Starting next week, Consumer Powerline will begin handing out checks to its customers for the energy they saved this year.

The amount will reach $8 million this year, up 60 percent from last year, with $2 million to $3 million reaching customers next week and the remainder being distributed in the fall, the company said Friday.

The payouts stem from “demand response,” a process in which utilities avoid blackouts by paying customers to use less power when the electric grid is squeezed. The utilities can buy negative watts, or “negawatts,” at the same rate of electricity at those peak hours, avoiding the far higher cost of outages.

“[Demand response] is absolutely growing because electricity markets are becoming more volatile,” said Mike Gordon, president of Consumer Powerline. “Throughout the U.S., regulators are saying, ‘We’ve got to expose people to the real volatility of energy prices. We’ve got no choice.’”

But Mr. Gordon noted there are open questions on how to evaluate the energy-related risks associated with global politics and weather.

“The fact is that we’re in a new market paradigm today and that we haven’t figured it out is driving volatility,” he said.

Consumer Powerline’s news of growing “negawatts” indicates skyrocketing interest in managing and saving energy.

The company’s customers pay no up-front costs for the technology. Consumer Powerline fronts the price of the metering and monitoring equipment installed on customers’ sites, and customers get access to energy data and a cut of the money earned from negawatt sales.

The company has software that makes that data about energy use, along with data about electricity prices, available via the Internet so that customers can make decisions about how to manage their power.

The “energy dashboard” makes recommendations about what equipment to turn on and off, and shows how buildings’ electricity use compares to that of similar buildings, the company said. The software also takes regulation, rate pricing, commodity pricing, and other factors into account to help the customer make the best decision, Mr. Gordon said.

While the cut differs depending on individual contracts, customers often see earnings of about 2 percent of their energy bills, which Consumer Powerline distributes in checks twice a year, Mr. Gordon said.

With about $12 million in revenue, Consumer Powerline has paid users about $18 million in the last four years. The company targets large enterprise customers, including Starwood Hotels & Resorts, Federated Department Stores and its Macy’s division, CB Richard Ellis, New York-Presbyterian Hospital, and the state of Massachusetts, among others.

Environmentally Friendly

“In essence, these control technologies become direct competitors of power plants, so you’re absolutely seeing a move toward investment in this sector,” Mr. Gordon said. “That’s a good thing both for a technology firm like our own, as well as for the environment.”

While the concept of demand-response has been around for years, it had limited success. People are willing to spend a dollar to make a dollar, but aren’t willing to spend a dollar to save a dollar, said Andrew Hargadon, founding director of the University of California-Davis Energy Efficiency Center.

That is changing because of high energy prices, said Rona Fried, president of green web community SustainableBusiness.com.

“When prices are cheap, people just don’t care,” she said. “People think there has to be some kind of outlay of money and they’re not going to make money from it, but they are. They are going to save money, which is the same as making money in the end. We’re just not used to thinking that way.”

One sign of change is the EnergyEfficiencyCenter itself. In April, the California Clean Energy Fund (CalCEF), a state fund that invests in clean energy, awarded U.C. Davis a $1-million grant to establish the world’s first energy-efficiency center to help bring energy-saving innovations to market.

Venture-capital activity in energy management—a category that Nicholas Parker, chair of the Cleantech Venture Network, said has historically been viewed as an “arcane niche”—has picked up.

Energy management startups GridPoint, Prenova, Broadband Energy Network, Fat Spaniel, and Comverge have all raised VC funding since March (see Negawatts for Positive Returns, GridPoint Gets $16M Recharge, Energy Management Bags Cash, Energy Management Gets Cash, Energy Startup Gets $3.5M, Comverge Gets Another $5.5M).

Competitors Agree

Consumer Powerline isn’t the only one seeing growth in demand response, of course.

David Brewster, president of EnerNOC, said the company cut checks for about $4 million in just the first quarter of 2006, which marks “a significant increase,” but could neither say how big an increase it was nor give estimates for the full year.

“We have seen tremendous growth across the country, both in regulated and deregulated markets,” he said. “We’re seeing substantial growth, and we see growth continuing to move forward as well. It’s clean, low-cost, electric peak-demand reduction, and it’s a win-win. It’s widely appreciated by regulators, utilities, and system operators alike. It’s a better solution than building new power plants.”

Tim Healy, CEO of EnerNOC, an energy-management and demand-response company based in Boston, said the company’s revenue grew from $1 million in 2004 to $10.4 million in 2005, and is expected to reach $25 million this year.

Instead of selling negawatts on the open market, EnerNOC partners with utilities and gives corporate customers an incentive—and a percentage—to reduce power use in times of need.

EnerNOC’s customers include ESPN, AT&T, Albertsons, Raley’s, ITT Hartford Insurance Group, and the state of Connecticut, among others. EnerNOC bought Celerity Energy in May (see EnerNOC Buys Celerity Energy).

‘A Fabulous Thing’

It’s about time demand response caught on, Ms. Fried said, adding that advocates have been pushing the concept of negawatts for 25 years.

Part of the difference is business models like those of Consumer Powerline and Prenova, which are fantastic because they don’t require customers to pay up-front costs, she said.

“It turns out that saving energy is the absolute cheapest way to make more money,” she said. “It’s a fabulous thing. It’s been very much needed, because in order to help people change, the most important thing to give them is feedback on their behavior. I’m all for energy-response meters to be inside every building of all types—residential, commercial, and government—to show people exactly how much energy they’re using from what kinds of sources.”

Contact the writer:JKho@RedHerring.com