Vinod Khosla: Smart Grid Hard to Invest In and Win

Vinod Khosla isn't afraid of predicting bad outcomes for industries he hasn't invested in – and his venture capital firm, Khosla Ventures, hasn't publicly invested in any smart grid companies (see Green Light posts here and here).

Not that Khosla doesn't see potential for big returns for some innovative smart grid companies. Just take Silver Spring Networks, the successful smart grid networking startup - and potential IPO candidate – that's backed by Kleiner Perkins Caufield & Byers, the VC firm with which Khosla is a team member.

But success won't come to companies that copy others, he said. And beyond the ideas of energy saving technologies that consumers are going to take to like they've taken to Facebook, or a cost-effective solution to grid energy storage, Khosla said he sees "lot of fluff, a lot of ambiguity, not a lot of reality" in today's smart grid discussions.

"Just because one smart grid company is successful doesn't create a wave," he said, speaking of Silver Spring. "They've been working at it for a long time. Hiding behind that wave is the wrong thing to do. Trying to do what they've done slightly better is not the right way to build a company."

Rather, "Finding a new area, where the economics works for you, and where you can have the lead, does make sense," he said (See Silver Spring vs. Grid Net: Now vs. The Future).

Furthermore, Khosla said he worries that the smart grid, as he conceives it, is built on the idea of solving other technology problems, rather than an economically sound investment in its own right.

For example, "We want low carbon electricity, so we invent renewable power... and PG&E says they can't handle wind - they've said this - because it's too destabilizing in their network," he said. That's referring to the fact that wind turbines produce uneven amounts of power that vary with the wind, making it hard for utilities such as Pacific Gas & Electric to manage (see GridWeek: Chu Lays Out DOE's Smart Grid Visions, Standards to Come).

"So what do we do? We say, let's buy batteries - batteries are too expensive," he said. That has led to utilities saying that electric and plug-in hybrid vehicles to come will need smart grid systems to manage their charging, and use the batteries within for energy storage, someday – and that managing those plug-in vehicle batteries will require the smart grid, he said (see Green Light post and Electric Vehicles Could Surpass Grid or Support It).

"Now you've built a house of cards, with each technology being increasingly uneconomic, just to make that happen," he said.

Khosla implied that cost-effective energy storage could knock the cards down, so to speak, in that equation. He did not address whether or not such storage technologies will themselves need a host of smart grid communications and information technologies to manage them, however.

As for whether or not renewable power needed a smart grid to help manage its intermittent nature, "I would venture that the cleanest power will not be solar, it will be coal," he said.

Khosla said that could be done by Calera, a company he's backed which promises to capture carbon dioxide from coal-fired power plants and convert it into cement – a technology claim that's come under some criticism (see Green Light post).