World Energy Solutions has set out to put a market price on nothing.
The company -- which provides services for auctions of carbon certificates and energy -- has formally launched the World DR Exchange, an online auction sites for selling and buying capacity for demand response networks.
It works like this: a potential seller conducts an internal audit to determine if it can voluntarily curb power consumption during the peak afternoon hours. If so, it quantifies the amount of power it can curb and offers it on the site. Demand response companies or curtailment service providers (CSP) then bid on it and effectively resell it to a local utility under a contract the CSP has likely already signed.
"They've promised capacity for the ISO (independent service provider) and now they are finding customers," said Phil Adams, World's president.
The utility gets a better handle on peak power demand, sellers earn money from giving up power they didn't really need, and the CSP earns money for ensuring that the utility gets its negawatts. In other words, the seller and CSP work together to make sure the utility can give the seller less. World Energy, meanwhile, collects a fee from the CSP.
The two most prominent demand response companies to date are EnerNoc and Comverge, but more companies are entering the field. So far, World Energy has conducted three auctions with twelve participants. Gerber's Poultry, a seller in an early auction, said it has garnered $100,000 in unforeseen revenue by auctioning off excess capacity.
"We found watching the auction unfold very exciting: there wasn't much bidding activity at first, but as the end point of the auction drew near, the bids were flying, driving up our overall share of revenue," said Gerber's CEO John Metzger in a prepared statement.
Ideally, auctions will lead to more accurate market prices for both buyers and sellers. Now, sellers often only learn about demand response or curtailment services when they get cold calls from sales representatives.
Competitors, though, argue that there's a heck of a lot more going on here than cold calling and offering low prices. It's an ongoing relationship.
"Auctions aren't well suited for business relationships in which value is realized during the entire business relationship, versus prior to receiving the good or service when the price one pays to get the good or service is the sole (or nearly sole) driver of value," wrote Gregg Dixon, a senior vice president at EnerNoc.