VentureBeat

When I was a kid in rural Virginia, losing electricity was a yearly event around Christmas. Situated on the outskirts of a large utility’s territory, my family was among the last to have its power restored when, inevitably, a big winter storm knocked trees onto lines around the county. So for a day or two, or even a week, the daily entree was grilled cheese from the fireplace, and we all went to bed early.

Was it a serious problem? More of a minor irritation; remote farmhouses are well suited to losing power. The story is different elsewhere. Millions of dollars are lost during even brief power lapses in metropolitan areas. That’s more true every year, as more of our economic output shifts to knowledge workers who are tied to computers and, by extension, electricity.

Policymakers got an inkling of that when, five years ago this morning, a domino-effect blackout took out the power of some 50 million people in northeastern North America. Multiple culprits were responsible, but the main two were aging infrastructure — from lines and transformers to outdated computer systems — and an inability by the utilities to intelligently react to rapidly shifting conditions. Once an initial failure occurred in Ohio, the grid tried to compensate, but ended up overloading several plants. The outage lasted almost three days, causing enormous economic losses.

It’s one of the stories that a new generation of “smart grid” startups is fond of telling, along with the argument that they can prevent another massive blackout by teaching the electrical grid to cope in case of local problems like the one in Ohio.

There are several ways to approach the problem. Some companies — Silver Spring Networks, SmartSynch and Trilliant place communication devices in meters at homes and businesses, so utilities can see real-time demand and shift resources as needed. EMeter and Optimal Technologies make demand-response software for utilities. Tendril Networks and Control4 aim to give energy users power over their consumption. Several of the aforementioned, and others unnamed, handle more than one aspect of the business.

This year alone, smart grid startups have taken over $100 million in funding, and the number is still rising. But the story is a bit more complex than just sending technology to the rescue. While venture capitalists are happy to throw cash at startups, there still isn’t enough movement from utilities and government to fund updates, with many just “dipping their toes in the water,” according to Bill Vogel, Trilliant’s CEO.

That means infrastructure, in part. It’s easier to wait until things break than replace them, even if transformers, substations and other equipment are well past their expiration dates. But another aspect of the problem is a lack of will to build new generating capacity. Utilities are afraid to build new coal plants, in the face of possible carbon regulations, but not enough funding has gone into other sources — natural gas, nuclear, renewables — to make up for old coal plants going offline.

At the same time, power demand is expected to rise 29 percent by 2030, as this Associated Press article points out. The problem with the grid is that you can’t just provide enough power to handle everyday needs; excess generation capacity is needed for “surprise” moments like the one in Ohio, not to mention sources like wind power, which come and go with their source.

The AP article suggests that we’re on the road to another major blowout. That’s not at all an unlikely scenario. But in the long-term, an energy crunch could by good. Disasters drive action; following the 2003 blackout, infrastructure funding almost doubled, according to Vogel. The next time around, there may be enough of a backlash to benefit projects like rooftop solar or biomass plants, which can provide steady energy from trash streams.

In the meantime, the smart grid startups are trying to give utilities the ability to operate with less breathing room, although that may mean cutting or reducing power to low-priority customers in case of an emergency. And there are some bright-eyed visionaries like Optimal, which says its software can virtually rebuild a utility’s response abilities by relying on specialized algorithms. Its CEO, Roland Schoettle, accuses the power industry of still relying on “the old paradigm of more heavy iron”, rather than changing their operating practices.

Today’s electrical grid is frustratingly opaque.

Electrical utilities across the U.S. — and the world — often don’t know what the overall grid looks like. The grid is siloed into sections. Electricity can’t be evenly distributed between regions.

So recently, new startups have flocked to try to make the grid more efficient. One company is Optimal Technologies. CEO Roland Schoettle says Optimal wants to provide the “tools” for utilities and other start-ups to do so.

What’s needed, he says, is a centralized “brain” that can orchestrate the grid’s network from bottom to top, whether we’re talking about local utility grids or networks of entire nations.

Only such a brain can help manage the chaos caused by the recent profusion of devices, such as measurement equipment that include intelligent meters in homes and businesses to sensors and switches placed directly on the grid — not to mention the different types of software that hopes to direct them all.

Optimal’s Schoette says his company has a product that can be the centralized brain. Called Aempfast (pronounced Aim-fast), the software product remains constantly aware of where electricity has been allocated and how to move it to where it’s needed. And it can do so without complex or expensive equipment. “Today, we can process the entire West Coast of the US from Alberta to northern Mexico on a hot-rod PC, in a third of a second,” Schoettle says of Aempfast.

To pursue its vision, Optimal hasjust raised $25 million, provided entirely by Goldman Sachs, with $13 million coming immediately, and the remainder in tranches based on progress. The company previously took on about $11 million from private investors. The company was founded in Alberta, Canada in 2000, and just moved into its United States headquarters in Raleigh, N.C.

Today’s electrical utilities is based on local power generation. The utilities have multiple siloed tools that all track their own area, but can’t communicate with each other. And hooking in small, new sources — like solar deployments or wind turbines — presents a serious challenge, because the grid as it’s conceived by existing software doesn’t anticipate electricity flowing back in away from the central generators.

Schoettle says Aempfast can easily solve all those problems, by replacing the existing software to create a new “operating system” for utilities. In the process, it can also reduce electricity usage by 10 percent, he says, and prevent blackouts by rapidly re-routing and optimizing power, and accommodate micro-installations like rooftop solar. All big claims, but then Schoette says the software has been tested by major utilities including Pacific Gas & Electric.

Optimal’s technology rests on mathematical models and algorithms Schoettle says are unique. “There are many universities that teach what we do can’t be done, a lot of technological arrogance,” he says.

Schoette says the development of Optimal’s underlying technology has actually been underway for well over a decade, and that the basic idea can also be applied to other networks, like transportation.

So, one might ask, why aren’t utilities lining up to switch to Aempfast? That’s where the story gets sticky. Schoettle says that utilities have built their business around inefficient practices — including the business of billing people. Remove the Byzantine structure built up around arcane, localized practices, and the finance departments of utilities may fall to pieces, he says: “We’re not focused on the US, because the rules here aren’t favorable — PG&E and the others aren’t incentivized to use this.”

Instead, Optimal is taking its technology to Europe, where Schoettle says they’ll be announcing a big project with a utility in the United Kingdom within a couple months. In the meantime, they’ll also be developing a cousin to Aempfast called Surefast, which will manage homes and businesses, set for release near the end of the year.

Will Optimal can live up to its promise? If so, it will create a serious complication for competing software startups like eMeter and GridPoint, each of which is in late stages of development and funding — eMeter just raised $12.5 million, and GridPoint just took another $15 million, topping $100 million to date. On the other hand, having a truly smart grid could boost startups like Silver Spring Networks, which makes monitoring equipment.