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Smart Grid 2.0

Rob Day: October 13, 2008, 5:58 AM
I noted with some interest Silver Spring's $75mm financing announcement last week -- although it's unclear if this is a new round or just a further extension of their Series C we mentioned back in April.  But regardless of the financial details, it's a big financing for a company in the smart grid sector. The idea of the "smart grid" has been around for some time (as this post from nearly 3 years ago attests...), as the embodiment of the goal of a fully-automated and intelligent electricity transmission and distribution system.  The original smart grid plays, however, were a far cry from this vision.  Instead, they focused on small parts of the overall problem, reflecting the magnitude of the challenges facing any serious upgrade of our antiquated T&D system.  (See these three posts for a bit of the discussion on the topic from 2005, as more background) We're now increasingly seeing venture-backed efforts to bring all these various disparate efforts together, however, into more of a holistic effort focused at giving the utility automated control over the demand in their T&D networks.  This is building off of the emergence of Demand Response as a service for utilities -- negawatts on demand. The initial efforts in Demand Response have been, necessarily, pretty "dumb":  Not very automated, and not very responsive.  A DR aggregator signs up capacity (ie: an office building), and then signs a contract with the utility to free up that capacity on demand.  The utility sees, based upon weather patterns and other data, that they're likely to need that freed-up capacity during some critical period on a bad day, and sends an "alert" to their DR aggregator to trigger a DR event for a specified period (usually a couple of hours).  Then the DR aggregator signals (via email, pager, or just a phone call) to their enlisted capacity owner (ie: the office building's facility manager) that equipment has to turn down during that alert.  The office building owner gets incentives for participating, hopefully no one in the building notices it got a little warmer or dimmer during the alert (or, in many cases, a backup generator is flipped on), the utility pays for a reduction in energy demand which helps them deal with the spike in demand they were expecting elsewhere, and the DR aggregator takes a middleman's cut of the action. But energy usage is much more variable than this set-piece scenario would readily be able to deal with.  This kind of simple DR Alert model works for major, hours-long spikes during hot days.  But not so much for shorter spikes or other types of events going on during the day, affecting a T&D grid which must be kept balanced at all times. The original Smart Grid vendors were offering pieces of the puzzle.  Control systems ("SCADA") that could remotely monitor and control major equipment like transformers.  Advanced power meters that could send data back to the utility without someone having to swing by in person and read the dials, and that could notify of a power outage, etc. Now we're seeing the emergence of Smart Grid 2.0 system vendors, who are looking to put all these pieces of the puzzle together in automated and reactive ways, to keep the system in balance with minimal intervention.  The concept is to tie together a) "smart" (ie: with communications and some automation) equipment throughout a utility's grid; b) data communications across the grid to connect all the equipment with home base; and c) energy automation of some kind within customer premises.  Tying these together is some kind of software-based controls solution for the utility. The original Smart Grid model was just about giving the utility more control over their network, in other words, while Smart Grid 2.0 is about automating the network so that things are kept in balance. Different startups are approaching this challenge in different ways.  Smart meter vendors like Silver Spring Networks are starting at the "gateway device" -- the power meter -- between the consumer and the utility, and using that to provide information and some opportunity for automatic signal-response interaction.  Demand response aggregators are partnering with (and may increasingly acquire) energy management equipment/system vendors so that their initially "dumb" system will be more "smart" over time.  Consumer-facing players like GridPoint, who started out putting batteries together for backup power solutions, are now migrating toward the utility and using these kinds of solutions to offer automated demand response and control.  I've seen any number of business plans over the last year or so which seek to connect energy consuming equipment in the home to monitoring systems -- initially just so the homeowner can get a better handle on their own energy waste, but eventually (such as via smart thermostats) enabling utilities to simply "push a button" and have thermostats dial down across entire service territories. We're still quite a ways from a truly smart grid, much less from this Smart Grid 2.0 vision.  But as the physical grid becomes even more enfeebled and constrained, and the utility workforce gets old and older, it's easy to see how the idea of a fully reactive and automated grid would hold appeal for utilities. To me, the opportunity for a smart solution is clear, but the scope any such solution must offer the utility to be truly useful is quite broad.  As with other enterprise-level solutions, while some incomplete offerings will be adopted by a small set of early users and niche players, to really see broad adoption you need to see a complete umbrella solution so that the grid manager at the utility isn't forced to juggle any number of separate, potentially even conflicting systems.  Such an umbrella solution may come from a startup, but it's more likely to come from someone like IBM -- and in fact, major IT solutions providers like IBM and others are now specifically targeting the smart grid as a future growth area. More entrepreneurial efforts, therefore, will need to offer solutions that fit well into such umbrella offerings, filling in the gaps.  Gaps that can be quite large, in this case, given the magnitude of the opportunity.  To give a concrete example (forgive the self-promotion here, but it seemed useful to make this all tangible), take my firm's portfolio company, Powerit Solutions. Powerit has a system for use by industrial facilities (ie: manufacturing plants) with variable electricity loads, to avoid peaks and to automate participation in demand response events.  Their system detects when a spike in energy consumption is about to happen, and (in ways that minimize impacts on productivity, comfort, etc.) adjusts the consumption accordingly -- so, for instance, a foundry's furnace that doesn't really have to be fired up right that minute gets its activation delayed by a small amount of time.  In a demand response event, the same system helps reduce the facility's energy usage in the same way, moving loads around so that the whole building doesn't go over the necessary threshold but production still continues. What sets them apart is their focus on the specific needs of industrial facilities, which have a broad variety of types of loads, and very conservative managers -- they don't want to save a couple of bucks on their electricity bill if it risks losing much more revenue because of lost productivity.  The company's systems therefore are designed to work in everything from food processing plants to metal foundries to newspaper printing plants, etc.  And to be simple to operate, with good payback periods.  And to make sure that, if all else fails, the Powerit system can be unplugged and the factory operates normally, with no disruption to production.  They're fairly unique in their offering to this market niche.  And it's a pretty critical niche to be so otherwise unaddressed -- industrial energy use is about 27% of electricity consumption in the U.S.  And just one of Powerit's industrial customers can free up 10-20x the capacity that the hypothetical office building could, so each installation is a big hit. Forgive the advert, but I was hoping it would serve as a useful illustration of what I'm describing as Smart Grid 2.0 and how the industry is going to develop.  Because, while Powerit could attempt to use their system to compete with the demand response aggregators like EnerNOC, Comverge, etc., instead they're working with those players, teaming up to sell automated solutions.  And as the Smart Grid 2.0 ecosystem continues to develop, the winners will likely be those startups who find a large niche where they can excel, and who play well with others.

Deal catch-up

Rob Day: October 13, 2008, 3:58 AM
Here are the deals from the past fortnight that we hadn't already talked about elsewhere:
  • See GTM's Funding Roundup for descriptions of deals for Solar Power Partners, Promethean Power Systems, Urbasolar, EcoMotors, Magnomatics, Redwood Systems, ICQ Group, and MyFC.  [10/13 update:  The latest Funding Roundup got posted as I was writing this column, and additionally mentioned Apollo Solar]
  • JinkoSolar, a Chinese PV silicon wafer vendor, has raised a $35mm Series B.  China Israel Value Capital, Shenzhen Capital Group, and Pitango led the round.
  • PE Week Wire is reporting that hybrid vehicle drive train developer ISE Corp has raised $5.5mm of a targeted $25mm Series D round, with Siemens Venture Capital joining return backers NGP and RockPort.
  • Industrial Origami (developer of technology for the efficient production of sheet metal) has raised $17mm, led by Environmental Technologies Fund and including "wealthy individuals".
Finally, here's a good column on how cleantech is benefiting from a good influx of managerial talent from other sectors these days.