could be successful in developing countries. And, of course, there are significant risks, challenges, and barriers to entry which must be overcome. However, given the reasons above, and for the good of the developing world, it is certainly an option which businesses should explore!

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About macomberjohnd

HBS Finance faculty interested in sustainability in the built environment including devices, structures, townships, and cities.

One Response to “Applying the EnerNOC Model in Developing Countries”

  1. Samuel, absolutely fascinating to think about how Enernoc can help create a more robust electricity market in the developing world. I definitely think there is room for Enernoc, or similar businesses, to really help developing countries address the fundamental energy question: the discrepancy between supply and demand. My concern here though would be, applying a market driven model only works if there is enough supply (or really access to electricity supply) to warrant Enernoc’s value proposition. So, as a country leader, my quest for energy independence would lead me to invest dollars in energy supply over energy demand management, at least for the next 10-15 years.

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