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 Multiple culprits were responsible, but the main two were aging infrastructure — from lines and transformers to outdated computer systems — and an inability by the utilities to intelligently react to rapidly shifting conditions.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.

Plenty has been written about electric utilities’ need for better information about the power their customers are using, and a number of companies are tackling that problem. But what about customers — shouldn’t they get the same info? For the first time, consumers may have a chance to see their power usage patterns, with a suite of devices from Tendril Networks.

Utilities get data from the meters attached to every home and business that uses electricity, letting them see minute-to-minute usage. The challenge is to give people in their homes the same view in a convenient way, so that they know when prices are high or low, how much they’re using, and which of their household devices, like heat pumps and refrigerators, are energy hogs.

Tendril’s Residential Energy Ecosystem (TREE) gives several points of control. A display called the Insight shows current electricity prices, the amount spent so far over the month, and issues an audio or visual alert in case of a price spike or emergency. The Volt is a wall plug-in for devices that tracks and controls their energy usage, and Vantage is the company’s software portal that allows consumers to set rules (like not turning on the air conditioner when they’re out of the house) and remotely control the system.

The company is well along in development, and the Insight, when CEO Adrian Tuck showed it to me, impressed me with its ease of use. Tuck says they’ll have 50,000 units distributed by the end of the year, and hopes to have half a million out by the time 2009 is over.

Like the many other players in this space — ComVerge, Eka Systems, Silver Spring Networks, Trilliant and others — Tendril is working through utility partners to prove that its products work. However, there’s some added risk for Tendril in reaching out to consumers.

The Volt, for example, will cost a buyer about $30 if picked up at a retail outlet. If used for a plasma screen television, Tuck says the return on investment for that person is about 6 months. That’s not too shabby, but there’s one problem; consumers don’t think in terms of ROI. If they did, they probably wouldn’t buy things like SUVs and giant plasma screens in the first place.

Tuck acknowledges that problem, noting that both environmentalists and cheapskates can be relied on to create an initial market. However for the third group, whom he calls “those who are apathetic about the whole thing,” Tendril hopes that a utility-controlled, entirely automated system will convince them to install a few new devices in their home.

Tendril recently raised $12 million from several venture investors, but it will be looking for a much larger round at the end of this year of around $50 million, for which it might tap into private equity or strategic partnerships. The company is based in Boulder, Colorado.