We thought they meant pay us $5 million.
That was a common initial reaction from execs at smart grid start-ups when mega utility Xcel Energy approached them about participating in SmartGridCity, an ambitious plan to wire up approximately 50,000 homes around Boulder with smart meters, two-way communications and other technologies.
Then reality set in. Instead of paying these companies, Xcel wanted them to pay $5 million to participate, according to sources at smart grid companies approached about participating in the project. By paying, participants would effectively become a signature partner in the project and in all likelihood be in line to participate in larger commercial rollouts of ideas fostered during the project.
If company didn't want to pay, it could participate by providing equipment, technology and/or services. If Xcel didn't get any takers, the utility then said it would be willing to buy equipment.
But the $5 million figure stuck in people's heads, particularly execs from start-ups that have spent the last few years raising money from VCs.
The tariff in part explains why many smart grid companies did not participate in the program, according to some.
"There are no Silver Springs, Itrons and Landis + Gyrs in there," said one executive.
An Xcel spokesman declined to discuss details of any transactions with participants or other companies. Nonetheless, he added that the project wasn't cheap. The total budget came to "upwards of $100 million," he stated. The SmartGridCity network has largely been completed, he added.
He further added that smart grid technologies aren't cheap. The grid functions 99.92 percent of the time and, unlike a computer networks, is spread over hundreds of miles of ever-changing terrain and must content with varying weather conditions. Smart grid has become popular because it's cheaper than building additional power plants to accomodate new demand, but it's still not easy. Invariably, it involves installing new hardware across distributed service areas. (The point in some ways is supported by the VC funding that the supposedly capital lite segment has attracted in the past year. Silver Spring alone has raised $275 million.)
Others sources said the unusual strategy came because Xcel didn't want to see a rate increase to pay for it. For companies that had excess inventory or wanted a test bed it made sense, but for many companies with existing, revenue-generating pilots underway, it wasn't the best deal.
The program did attract partners. Xcel, after all, covers eight states and garners over $9 billion in revenue a year. GridPoint, which has raised over $220 million from investors and has been actively acquiring companies, has provided demand management and electric car charging technologies to the project. Other participants include Current Group and OSIsoft. Current Group's President Ray Gogel served as CIO at Xcel while Mike Carlson at GridPoint came from Xcel. But in the end, Xcel paid for most of the project.