By Michael Kanellos
Smart grid may be the most hyped words of 2009 in the green tech space, but that doesn't mean there isn't a lot of hard, cold cash behind the hype. Will 2010 bring a bursting of a smart grid bubble, or a continued unfolding of its promise to provide a framework for renewable energy, efficiency and conservation programs to come? Let these top stories of 2009 be your guide.
1. Government as Market Maker: There's no doubt that smart grid projects wouldn't have seen the success they've seen without a big helping hand from the public sector. In the United States, the $3.9 billion in Department of Energy smart grid stimulus grants given out this fall was widely seen as critical for unlocking private funds largely left on the sidelines amidst an ongoing financial crisis and economic downturn.
But along with the carrots of government grants and incentives are the sticks of mandates to come. The European Union and individual nations have set deadlines for bringing two-way communications and control to their electricity grids.
2. The Rise of the Smart Meter: 2009's smart grid story has largely been one of smart meters - two-way communicating meters that allow utilities to remotely monitor customer energy use and share that information with them. In the United States, stimulus funding was expected to lead to about 18 million smart meters being deployed around the country, adding to the nearly 10 million meters expected to be installed by the end of the year. Worldwide penetration could reach 250 million by 2015, according to some predictions.
That's helped the big five smart meter makers – Itron (ITRI), Landis+Gyr, Elster, Sensus and General Electric (GE) - but it's been even more helpful to the host of startups that offer new technologies to network those smart meters. The most prominent of those include SmartSynch, Trilliant and the big winner so far, Silver Spring Networks.
3. Silver Spring Networks – Smart Grid's First IPO? Silver Spring Networks has been plugging away at standards-based networking for smart meters for close to a decade, but 2009 was its year to shine. With contracts announced this year with utilities including Oklahoma Gas & Electric, Sacramento Municipal Utility District, AEP, Florida Power & Light and others, the Redwood City, Calif.-based startup is on a roll – and with a recent $100 million investment boosting its VC haul to some $275 million to date, it's on a short list of greentech companies expected to announce an IPO in the coming year or so.
4. The Smart Meter Backlash: Smart meters haven't enjoyed wholesale acceptance by utility customers, however. 2009 saw the first inklings of a backlash against the costs imposed on utility customers to roll out the two-way meters, in the form of an uprising by customers of Pacific Gas & Electric in Central California, who complained that their power bills skyrocketed after smart meters were installed in their homes. While PG&E (PCG) denies it's at fault, the resulting lawsuit has put utilities on alert that they'll be asked to give customers a cut of whatever cost reductions they're hoping to achieve for themselves.
5. Home Area Networking – The First Smart Grid Bubble? Smart meters aren't supposed to begin and end as a laborsaving measure for utilities. Almost all the rate cases supporting the cost of installing them point to home area networks to come – communications links between the meters and home devices to monitor, measure and cut down on energy use.
That kind of gadgetry is a natural for startups, and dozens – some of the more prominent include Tendril Networks, Control4, EnergyHub, Onzo, OpenPeak, AlertMe and Energy Inc. – have entered the field. Many have landed utility contracts, though to date only for pilot projects. Two have already been bought this year – Greenbox by smart grid networking company Silver Spring Networks and Lixar by smart grid software company GridPoint.
But at the same time, utilities are struggling with the same questions that have faced energy-smart homes for the decade or more they've been attempted – their cost. Most homeowners aren't willing to spend much money – no more than $100 or so, according to most estimates – on tracking their energy use, but installing real-time controls and communications to a wide range of household electricity loads can cost quite a bit more than that.
6. The Smart Grid Party Crashers: And then, of course, there's the entry of the IT giants to make every startup nervous – or desirous of partnerships that could lead to acquisitions. Both Google (GOOG) and Microsoft (MSFT) have staked their claim to the home energy management market with their own products – and both plan to offer them for free. Cisco (CSCO) has made a major push into the smart grid space on the networking front, and enterprise software giants such as IBM and Oracle (ORCL) are also staking claims.
At the same time, telecommunications companies are making moves to include energy management as part of their home broadband offerings. That's part of a broader effort to offer public wireless networks as an alternative to the predominant model, at least in North America, for utilities to build and operate their own communications networks. Home security and entertainment providers are also adding energy management, with hopes of connecting to utilities in the future.
And that's not to mention the smart appliances being rolled out by General Electric, Whirlpool (WHR) and a host of Asian conglomerates. All these washers, dryers, water heaters, refrigerators and ovens will need to connect with utility and customers communications systems to be effective. Just how all these systems will interconnect remains a big question.
7. The Evolving Demand Response Landscape: While the public's smart grid attention has focused on smart meters and home energy network, the business of curtailing energy use at commercial and industrial sites is already well developed. It's called demand response, and it's spawned the first IPOs in the smart grid space in the form of demand response aggregators Enernoc (ENOC) and Comverge (COMV).
Demand response now accounts for about 41 gigawatts of power use that can be turned down to help utilities manage their peak demand loads today. But the Federal Energy Regulatory Commission projects the potential for peak power reduction could reach 188 gigawatts - and because cutting peak demand eases the need to build new fossil fuel-fired power plants to meet that peak, it's a big target of utilities and government alike.
What's next for demand response? New frontiers include the largely untapped residential market - perhaps enabled by smart meters – as well as new open standards-based demand response technologies that could be more broadly replicated across new smart grid networks.
8. Distribution and Transmission Up Next: Not all smart grid systems are visible to the untrained eye. Upgrading distribution and transmission grids with communications and controls could help utilities squeeze up to 10 percent more efficiency out of their existing generation capacity, according to the Electric Power Research Institute. Those savings can come from preventative maintenance and replacement, shortening outage times, and optimizing grid voltages, among other sources.
At the same time, managing the massive growth in renewable solar, wind and geothermal energy that will be needed to cut the nation's carbon emissions will put new pressures on the grid. Hundreds of billions of dollars will need to be spent on new transmission lines to carry Midwest wind power and Southwest solar power to load centers, according to studies - which opens up new business models for startups.
And at the neighborhood level, distribution grids will need a whole host of new technologies to manage the increase in rooftop solar panels, demand response-enabled homes, and future plug-in hybrid and electric vehicles that will soon place unprecedented new pressures on utilities built on the model of delivering power from central generation stations to millions of customers.
9. Smart Grid 2.0: All of these emerging smart grid technologies will be a lot more useful if they can be linked together. That's the idea for the next surge in the industry – a whole ecosystem of smart architectures, stretching from generations sources and transmission lines to the wireless and wired networks in utility customers' homes and businesses.
GridPoint, one of the more prominent – and well-funded – of the smart grid startups out there, is centered on delivering this kind of integrated offering to utility customers. Its approach has included buying up a host of startups offering vehicle charging, home energy monitoring and industrial and commercial energy management, indicating the breadth of functions it hopes to provide.
What will the smart grid of the future look like? Duke Energy (DUK) CEO Jim Rogers speaks of a utility-managed system that orchestrates smart meters, solar panels, batteries, demand response systems and plug-in vehicle chargers to serve as "virtual power plants" scattered throughout a utility service territory.
But if a utility can orchestrate multiple systems to save money, why can't utility customers? That's the idea behind microgrids, or localized integrated systems that can maximize the same efficiencies to take advantage of the benefits – namely, selling power back to the grid.
10. The Standards Battle: We've saved this one for last, because it's the most complicated issue facing the smart grid industry – and it's developing amidst on-the-ground deployments of technologies both proprietary and open, all of it needing to interoperate with decades-old utility systems. Making the shift to a standards-based architectures for the smart grid is a focus of an ongoing project by the National Institute of Standards and Technology and a host of industry players with their own technologies to champion. Similar processes are unfolding in Europe.
Of course, technologies that have taken an early lead in smart grid deployments today aren't likely to be completely abandoned. At the same time, companies offering open standards-based solutions are sure to press their advantages over more proprietary systems.