Voltus launches $1.3B SPAC to help businesses reshape their power use and ease grid stress

Gregg Dixon, CEO of Voltus, sees an enormous opportunity to link distributed energy resources, or DERs for short, to wholesale energy markets across the U.S. and Canada — and he says his company has the technology and expertise to do it.

On Wednesday, Voltus announced plans to go public via merger with a special-purpose acquisition company (SPAC) to raise the money to pursue that ambition. The merger with Broadscale Acquisition Corp. is expected to raise about $445 million and value the San Francisco–based company at $1.3 billion when it closes in the first half of 2022.

Voltus’ investor presentation describes the company as the ​“first publicly traded pure-play DER software technology company,” differentiating it from the hardware-centric clean-energy and climatetech companies that have gone public via SPAC in the past two years, most of them focused on batteries, electric vehicles and EV charging.

Voltus doesn’t own the HVAC systems, refrigerators, lighting loads, backup generators, batteries and EV chargers it controls at the facilities of its more than 600 customers and partners. These include Home Depot, Coca-Cola, Walmart, shopping center owner Simon Property Group, and utility Southern Company’s distributed energy subsidiary PowerSecure.

Instead, Voltus connects those devices to its cloud-based software platform that bids their combined flexibility into moneymaking energy-market and grid-relief opportunities across the U.S. and Canada, Dixon said. Lots and lots of electrical loads can be turned down at volumes that approach the scale of power plants in terms of their impact on the grid, which is why these services are sometimes called ​“virtual power plants.”

The revenue-making opportunities for this kind of load-control aggregation include commitments to provide energy reduction in capacity markets run by Eastern U.S. grid operators like PJM and New York ISO, which contract customers to turn down energy use hours in advance to relieve the grid during periods of peak stress. Voltus also participates in more fast-responding grid services markets such as spinning reserves and frequency regulation, which traditionally have been served by power plants and batteries.

Voltus also manages loads to help customers make money from utility programs aimed at reducing grid stress or coordinates their consumption to maximize the value of time-of-use rates that change from hour to hour. In competitive energy markets, it works with energy retailers that want to be able to reduce customer load as a hedge against spikes in wholesale market energy prices, Dixon said.

Since its founding in 2016, Voltus has built up a portfolio of resources capable of delivering about 2 gigawatts of load reduction as of mid-2021. That’s not as much capacity as is held by large-scale competitors such as Enel X and CPower, two other major U.S. providers of demand response, the traditional term for businesses that help customers reduce electricity consumption at certain times in exchange for financial rewards. But according to Dixon — himself a former executive at EnerNOC, the demand-response market leader bought by Enel X in 2017 — Voltus’ market integration and software sophistication puts it ahead of its legacy competitors.

Unlike competitors focused on the most lucrative demand-response markets in the Eastern U.S., or in emerging markets such as California and Texas, Voltus is active in more than 50 programs across all nine of the wholesale power markets in the U.S. and Canada, Dixon said in a Thursday interview.

“These markets are complex, but large energy consumers like a Walmart or large technology partners like Google Nest” — maker of the leading brand of smart thermostat — ​“don’t want to partner in just one market,” he said. ​“They want a DER operating system that’s wherever they are.”

And unlike companies that make and install individual technologies including thermostats, smart appliances, EV chargers and backup batteries, Voltus integrates with ​“all DER types,” Dixon said. ​“The reason that’s so important is because an entirely new class of DER technologies are coming online at scale.”

A new landscape of distributed energy resources 

Demand response has typically focused on large-scale commercial and industrial customers or mass-market residential devices designed to reduce energy consumption. But in the coming years, EV chargers, behind-the-meter batteries, internet-connected thermostats and other software-enabled loads are projected to become a massive resource for the grid, adding up to nearly 400 gigawatts of capacity.

At the same time, Federal Energy Regulatory Commission Order 2222 requires the grid operators that manage the electricity markets serving about two-thirds of U.S. customers to allow DERs to participate in their markets. While grid operators are still working on complying with that federal order, their eventual implementations are expected to dramatically increase the opportunities for making money by helping to balance the grid with DERs.

Voltus is seeking public investors to bulk up its balance sheet, which it will need to scale up a business plan that relies on having significant capital reserves to back up multi-gigawatt positions in regional energy markets, Dixon said. The company has raised about $65 million from venture capital investors.

Voltus reported $42 million in recurring revenue in 2021, but it forecasts that revenue will grow to more than $170 million in 2023 and more than $500 million in 2025 as it expands to serve a contracted backlog of about $275 million in projects and a $1.3 billion pipeline of business.

The $445 million that Voltus hopes to raise in its SPAC includes $345 million in cash held in Broadscale’s trust account and $100 million in commitments for private investment in public equity (PIPE) from investors including Equinor Ventures, Belfer Management, Solanas Capital and Ev Williams, co-founder of Twitter and Obvious Ventures. Broadscale’s sponsor, Voltus management and existing Voltus investors, including Activate Capital and Ajax Strategies, will also participate.

“We wanted to partner with a business that was going to be a leader in its field,” Andrew Shapiro, CEO of Broadscale and a longtime cleantech investor and adviser, said in a Thursday interview.

“When we looked at Voltus, the key differentiator is that there’s nobody we can see that has the mix of software and technology capability and deep energy markets expertise,” he said. Much of Voltus’ executive team comes from EnerNOC, and the company’s chief regulatory officer is Jon Wellinghoff, who chaired FERC from 2009 to 2013.

More competitors, growing opportunities 

Voltus’ SPAC will mark a notable change in an industry that’s seen its few publicly traded companies revert to private ownership over the past decade, said Pavel Molchanov, director and equity research analyst at Raymond James & Associates, in a Thursday interview.

EnerNOC went public in 2007 and expanded rapidly into multiple demand-response markets, as well as acquiring a host of energy-efficiency and energy-management companies. But its market value was driven down by a 2014 court ruling that undermined demand response in the company’s key markets (before it was overturned by the U.S. Supreme Court two years later), along with slower-than-expected growth in its energy-management business, leading to its acquisition in 2017. Since then, EnerNOC has become a part of a broader Enel X distributed-energy portfolio that includes batteries, EV chargers and microgrids.

Comverge, a rival publicly traded U.S. demand-response provider, was taken private in 2013 in a $49 million deal and then purchased by smart-meter and grid-networking provider Itron for $100 million in 2017.

CPower, another leading U.S. demand-response provider, was bought in 2018 by LS Power, a privately held owner of power plants, solar farms, transmission grids and battery energy storage projects. LS Power also owns microgrid developer Endurant Energy and is a majority shareholder of electric-vehicle charging company EVgo, which went public via SPAC this year.

Raymond James & Associates analyst Molchanov mentioned several other privately held demand-response providers that are now part of larger energy companies. Belgian company REstore was bought by U.K.-based energy company Centrica in 2017, Limejump was acquired by Royal Dutch Shell in 2018, French energy company Engie bought a majority stake in U.K.-based Kiwi Power, and backup-generator and battery company Generac bought Enbala last year.

Other companies active in the space include Leap and OhmConnect, which operate in California and have recently expanded in Texas, and commercial building aggregators active on the East Coast, including NuEnergen, Rodan Energy Solutions and Blueprint Power, which was acquired by BP earlier this year, Molchanov said.

Technology advances have reduced the costs of aggregating DERs over the past five years, as well as allowing aggregators like Voltus to use resources for a wider variety of services, including those that require coordinated responses within minutes or even seconds, Dixon noted. ​“But you can’t do that without fully automating load control, and storage control, and generator control.”

Other DER providers are bundling their own devices to earn money by providing grid services, whether those are smart thermostats from Google Nest, EV chargers from Enel X or battery-backed solar systems from Tesla, Sunrun and other vendors. But Voltus and other DER aggregators are betting that these vendors will choose to partner with companies rather than spend the time and money to create their own in-house energy-market trading systems.

“The basic premise of demand response is still much like it was four years ago,” Molchanov said. ​“It’s very valuable and important for keeping the grid stable.” He highlighted the role that demand response has played in easing grid stresses during times of summer heat waves and winter cold snaps — stresses that are expected to grow more intense with climate change.

“The real story is not demand-response provider A fighting demand-response provider B in some kind of zero-sum game,” he said. ​“It’s the ultimate size of the pie that’s exciting.”