Most of the biggest names in the U.S. demand response industry — EnerNOC, Comverge and CPower — have been acquired, merged or reconfigured in some way over the past decade, as they’ve shifted or struggled to adapt to the vagaries of the market they helped to create.
Last year saw the last publicly traded, pure-play demand response provider, EnerNOC, bought by Italy’s Enel for $250 million. It also saw smart meter and networking provider Itron paying private equity firm H.I.G. $100 million for residential DR provider Comverge, which it took private for $49 million in 2010.
Now it’s the turn of CPower to change hands. On Friday, H.I.G. announced that it was selling CPower to LS Power, which owns and invests in power plants and transmission lines across the country, for an undisclosed sum.
CPower has one of the more tangled pedigrees in the demand response industry, being a combination of several prior companies and their commercial and industrial demand response portfolios. Founded in 2000, the company had about 850 megawatts of DR under management when it was bought by Constellation in 2010, and had about 1,300 megawatts under management in 2014, when Constellation, which had been acquired by Exelon and shifted its demand-side strategy, sold a majority stake in the company to H.I.G.
H.I.G.’s interest in CPower was to combine it with the commercial and industrial part of the business it bought from Comverge back in 2010, in order to refocus Comverge on its majority residential business, only to end up selling it to Itron three years later. Comverge’s legacy C&I business came from its 2007 acquisition of a company called Enerwise Global Services, which is why the combined companies have done business under both the CPower and Enerwise names since then.
CPower saw some significant ups and downs in its core demand response business over the past five years. Most harmful to the industry was a 2014 Supreme Court challenge to the existence of capacity programs that make up a majority of the demand response market, which left the future of the industry in question and stymied new investment until the court's January 2016 decision ended the threat. Since then, we've also seen changes to mid-Atlantic grid operator PJM's key capacity markets that have reduced revenues for DR providers, underscoring the industry's risky reliance on a few critical markets.
EnerNOC and CPower had been working to expand their existing C&I demand response relationships into avenues for a broader set of revenue-generating services. This has primarily focused on more traditional energy efficiency and demand management programs, but it has also extended into more advanced demand-side controls and automation, as well as battery energy storage and distributed generation, as with CPower's 2017 partnership with behind-the-meter battery startup Stem.
These are considerably bigger potential markets than demand response as traditionally defined, while also being open to a much broader field of competition. As a publicly traded company before its acquisition last year, EnerNOC revealed that its own efforts to expand hadn't met expectations in terms of revenue growth, but the firm insisted they were still critical to providing the holistic energy solutions that C&I customers are increasingly demanding.
But the promise of turning demand response customers into energy services and distributed energy customers, or vice versa, fits into the broader premise driving much of the distributed energy and demand-side energy management M&A activity of the past few years. EnerNOC was the second of three of such acquisitions that Enel has made in the past two years — Demand Energy and eMotorWerks are the others. Enel’s chief European energy competitors have similarly been adding demand response to their portfolios, such as Centrica’s acquisition of REstore.
CPower’s new owner, LS Power, has raised more than $39 billion in debt and equity financing. It owns more than 580 miles of transmission infrastructure and more than 39,000 megawatts of competitive power generation. Most of that generation is natural gas, but a handful is coal-fired, hydroelectric, solar and wind. It also owns LS Power Equity Advisors, which has "$8.6 billion in committed capital for its power and energy infrastructure-focused private equity investment strategy."
Growing CPower’s lines of business would appear to be part of this strategy. “CPower is a well-established leader in demand response and distributed energy resources across all key power markets, with a high-quality customer base and talented, cohesive and dedicated management team," David Nanus, LS Power’s co-head of private equity, said in Friday’s statement. “This acquisition gives LS Power the opportunity to support the continued growth of CPower's unmatched energy management platform through the advancement of its proprietary technology, development of new products and ongoing delivery of superior customer service."