Brooklyn startup David Energy on Wednesday announced a $1.5 million pre-seed funding round, as it looks to transform into an energy retailer that helps customers get more value out of their solar and storage systems.
Over the past few years, David Energy has built a roster of customers using its software-as-a-service platform to improve energy efficiency in their buildings, shift loads to avoid demand and capacity charges, tap into demand response programs, and find other ways to save and make money from better energy management.
For a typical commercial building customer in New York, that can add up to hundreds of thousands of dollars per year, according to CEO and co-founder James McGinniss. That’s a pretty good return on an upfront investment of perhaps $5,000 to install technology to track HVAC, lighting and other major building loads, and a $1,500-per-month subscription to the company's software to manage those loads for savings and revenue.
But all of these potential revenue streams are now limited to what McGinniss calls the “demand side of the bill” as opposed to the “commodity, supply-side part of the bill.” That’s because, to date, most of the opportunities for making money on behind-the-meter energy controls have remained untapped by the retail energy providers (REPs) that buy and sell power in states with competitive energy markets like New York’s.
To be sure, major REPs such as NRG Energy, Constellation Energy, Direct Energy and others have been making some moves to integrate rooftop solar, batteries, backup generators and building energy management systems. But with relatively few customers seeking out these kinds of options, most REPs remain primarily focused on fighting each other for market share in terms of volume, price and margin, McGinniss said — an approach that makes sense given their business model.
McGinniss sees an opportunity for an update to the standard REP approach, however, one focused on what he calls “behind-the-meter asset customers.”
And with key markets like New York and the greater Northeast now moving to decarbonize and electrify their economies, the scope of assets to be tapped could expand quickly.
Lining up against the giants
David Energy's funding round on Wednesday was led by Box Group and Greycroft and with participation by firms Great Oaks and Oceans as well as several angel investors.
Over the next few months, the company expects to begin selling energy as a licensed retail electricity provider in New York and New Jersey. Many of its existing customers are “pretty interested in using [David Energy] as their retailer,” McGinniss said, though he wouldn’t name names.
Elta Kolo, senior analyst for grid edge at Wood Mackenzie Power & Renewables, said David Energy’s move into the retail electricity provider space could differentiate it from competitors if it’s able to effectively match customer energy flexibility to future energy market prices and swings.
“Dynamic market participation is where the REP value comes from,” she said. Just how those values add up is hard to predict, but it will largely depend on how state grid operator NYISO’s energy markets evolve in terms of pricing and volatility: “The more volatility, the more spread they have to play with,” according to Kolo.
On the other hand, David Energy may be hard-pressed to compete with larger REPs if those companies make a significant shift into supporting customers with distributed energy resources, Kolo noted.
David Energy faces competition from multiple fronts, to be sure. Many vendors offer software to control and optimize building energy use, ranging from energy services giants such as Siemens and Schneider to startups such as Logical Buildings. For demand management and demand response, competitors in New York include big vendors such as CPower and Enel X (formerly EnerNOC) and new entrants such as Voltus and iES Mach.
David Energy’s 15-megawatt portfolio of customers may be tiny compared to those of its big REP competitors. But by concentrating on customers with the right mix of flexible resources, McGinniss hopes the company can flip the traditional REP-customer relationship on its head.
“Every other retailer has a fixed demand base,” he explained. “Whatever their customers need, they have to deliver on.” David Energy, by contrast, plans to tap its customers’ distributed energy resources to shift and shape that demand in real time and “make trades around those assets based on where...power prices are going.”
Those assets include building load control and optimization of the type David Energy is doing today and expects to do even more of under aggressive efficiency mandates in key markets such as New York City. It also includes solar panels, electric vehicle chargers and other resources that will be required for the state to meet its clean-energy mandate of 100 percent by 2040.
Backup generators or behind-the-meter batteries are particularly valuable to protect from the price spikes that can come with exposure to energy markets.
“We’ve done the math on how you can price the contracts using these behind-the-meter assets — and it’s leaps and bounds beyond what you can do today in terms of value generation,” McGinniss said.
While most of David Energy's customers are using its software for load management, the company is in the process of developing projects that will incorporate solar, energy storage and other distributed energy resources, with plans to "be the software company to optimize the assets once they're built."
McGinniss founded David Energy with Brian Maxwell, a long-time renewable energy developer, and Ahmed Salman, a 15-year automation industry veteran with Siemens and Schneider Electric who initially developed the company’s software at R3 Energy Management, a New York City consulting firm that David Energy acquired.