Demand response -- controlling energy use in homes, offices and factories to reduce stress on the power grid -- has traditionally been something that utilities and grid operators buy from their customers and third parties like EnerNOC, Comverge and other vendors. It’s administered via funded programs, or through energy market mechanisms, and in many ways, demand response’s gain comes at the utility’s loss, financially speaking.

But if utilities could get their demand under the same precise control they maintain over power plants, grid infrastructure and other capital investments, they could rate-base that investment. Because efficiency costs a lot less than burning fossil fuel to make energy, it should be a deal for the customers -- and if it’s flexible enough, it could be available all year round, not just during emergencies. 

That’s the goal that stealth startup Innovari is aiming for with its real-time demand management technology platform. Since its 2011 founding, the Austin, Texas-based startup has quietly accumulated a portfolio of 27,000 facilities, with customers in the U.S., India and another continent to test the proposition.

Now it’s bringing its technology platform to broader markets, and seeking opportunities for its demand-response-as-capital-asset business plan concept as well. On Monday it announced a Series B investment from existing investor VantagePoint Capital Partners, along with what CEO Chris Hickman said were two soon-to-be-announced strategic investors in the company. Innovari isn’t disclosing how much it raised this week, but Hickman said in an interview last week that it's less than $10 million.

Innovari runs its automated building fleet from two network operations centers in the United States and one in India, using cellular cloud services from Verizon and AT&T to extend its virtual private network (VPN) to a host of “energy agent” devices it installs in each building, he said. Those energy agents, in turn, are networked to a set of “things I control, or TICs,” he said -- a catch-all term for any sensor or control node in the building network.

But “the real secret sauce of what we’ve done is our algorithm,” which “talks to that energy agent and says, if the utility wants 500 kilowatts off feeder A and 500 kilowatts off feeder B and maybe at substation C, 10 kilowatts…we’re able to provision in real time how much of the load we can change in that building.” Working in facilities ranging in average size from a 7-Eleven corner store to a Target superstore, “We can take 15 kilowatts to maybe 100 kilowatts out of the building, all without the building owner knowing it."

That platform of energy reduction and adaptation assets is in turn linked to utility or grid operator control rooms via virtual secure tunneled Inter-Control Center Communications Protocol (ICCP) to present as a power plant, grid control system or similar asset, he said. “When you have a cross-section of buildings talking up, the interval is every 30 seconds, and they provision everything in the site.”

This kind of real-time demand management capability is claimed by contenders such as Enbala Networks, Viridity Energy, Demansys and Consert (now part of Toshiba’s Landis+Gyr) in North America, and in Europe, REstore, Kiwi Power, and Entelios (bought by U.S. demand response company EnerNOC earlier this year).

International giants like Schneider Electric, Honeywell, Siemens, General Electric and Johnson Controls are also making moves into more vigorous, exacting demand-side management technology, along with Japanese giants like Hitachi and Panasonic.

Even so, the vast majority of today’s demand response is of the day or hour-ahead variety, and inexact in its outcome. Innovari got its start as a consultant to an unnamed utility that was looking for a faster, more dispatchable form of demand management, and now the company is ready to package it up as a utility resource, Hickman said.

“We are creating a business model that would create a rate-basable asset for the utility,” he said. “We will sell a 50-megawatt project to them, just like they’re used to buying a peak power play. […] There’s fuel, but that fuel is the customer incentive payments.”

Some jurisdictions do allow demand response and energy efficiency investments to receive a guaranteed rate of return, but it’s still a rare method of enabling the demand side of the grid. First of all, it’s hard to guarantee the availability of customers’ air conditioners, water heaters, refrigerators and factory equipment on a par with power equipment directly under the utility’s control. Hickman said that Innovari has created a Federal Energy Regulatory Commission (FERC)-codified description for its resource to meet the requirements of a capital asset.

Secondly, it’s hard to predict how many years that resource will remain available. Innovari is packaging its facilities in five-year contracts, after which the customer can take it over and buy the startup’s software to run it, he said.

“We think we’re the first one with this business model, and we ultimately believe that creating this asset and working in partnership with utilities is important to moving this thing forward,” he said. “It would be very much like an independently produced power plant, but the utility owns it; they’re just hiring someone else to build and operate it.”

So far, Hickman said that Innovari has been delivering its energy reduction capacity comes at a cost of about $700 per kilowatt, compared to a natural-gas-fired power plant’s cost of $1,500 to $3,000 per kilowatt, depending on where you’re building it. It’s also delivered “surgical” demand reduction to reduce substation and feeder line congestion, in situations that would have otherwise required expensive upgrades at about ten times the cost, he said.

As for how it’s moving ahead on its rate-based demand-side asset plans, Hickman didn’t say much, beyond noting that the demand response industry is in a bit of turmoil lately. Last month’s federal court decision overturning FERC’s Order 745, which set price requirements for demand response’s “negawatts,” means that individual states are going to have a lot more authority over how programs, markets and prices are set in years to come, and “we’re going to take a very active role in that,” he said. “We’re trying to rebuild the bridges between the regulators, the consumers and the service utilities.”