Itron Steals the Demand Response Spotlight by Acquiring Comverge

Just when all parties in the demand response (DR) industry were waiting for EnerNOC’s quarterly earnings call on Tuesday morning to see if there is an update on its corporate structure, Itron came in and stole the show. The company announced its acquisition of Comverge on Monday for $100 million. Another independent DR/energy efficiency company gets swallowed up by an industry giant.

New Opportunities

From a pure technology product perspective, the move appears to make sense. Itron is a leader in advanced metering infrastructure (AMI) hardware and software for utilities, but it has not succeeded in breaking into the DR space on its own over the last several years. Moving further down the DR and customer value chain does not necessarily play into its strengths of meters, backend systems, and data management. For a company of Itron’s size, it is much easier and quicker to buy the capabilities that Comverge offers as opposed to trying to develop them organically.

Comverge has been operating successfully for the past several years since becoming a privately held company. It obtains long-term contracts from utilities at healthy margins, an attractive combination for a prospective buyer. The DR market as its own target is limited in growth potential, but Itron’s hope is that the combination of AMI and DR solutions will open up new opportunities that don’t exist in each separate market.

Questions and Risks

That’s where the questions and risks come in. Integrating different technology platforms is always easier said than done. AMI has not been successfully implemented for DR purposes at scale to date. If the combination with Comverge’s systems can overcome that obstacle, a huge barrier in the industry will be removed. But will that limit Comverge’s business opportunities to utilities that use Itron’s AMI system, or will it still be able to implement independent DR programs regardless of the meter provider?

In an interview, Comverge’s Senior Vice President of Sales Steve Hambric said, “we are not turning our backs on our core business in any way,” and that existing clients will not be jeopardized. Having Itron’s resources will help the company move into more markets more quickly than before.

You don’t have to look too far back in history to find a similar case. Oracle bought Opower just about a year ago, and there is no evidence of great successes to date. They are probably still in the integration phase, but the internal focus seems to have slowed Opower’s market momentum to some degree. Will Comverge find a similar path of distraction, or will the combined team be able to hit the ground running and get some early wins?

In any case, I look forward to EnerNOC’s earnings call on Tuesday morning for the next dose of excitement in the ever changing DR industry.