Demand response -- turning down building power loads to shave peak grid demand -- sometimes gets split into 1.0 and 2.0 versions. What’s the difference? Roughly speaking, it comes when buildings can lower their peak power use not only to respond to utility emergency calls (DR 1.0), but to actually bid their power reduction into energy markets.

Think of them as “virtual energy generators” -- power-shifting factories, offices and university campuses, all tied up into systems that can shed “negawatts” of load across entire regional markets. But to manage it, this DR 2.0 technology has to stretch from the individual building, all the way to the energy markets where blocks of power are bought and sold every day.

Back in October, Philadelphia-based startup Viridity Energy and big energy services company ConEdison Solutions announced plans to build a platform that does just that. On Wednesday, the two launched the service, aimed at offering building owners a chance to lower power bills and bring in new energy revenues, all at little to no cost.

The program hasn’t signed up any customers yet, but it does have a big target market, in the form of ConEd Solutions’ energy services (ESCO) and commodity energy trading customers, according to Cara Olmsted, business development director. As a sister company of New York utility Consolidated Edison, ConEd Solutions is comparable to Honeywell and Johnson Control in terms of ESCO work, and competes against the likes of Constellation Energy and Dominion Power in the business of buying and selling power for big customers.

Viridity and ConEd Solutions bring a distinct new challenge to the competition for the title of the first commercial-scale demand response 2.0 project. It’s not alone in seeking the title. Incumbents in the industry like EnerNOC, Comverge, Constellation Energy, Johnson Controls, Honeywell and others are working on projects that link building control systems with energy markets ready to pay a premium for fast-responding, reliable power shed.

But ConEd Solutions’ big customer base gives it an advantage in pitching the new program, as well as giving its energy commodity trading business more insight into how to better manage customer energy use to lower their rates and bills, Olmsted said.

Viridity, for its part, brings its well-tested building energy optimization and control software, along with its expertise in integrating it into energy markets, H.G. Chissell, Viridity’s managing director, said. The company, founded by former PJM COO Audrey Zibelman, does have deep roots in energy market and grid operations, he noted. It was founded in 2008 and raised $7 million in 2009, $8 million in 2010, and a $14 million round from Braemer Energy Ventures and Intel Capital in 2011.

Viridity has also proven its ability to handle both the emergency capacity demand response markets, which pay customers a monthly fee in exchange for a promise to cut power drop a few times a year, and the energy, or economic, demand response markets, where customers actually bid power reductions into energy markets.

That proof came at Philadelphia’s Drexel University (PDF), which installed Viridity’s software and systems in six buildings across the campus.  That allowed Drexel to bid 500 kilowatts into the capacity market, as well as take part in about 200 energy/economic events during the course of the year, with an average load reduction of about 400 kilowatts per event. Overall, Drexel also cut its $435,000 annual power bill by $53,000, or more than 10 percent.

Capacity markets make up the lion’s share of today’s demand response, but economic markets could offer greater revenue potential. Those revenues could go up under the Federal Energy Regulatory Commission’s (FERC’s) plan to see “negawatts” of power reduction earn the same money as megawatts of generation in demand response markets.

Most lucrative of all are the fast-responding markets like frequency regulation or synchronous reserves, which require power to be generated (or cut) within minutes or even seconds. Viridity has set up a few customers to manage power that quickly, including Axion Power’s battery plant in New Castle, Pa. and the SEPTA train authority serving the greater Philadelphia area. Chissell said the new partnership intended to offer the same kind of fast-responding options as it’s providing for those other customers.

One big question for all of these demand response 2.0 efforts is whether building owners are ready to take the risk of turning over control of their daily energy use. Viridity has taken great pains to take customer needs into account when devising its building energy management profiles, closely monitoring temperature and air-flow levels to keep office buildings comfortable, for example. Other startups, such as BuildingIQ, Telkonet and Siemens acquisition SureGrid, are also tackling the tricky business of cutting building energy enough to make money, but not enough to anger tenants and landlords.

The other question, of course, is whether it will be cost-effective. Right now, Viridity and ConEd Solutions are aiming to install and run their platform at low or no cost to customers, either by using existing technology to reap demand reduction market rewards, or by financing the cost of retrofits through the savings and revenues of a newly installed system. This latter concept isn’t new either -- ESCO’s have been doing it for decades, mainly in the government sector, and startups like Serious Energy and Transcend Equity are trying it out in the commercial building sector.

Tags: comverge, coned, constellation energy, demand response, energy efficiency, enernoc, general electric, green building, johnson controls, siemens, smart grid, utilities, vc, venture capital, viridity