Long hot summers often find folks running air conditioners nearly 24/7 – and then fretting over their power bills.
Sound familiar?
But what if customers knew their power bill would remain the same from month to month, like a subscription to Netflix? And what if, in the process, they felt a little bit better knowing they’re also adding to the proportion of electricity coming from wind, solar and other renewable sources?
That’s the pitch from Santa Monica-based Inspire Energy Holdings, a renewable energy provider that signs up customers with flat monthly rates for electricity. Inspire then procures power for its customers from companies that put power generated from wind and solar sources onto the grid.
Chief Executive Patrick Maloney calls the company “the world’s first subscription service for clean energy.”
Inspire must manage and minimize two huge risks to make it work on a daily basis: It has to discourage its customers on flat monthly rate plans from using excessive amounts of electricity; and figure ways to offset the often wild swings in energy prices on the open market.
“Inspire is trying to take something where people have long paid according to how much they use and turn it into a flat monthly subscription model,” said Dan Finn Foley, senior analyst with Wood Mackenzie, an energy consultancy based in Edinburgh in the United Kingdom. “This is a long-term risky bet.”
Quick rise
Inspire posted $65 million in revenue last year and is focused on growth.
Maloney learned the industry as a partner in a previous energy procurement company called Energy Plus in Philadelphia, which sold in 2011 to Princeton, N.J.-based NRG Energy Inc. He launched Inspire in 2014 and started selling wind power on a subscription basis in Pennsylvania and other states along the Eastern Seaboard.
Inspire obtained $5 million in seed money from Venice-based Crosscut Ventures and has raised $30 million from other investors. Inspire inked a deal in February with Shell Energy North America, a unit of Royal Dutch Shell, in which Shell agreed to provide Inspire with a $150 million revolving credit facility and an additional credit line of unspecified amount for energy trading.
The agreement followed an announcement by Shell that it would commit $2 billion a year on development of renewable energy sources through 2020, though it was not clear whether the deal with Inspire counted toward that total.
Shell Energy North America did not respond to a request for additional comment.
Other segments of the business world have taken notice of Inspire, which won an Entrepreneur of the Year award for clean technology and renewables from accounting giant Ernst & Young in June.
The same month saw the company leave its initial office on 2nd Street in Santa Monica, which it had outgrown. Inspire is now in a temporary office in Culver City while a larger campus is being renovated on the site of the former Recording Academy building on Pico Boulevard in Santa Monica.
The company’s 50-plus employees are split between the Culver City office and an office in Philadelphia. The company refers to its employees as “avengers” on a mission to sign up as many renewable energy customers as possible to combat global warming.
Subscription risk
Inspire says it has customers in seven states: Pennsylvania, Massachusetts, New York, New Jersey, Maryland, Ohio and Illinos. The company doesn’t disclose how many customers it has overall, or break down the geographic spread of it accounts.
A February article in the trade publication Green Tech Media reported that the company said it is “approaching 100,000 members” – or customers. Neither Maloney nor other company executives would elaborate or provide updated figures.
“The lack of specificity leads one to wonder just how many customers Inspire has,” Wood MacKenzie’s Foley said. “Just as important is the concentration of those customers. Different states have different energy markets, which means different risk levels when you’re dealing with flat monthly subscription rates.”
Foley pointed to the recent difficulties encountered by another monthly subscription service: New York-based MoviePass Inc. That company launched in 2011, offering subscribers who paid $9.95 a month the opportunity to see up to 30 movies in theaters each month.
MoviePass paid the theaters full price for the tickets and hoped to make up the difference through sales of customer data to movie studios – deals that never materialized.
The company reported it was burning through nearly $22 million a month as of May; and it July it announced it was raising its subscription price to $14.95 a month and limiting subscribers to three films per month.
Smart-home technology
Inspire differs from MoviePass in several ways, most notably in its use of technology and databases to tailor the monthly subscription fee to the historical energy usage of each customer. The average monthly rate ranges from $90 to $115.
Inspire also offers “smart-home” technology, where household appliances and devices can be controlled through smartphone apps and other programs. The goal is to make it easier for customers to turn on and off appliances and devices using their phones, thereby making it easier for customers to lower their energy usage.
Maloney said the flat monthly fee reinforces the reliance on this smart-home technology.
“Because we know the customer only pays a certain amount each month, we have an incentive to make sure that the customer uses less energy than the customer is being charged for – that’s how we can make money,” he said.
Inspire sweetens the pot by sharing some of any savings with customers in the form of rebates and by letting customers know that if they consistently use less than forecast, they can lower their monthly subscription rate when it comes time to renew. (The subscription contracts vary in length from one to three years.)
Energy trading
The other area of risk for Inspire is the wholesale renewable energy market. Renewable energy prices can be volatile, especially with intermittent sources such as wind and solar. Inspire is potentially exposed if, for example, solar power prices spike during a prolonged period of cloudy or rainy weather, since that additional cost cannot be passed on to customers locked in with their flat monthly subscription rates.
Maloney said Inspire offsets such a risk the same way many electric utilities do: through energy trading and hedging.
That’s where the agreement with Shell Energy North America comes in. Shell Energy North America claims on its website that it is consistently among the top three players on the continent in gas and wholesale power trading.
Inspire can now tap into that expertise, armed with a line of credit from Shell.
But energy analyst Foley pointed out a potential complication for Inspire: most wholesale power hedging is done on a basis of dollars-per-kilowatt hour of electricity used. That is of little help to Inspire because its subscriptions are not directly tied to power usage.
“If a customer uses more energy than expected, that affects the hedge,” Foley said.
California market
Inspire has expanded into states such as Illinois, but its home turf of California – the largest renewables market in the nation – remains closed to the company. That’s because state lawmakers capped the number of independent power providers that could enter the market in the wake of California’s 2000-01 energy crisis, when markets were manipulated by outside power providers such as Enron Corp. The cap was reached years ago; the only exemption has been for “community choice aggregators” formed and governed by local municipalities.
The California Public Utilities Commission is currently studying the option of re-opening the market to outside power providers. And Maloney said he has talked with Lieutenant Gov. and Democratic gubernatorial nominee Gavin Newsom about re-opening the market.
“I told him (Newsom) that if California wants to be a net exporter of energy technologies to the world, it must fully open its power market,” Maloney said.
EDITOR’S NOTE: A previous version of this story misstated where Inspire Energy Holdings operates. The company does not have subscribers in Texas.
