The trend for Silicon Valley startups applying advanced technologies to solve utility grid problems is clear: Go big or stay home.
After a decade of eking out a niche in the world of advanced distribution grid power controls, Silicon Valley startup Varentec has sold its key assets for an undisclosed sum. The buyer is Sentient Energy, another Silicon Valley power-line-sensor startup that was acquired last year by Koch Engineered Solutions, an arm of industrial conglomerate Koch Industries.
Varentec’s technology for sensing and altering voltages on low-voltage circuits will be folded into Sentient’s sensor and software suite, with the aim of creating a “comprehensive solutions provider for today’s increasingly complex distribution grid management needs,” Sentient CEO Bob Karschnia said in a Tuesday statement.
Koch Industries may be best known to clean energy and environmental advocates as the oil and gas, chemicals and paper giant led by Charles Koch, who, with his now-deceased brother David Koch, funded a network of groups promoting conservative and libertarian public policies.
Many of the best-known groups funded by Koch money, such as Americans for Prosperity and The Cato Institute, have been key players in policy advocacy opposing clean energy and carbon reduction, making the Koch name synonymous with "dark money" anti-environmental activism in certain circles.
But Koch Industries is also a massive, if quiet, player in the U.S. energy industry, with Koch Engineered Solutions (KES) serving as its engineering and project services arm. Last year’s acquisition of Sentient, which has deployed its wirelessly networked, self-powered sensors on overhead and underground grid circuits across the country, gave KES a “vertical into the power grid area,” Jim Keener, then Sentient CEO, told Greentech Media last year.
As for David Koch’s political leanings, Keener claimed to have no personal knowledge. But he pointed out that the goal of KES is to “add value to the industry,” adding that “one of the drivers of that is integration of distributed energy resources, which will be primarily from renewable energy resources, and in some cases will be small generators and microgrids and other sources.”
Consolidating the realm of grid edge controls
Distributed energy resources (DERs) like rooftop and distributed solar, behind-the-meter batteries and electric vehicles are a key challenge for utilities around the world since they upend the century-old model of one-way delivery of power from central generators through transmission and distribution networks to end customers. Two-way power flows from solar systems and batteries can disrupt local grid voltages and require upgrades to grid protection and control equipment. EVs and batteries can increase loads on circuits and transformers in hard-to-predict ways.
Utilities facing rapid growth of DERs have been investing in sensors and controls to get a grip on these disruptions, as well as software platforms to analyze and predict the novel effects they can have on standard grid operations.
Sentient is one of a handful of grid sensor startups that’s remained active and growing over the past decade via acquisition by a larger grid vendor. Pittsburgh, Pa.-based Tollgrade was purchased by smart metering provider Aclara in 2016 and sold to Canadian software vendor Enghouse Systems in 2017. The Danish maker of line sensors PowerSense was acquired by Swiss metering and communications giant Landis+Gyr in 2014.
Varentec, in turn, is one of an even smaller handful of startups using digitally controlled power electronics to alter the flow of power along distribution circuits. The Santa Clara, Calif.-based company’s Engo (Edge of Network Grid Optimization) devices are capable of injecting reactive power into low-voltage networks to correct voltage disturbances, either autonomously or in concert according to grid operator control settings.
Varentec’s Engo systems have been piloted by Duke Energy, Southern Company and Hawaiian Electric as a tool to manage solar-driven voltage disruptions. In 2018 the company landed a 2,000-unit deployment with Xcel Energy in Colorado to provide conservation voltage reduction services across 472 circuits.
Power-electronics-based systems like these are more commonly used in the high-voltage transmission field and could offer far greater control over distribution grid conditions than traditional capacitor banks, step-down transformers and voltage regulators. But the market demand for these more advanced technologies has been slow to develop, leaving startups in the field bereft of the fast growth expected from venture capital investors.
Varentec’s primary U.S. competitor, Gridco Systems, closed its doors in 2018. A smaller competitor, GridBridge, was acquired by Ermco, a Tennessee-based distribution transformer manufacturer, for an undisclosed price. Varentec had raised about $48 million from investors including Bill Gates, Khosla Ventures, 3M New Ventures and WindSail Capital Group, as well as funding from the Department of Energy’s ARPA-E program.
Utilities are slow to adopt novel technologies and can take a decade to move from lab tests to pilot projects to limited deployments before the industry is prepared to adopt them en masse. They’re also prone to rely on a relatively small group of established and trusted vendors for large-scale purchases and deployments.
That’s left venture-backed companies that are targeting the utility sector in the position of returning to investors to seek the capital needed to carry out their broader expansion plans or seeking a deeper-pocketed company to bring their technologies to market.
The advanced volt/VAR control market for technologies like Varentec's has been slowly growing to approach $500 million as of late 2018, but it is expected to expand in the coming decade as the spread of DERs pushes utilities to take broader steps to manage their impacts, according to a 2019 report from Ben Kellison, director of grid research for Wood Mackenzie Power & Renewables. That will present growth opportunities for makers of equipment serving that market and even greater opportunity for software to manage and optimize its use, he wrote.