CPower, the Largest Independent Demand Response Aggregator, Is Off the Market

Continuing the trend of merger and acquisition activity in the demand response (DR) space, CPower recently announced its acquisition by LS Power, an independent power producer that owns power plants and transmission projects. CPower had been owned by HIG Capital for the last 4 years after being spun out from Constellation Energy.

This transaction takes place about 1 year after EnerNOC, the previous largest independent DR aggregator, was acquired by Enel. However, CPower says it will remain a standalone company and brand, unlike EnerNOC which was folded into the Enel name. The existing management and operations teams are expected to remain in place.

What’s the Strategy?

Why would either side of this transaction want to make this marriage? Based on press releases, LS Power sees value in CPower’s position in key markets, customer base, technology platform, and employee team. The move also appears to be a strategy for LS Power to diversify its energy portfolio away from centralized generation and transmission. Incidentally, this aligns with Guidehouse Insights’ view of the growth of distributed energy resources and shift away from centralized units.

From CPower’s perspective, LS Power offers larger financial resources than CPower had on its own to increase investment in the business and expand it faster than otherwise possible. In addition, LS Power is a strategic partner as opposed to a pure financial play, as CPower can use LS Power’s power market expertise in core and emerging markets. 

DR Firm Acquisition: A History

The question is whether reality will follow the hopes of growth and synergies. There is a history of large energy companies acquiring DR firms with mixed results. I was working at Constellation when it acquired the original CPower organization. There were cultural clashes between the small, independent company that was used to moving nimbly and making autonomous decisions, and the larger organization based on process and consensus. There were also strategic differences between the generation and DR teams in terms of regulatory preferences and portfolio management. After a few years, Constellation decided to spin the DR business back out on its own.

In another case, NRG acquired Energy Curtailment Specialists. To my knowledge, the DR business has remained stable but has not really grown much since that time. I don’t believe it has been integrated into the larger NRG business to a great extent.

EnerNOC has been melded into Enel’s customer-facing business, as opposed to its utility and generation practice. That should provide better potential synergies, but there are still questions of merging the European and American cultures and bringing multiple acquisitions under one roof.

LS Power is not the same size as the above-mentioned companies, and likely doesn’t have the level of bureaucracy and hierarchy. CPower should still have a high level of independence while accessing LS’s financial and technical resources. Those factors weigh in favor that the promise of this union can be met.