Market collapsing, Enoc is rising/bouyant since the Japan announcement. It's bad time of year and the taper talk leading into the FOMC meeting next week is dragging everything down. But it looks like ENOC wants to go higher.
Shabdul - thanks for your awesome response! You have provided some real insight into the structure of the DR marketplace, and you've put the competitive aspects in context.
I've started studying up on the Company's efforts in Japan. I agree - it's a completely different situation (vs US PJM), where the Japanese government and the utilties are actively seeking short and long-term solutions to the capacity removed by their nuclear policies post-Fukushima. Working up with them like they did, was great. And Enernoc seems to be placing significant resources in place for this venture.
Thanks again for taking the time to lay things out like you did.
so i think the cheap gas impacting the price of electricity is the main issue, ENOC with its cheap capacity source, is real threat for these generators/utilities that would otherwise just build new resources but which are economically unviable with current prices.
im afraid im not such an expert to answer if its the reliability or economic displacement, the root issue. of course ENOC lives and dies under presumption that it is reliable and effective source, as long as they can manage to do that. i think there will be increasing voices for DR providers to grow despite obstacles from PJM.
and i also agree that part of the uncertainty around the stock nowadays is more about the business model than immediate impact on earnings. I think its still early to say about the PJM concerns to be generic (the industry is still nascent and rules will be forming along the ride). beside each electric system in other countries does not have to generally reflect the situation in PJM. i havent noticed similar problems in australia so far. I think the last project in japan in which ENOC works with the largest players in utility sector is the way to go, and a mean how to avoid such problems in the future. but despite PJM's obstacles with these electricity prices the business model has long-term prospects.
So we're competing in both open markets and with vertically - and with - and we're competing for business with third party folks with vertically integrated utilities. Since we're the largest player in this space, we do pretty well when we get into a head-to-head competition with other third party providers with vertically integrated utilities because I think we're a safe bet. And we've got a lot of dispatch performance and history around what we do. But the biggest competition of all for us on the utility side is with utilities who want to try to do this themselves. That's about half the market today. I would say it's by and large not a core competency for those utilities. That third party provider market is growing faster than the utility DR market, and that's the prime reason why. So that's the go-to-market engine from a utility perspective."
well those are some tough questions. i will try to give you my take on them. from what i understand and from what management has stated several times, i think PJM is not targeting EnerNoc specifically, but DR in general. but due to the ENOC's market share it seems like they are basically the target.
I agree with your second point and would add that also some utilities are trying to provide the DR services but are significantly lagging by ENOC and other DR providers who came into business first. as CFO stated during the Stephens Conf.: "Yeah, let me talk about two types of go-to-market engines because we have a utility go-to-market engine and then we have a C&I go-to-market engine. And on the utility side, it's interesting because there are three - we have open markets, right, which is where we participate in these auction prices and we bid against generators and folks that want to build power plants. We bid against them to supply capacity to an open market. Then there are vertically integrated utilities who most of the time would rather build a - the extra power plant for a few days a year, a few hours of time and earn a regulated return on that than participate in demand response, but maybe their regulatory body is encouraging them to do demand response or maybe from an environmental standpoint, it makes more sense for them to do demand response.....
Sentiment: Strong Buy
I'm trying to understand the problem PJM has with Demand Response generally, and with Enernoc, specifically.
Is it that Demand Response, as a capacity resource, is relatively cheap (and efficient)? Therefore, if limits are not placed on the amount of Demand Response Capacity imported into the PJM System, pricing system-wide is negatively impacted. This reduced pricing does not meet the minimum hurdles of traditional generators also bidding to supply external capacity, economically displacing them.
PJM says this is a matter of system reliability - that the economic displacement of the traditional generators lessens availble capacity resources, to a threshhold below which PJM can maintain system reliability.
Is reliabilty the root issue, or is economic displacement the root issue?
You pointed out that it's the 2017/2018 BRA that's impacted. I see that. I guess the issue is not 2017/2018 specfically, but whether the proposed revisions funamentally dilute Enernoc's business model -- not only for that year, within PJM, but generally. Is this the bigger question, and if yes, to what extent are PJM's concerns generic, a headwind to utilities' broader adoption of DR?
I have followed ENOC for years but I am not in the industry.
I was too hasty earlier, saw only the pilot, along with the others, and wasn't impressed. But I went back and read the press -- the exclusive arrangement does appear to be well past the pilot phase, I agree.
Time to get back in? I took away from Healy at Baird that International has been replacing the PJM shortfall almost one for one (about 20% of revenue lost/gained). I don't know where this exclusive arrangement in Japan fits in. As far as my making a call, the last time I tried to do that, I may have turned the poster Chow Mein into sub-gum! So I'm not going there. I did stop out a bit earlier than you, and for what it's worth, I've taken a small long position today. I see this new opportunity, but also, the timing in terms of earnings being a ways off.
Thing with earnings -- and this period being down -- it's always been about no catalysts. I do wonder whether today's news -- and the increasingly broad coverage I"m seeing for Enoc (in tems of who picks up these stories), I wonder if we may not have seen the bottom of the "between earnings lull." But I have no idea, no idea whatsoever!!!!!!
In terms of the PJM revisions -- What I DO see is the fundamental aversion that PJM has for Enernoc. The demand response document from 11/29 wreaks of "Enernoc, get your hands off our grid, you don't run our business, we do" language. Healy spoke about this, saying it "is what it is."
As I have stated before, I don't understand the impact on ENOC's earnings of these proposed revisions, but as an investor, I would want some reassurance that Enernoc is shifting its mix to trade out these losses, and then some.
Maybe today's news about Japan -- the exclusive agreement part and associated revenues and profits, is it.
would you advise getting back to the stock on this new information or prefer to wait out how the PJM issue gets resolved at FERC?
Sentiment: Strong Buy
hello thank you for your insights. I have been watching the price action and yesterday I just sold half of the position on stoploss. the overhang of the PJM revisions was just brutal, and after the market closed they released this information. from what i get, i think its already past the pilot program and this one is real project. now it will be about announcing the C&I participating in this which i expect to start rolling in late 1H and 2H of 2014 and on (thats what i took from this.."diversified DR portfolio able to provide both peaking capacity and load balancing services to TEPCO.")
as for your opinion on the PJM issue. i still haven't managed to read those revisions, but there were two documents related to it if i understood it correctly. so you see the proposals as major threats to ENOC? from what i understood, it's about the BRA auction for 2017/2018 which should not impact the co's earnings until then if i understand it correctly.
of course this didn't stop the selloff after last disappointing BRA auction from this may, but still immediate threat to the business in next couple of years is to me not that significant (but i may be wrong...) as i dont have such knowledge as you.
Sentiment: Strong Buy
I apologize. I missed the piece about their having and exclusive program with Marubeni in addition to the pilot. This is significant, although I would hope the company could elaborate on impact to earnings 2014 if any.
It's a good development - Enernoc's participating in Japan's/Tepco's broad based program. But the impact on Enernoc earnings remains to be seen, and should be negligible in 2014 and 2015, if they ever develop at all. They're in late (behind Schneider/Energy Pool and Othes) so gaining market share will be hard fought.
After Fuskishima, Japan is testing literally hundreds of pilot programs of all sorts, and Enernoc's joint venture is one of them. Demand response is at the earliest stages of development in Japan/will takeyears to monetize.
Just googl Schneider/Energy Pool. Energy pool is the largest aggregator in France with 80% of the market, around 1600 MW under management. Look at the 11/25/13 announcement (2 weeks ago) heralding the Schneider/Energy Pool program, already well underway...
On Friday, Japan’s Tokyo Electric Power Co. (TEPCO) announced it is working with Energy Pool and Schneider, along with Japan’s Sojitz Corp., to set up a 50-megawatt industrial demand response pilot, under the auspices of Japan’s New Energy Promotion Council (NEPC). The goal is to test industrial demand response, not just for peak power mitigation, but also for “reserve capacity in the event of a unexpected outage of generation units, as well as balancing capacity for supply volatility caused by renewable energy,” the announcement stated.
It's not at all settled how capacity will be monetized in Japan. Just look at wha's going on with PJM, five years in.
And by the way, I read the 30 or so pages of the 11/29 submission by PJM, but I didn't yet listen to the CS conference. If Healy characterized PJM's objections to Enernoc as a seasonality issue, that's just not true. PJM has serious concerns about the reliablity of its network given its (PJM's) decreasing ability to control the mix of curtailment activities. It's a fundmental argument against expanding DR within PJM beyond limits where PJM can guarantee its grid reliablity - and the same issues are going to arise in Japan.
Marubeni is one of the largest trading firms in Japan, with annual revenues of $52 billion (Y4.9T), and has deep experience in the electricity sector, having developed more than 96 gigawatts (GW) of power generation. The company owns more than 10 gigawatts (GW) of power generation assets at net capacity, and is one of the largest independent power producers (IPP) in Japan.
The firms expect their new JV, EnerNOC Japan, KK, to complete its incorporation process by January 2014. This partnership and the TEPCO award are exciting developments for EnerNOC's longer term demand response opportunity in Japan.
The newly-awarded project with TEPCO, sponsored by the Japanese government's New Energy Promotion Council (NEPC), which Marubeni secured and will work with EnerNOC to deploy, will be among the first deployments in Japan of aggregator-based quick-response DR for the commercial and industrial sector. Under this initial project, EnerNOC and Marubeni will build a diversified DR portfolio able to provide both peaking capacity and load balancing services to TEPCO. The project is also designed to establish the foundation for the long-term inclusion of DR in Japan's electricity system. In addition, the TEPCO project will include a number of technical milestones, including the commercial release of the Japanese version of DemandSMART, and EnerNOC's first international project featuring OpenADR dispatch.
hello, thank you for your comments. i have also studied the revisions. have you heard the comments from the last conference from CS that took place on tuesday. to paraphrase what CEO said:
"misinterpreted by lot of marketplace, PJM concerned getting too much DR limited in number of months that DR is dispatched during summer months, try to shift product mix to have DR providers bid more resources during the rest of year (apart from summer). market misinterpreted it that they try to put CAP on Demand Resources. PJM had only 36% support for this filling (generally supposed to get 2/3 support from stakeholders; ENOC didn't support it along with generators, other resources, state).
VERDICT: still need FERC approval; weak support; ENOC well positioned
I know he is not gonna shoot his own horse, but still...it's unfortunate that they just killed the momentum which i think the stock had, but we have to take things like they are. especially on this stock. I have been through the last PJM vs. ENOC fight so im fully aware that the price action can get quite ugly from nowhere.
Sentiment: Strong Buy
I read your message before they deleted it. Thank you.
It led me to the PJM web-site -- "Documents" section, where I read the proposed Tarriff revision issued by PJM on November 29 as you said. I was not encouraged.
In the Baird Conference, Healy clearly made reference to PJM's (and other Utilities) seeing themselves as losers in the capacity markets game. He said it isn't going to go away and needs to be worked through.
He went on to say that PJM is a decreasing piece of the mix, although still very significant.
It's that last part - how significant they are -- combined with everything else on ENOC's plate being developmental, and not generating significant revenue or profits NOW, that was a negative in a generally positive, even breakout situation.
We really need to understand what the impact will of PJM's proposal to "limit the amount of Demand Response Capacity imported into their system" will be on ENOC's earnings.
And this was all within the context of 2014 consensus EPS growing only 9.6% from .73 to .80, with the stock price hovering at 17 (recently), a forward multiple of over 21. Uh oh.
I went to the options pain website. Put volume is very high, and this period between November and February earnings is typically way down. Max pain is $15.00 for the December 21st expiration.
Add on top of all of this, the GDP read this morning of 3.6% and the ADP report Tuesday which blew off the doors on job growth. Tomorow's November jobs report, if strong, will throw the 10-year up again, and it jumped already this morning to 2.87%, far above teh 2.85% trigger the pundits have been fearing. Down futures this morning drive this home.
I've never been a cheerleader for this or any stock. I believe in ENOC, but I am also aware that particularly in small caps, things change quickly. The proposed tarriff revision is concerning, we need to understand the impact, and timing/market conditions right now are not positive.
You were very prophetic. Someone/s knew something before the rest of us, imho. Maybe someone/s should be investigating it? eom
jp--me,too. I double downed at $16.75, raising my average cost, but then sold $17.50 Calls for some protection. On the first drop, it seemed like there was some hidden "news" that wasn't out but couldn't figure out what it might be. You're right about being caught way off guard on this issue. I was trying to read the volume sells/buys and it wasn't looking good for the longs. Alas, this, too, shall pass. Hoping for some clarity over the next couple of weeks but there will be a lot more known come early February. Holding fast and ready to possibly take a greater stake when the fog lifts. GLTA