Smart Grid Business Models Taking Shape

One of the reasons the PC market took off so rapidly in the 1980s and ‘90s was that everyone seemed to quickly know their place in the world. Intel shuttled off memory and focused almost exclusively on processors and chipsets. PC makers in turn stopped making chipsets and other components to focus on logistics and cost cutting. Networking people stuck to networking. The world went horizontal, companies carved out tiny niches, and the whole market grew.

The same forces are starting to work their magic in the smart grid world and will likely turn “smart grid” from an amorphous, catch-all category to something that’s easier to grasp.

EnerNoc, one of the first smart grid companies, for instance, started out as a full-service provider of systems for automatically cutting back power consumption.

Now, and increasingly in the future, EnerNoc is going to function more like a software and services company, said T.J. Glauthier, a director at the company during an open house at Foundation Capital yesterday. The company will provide demand management services to industrial clients and this middleware stack, as it were, will operate on top of equipment based around standardized protocols and hardware. In a sense, it will become a Salesforce.com or SAP of power consumption for industrialists. Similarly, eMeter can be looked at as a software-as-service (SaaS) company.

And who will make this industry-standard hardware? Silver Spring Networks, says Scott Lang, the company’s CEO. Silver Spring aims to be the Cisco of the grid (assuming Cisco doesn’t decide to become the Cisco of the grid itself.). Silver Spring makes circuit boards that can turn regular electricity, gas and water meters into smart meters that monitor the use of resources in a home. The company also makes routers that aggregates information from various buildings by neighborhoods and routes it to utilities.

The company has a deal with PG&E: By this time next year, Silver Spring will have installed one million smart meters in PG&E territory.

But horizontalization will work its magic there too to segregate companies into even smaller niches. While Silver Spring makes a whole panoply of equipment for connecting utilities to homes, you might see them inch up the stack, Lang said, spending more time on routers and less time on the access points at the home. Someone else—contract manufacturers and embedded board makers in Taiwan—might take over the home meter market. The company in fact already licenses the designs of smart meter boards to third parties.

Smart grid companies, or at least some of them, will become power providers. EnerNoc, for example, already has 2 GW of power under management. It can throttle back that much power if needed. (Companies that agree to have EnerNoc control their power consumption of course get discounts and lower power bills for participating.) Because utilties now trust these systems, they count that 2 GW as a power resource.