VentureBeat

Following a spate of hefty financings this year, culminating last week with Trilliant’s $40 million funding, it looks a bit like smart grid startups — companies that give the meters on homes and businesses the ability to communicate with utilities and other devices — are poised to take off. But for many of these firms, growth may be less of a rocket ride than a long, slow trudge uphill.

The smart grid, also called advanced metering infrastructure (AMI), is usually seen favorably by the utilities that do the actual work of installing new meters. But AMI startups, which sell to the utilities, might be better off marketing their ideas to the people who actually buy the electricity, as evidenced by a new recommendation from San Francisco’s Department of the Environment that the California Public Utilities Commission deny Pacific Gas & Electric’s request for $572 million to install advanced meters.

PG&E was already approved for $1.7 billion in funds, so the recommendation doesn’t exactly spell doom. But where PG&E wants to rush ahead and expand a program that it has been planning for several years, adding in the most current technology, San Francisco — arguably the most aggressive city in the nation, in terms of rebuilding the energy infrastructure — is pulling back on the reins.

The reason for the hesitation is that there is no proof yet that PG&E’s planned network will function as planned. The utility clearly stands to benefit, because any unexpected costs will be passed on to its customers. That state of affairs is true across the whole industry, says Henry Jones, CTO of the AMI startup SmartSynch. According to Jones, until large AMI networks are deployed, a risk of disappointment with their performance will remain.

If PG&E does get to build its network (a final decision on the funding comes in December), any failures in the technology, which is made by Silver Spring Networks, will impact the whole industry, says Jones. “With any new technology, there’s a hype cycle. It’s not clear that AMI has been through the part of the cycle where expectations are not met,” he told me.

It’s worth pointing out that SmartSynch has an interest in casting doubt on whether the sprawling mesh networks made by companies like Silver Spring will turn out to be a good investment; SmartSynch’s own technology instead beams information directly to the same carriers that power your cell phone, which cuts out the step for utilities of maintaining their own networks. And Jones also noted that his worst-case expectation of the AMI industry’s growth is still a fairly healthy 10 percent a year, plenty to keep SmartSynch humming along.

A PG&E spokesman, Paul Moreno, told me that any worries about either the performance of the network or getting funding are unfounded. “All [of the department's] concerns have already been vetted and expressed,” he told me.

According to Moreno, the program stands on its own merits: Of PG&E’s total 22,000 megawatts of capacity, the original version of the metering program was expected to help reduce demand by 400MW, about half a coal plant. The new version might reduce demand even more. And he dismissed concerns that the network wouldn’t work well, noting that test units of Silver Spring’s technology functioned well even in the rugged terrain around SF’s Mt. Davidson.

However, the possibility remains that part of the program will be nixed. That could be bad news for AMI startups, because utilities that are smaller or more conservative than PG&E are watching it and other progressive utilities, like Ontario’s Hydro One, to see what happens. “They’re having trouble making a clear case for the investment,” says SmartSynch’s Jones. Other municipalities, also, may follow SF’s lead in recommending against AMI deployments, at least until there’s hard data on how well they work.

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.

Two days ago it was Optimal Technologies with $25 million toward software for electrical grids; today, it’s SmartSynch with $20 million for wirelessly communicating meters. I haven’t gone back and done an official count, but with well over half a dozen large fundings in the past few months, the efficiency-focused smart grid space looks to have emerged as the hot cleantech venture space du jour.

“Smart grid” is a catch-all term for a number of technologies that aim at measuring and controlling the process of sending electricity from generation plants to homes and businesses. The former area is SmartSynch’s specialty. The company’s meters are capable of hooking up to networks via any of several wireless standards like WiFi, CDMA or ZigBee to divulge the data they collect.

Fundings may be flooding in right now, but SmartSynch is no newbie. Founded in 2000, the company has taken $80 million to date. It has also deployed about 125,000 meters, and grew 125 percent last year. Meters have turned out to be a particularly bright area to innovate in, because they’re advantageous to several constituencies.

The advantage comes in giving more information to both customers and utilities. Instead of seeing electricity usage as one big block on a bill received once a month, customers can see usage on an almost moment-to-moment basis. Following the old adage “knowledge is power”, that information gives both parties the ability to plan out usage based on when electricity is most available, saving utilities power and both sides money.

SmartSynch’s chief technology officer, Henry Jones, says his firm’s communication technology, which is installed in meters made by Elster, General Electric and Itron, has brought in about $15 billion in additional revenues for utilities so far. That’s good news for the company, because it’s the utilities that buy and install the meters. Their customers include some rather large ones, including Socal Edison, Florida Power & Light, and Canada’s Hydro One.

Other firms, including Silver Spring Networks, have fairly similar technology and strategies. However, Jones claims that’s not a problem: Each firm has its own approach to communicating data, he says, and each approach is useful for different applications, leaving a wide market chunk for each competitor.

But that’s not much use to any new startups who might want to muscle in on the action. After all, several of these firms have years of lead time. So what are the next big opportunities? Jones thinks the next step is getting meters to report not just back to the utility, but also directly into the home or business they’re installed in; he says SmartSynch is preparing to release several meters that do just that.

Hooking into the gas and water meters is also a good opportunity, along with integrating the data from all three major utility streams. On a more granular level, there’s space for companies that measure and control electricity usage by specific devices, like air conditioners and lighting. And of course, there’s opportunity to be had not just in communication and control, but in helping to decipher all the information that’s being generated.

For the present moment, the wave of smart grid startups shows no sign of slackening. Several more announcements that I’m aware of are on their way in coming weeks, and a few in front usually means a pack behind.

The $25 million SmartSynch received was the Jackson, Miss., company’s fourth funding. Credit Suisse, a new investor, led the round, along with another newcomer, Southern Farm Bureau Life Insurance (perhaps they’ll tack “venture partners” onto that name at some point). A heap of previous investors also came along for the ride: Batelle Ventures, Beacon Group, Endeavor Capital Management, GulfSouth Capital, Battelle’s affiliate Innovation Valley Partners, Kinetic Ventures, OPG Ventures and Siemens Venture Capital.