The Top 5 Smart Grid Disappointments of 2011

Includes: GRID
by: Greentech Media
The global smart grid industry saw a lot of activity in 2011, including a huge wave of corporate M&A, a big push to get smart meter systems up and running, big regulatory developments for the demand response industry, and an increased focus on integrating smart grid IT on the back end.

So, what didn’t happen for the smart grid this year? Here’s a short list of trends that one might consider disappointing for the industry. Call it a to-do list for 2012.

1.) No IPO for Silver Spring Networks. 2011 saw a massive, multi-billion dollar wave of corporate acquisitions in the smart grid space, but it failed to deliver what many in the industry have been waiting for: a big IPO. And when we speak of smart grid IPOs, we’re really referring to one in particular -- Redwood City, Calif.-based smart grid networking startup Silver Spring Networks.

Silver Spring has been on the short list of smart grid IPO contenders since at least early 2010, when rumors placed a potential market valuation of $3 billion on the company. It finally ended the rumors in July by filing an S-1 that announced its intention of raising up to $150 million on the New York Stock Exchange, as well as unveiling some of the company’s internal financial data for the first time.

Silver Spring had already raised about $275 million in venture capital investment by then, and with about 8 million smart meters containing its networking technology and about 17 million total under contract, it holds a market-leading position in North American smart meter networking deployments.

But it still hasn’t pulled the trigger on its IPO as of press time, although it has turned to new investor EMC to raise another $24 million, bringing its VC haul to nearly $300 million. Perhaps it’s waiting to develop new lines of business to diversify beyond the few key utility contracts that make up the lion’s share of its revenues.

Or maybe it’s waiting for market conditions to improve -- there are plenty of macroeconomic reasons for startups to want to delay IPOs at present. Even so, it would be nice to see Silver Spring test the market waters for what should be considered a smart grid success story.

In the meantime, we’ve seen relatively few smart grid IPOs on the horizon, as compared to the flood of startups being acquired in the space. One interesting company to watch is Ambient, which filed an S-1 seeking to raise up to $57.5 million in August via shifting its shares from the pink sheets to the NASDAQ. The smart grid communications company has since seen its share price fall from a post-listing high of nearly $15 to just under $5 as of Dec. 27. Ambient has been working with big utility Duke Energy in what could become a fairly sizeable deployment of its communications node devices.

2.) Post-stimulus hangover has left new projects on the back burner. In late 2009, the Obama administration dropped a money bomb on the smart grid industry when it announced nearly $4 billion in grants under the American Reinvestment and Recovery Act. Spread across dozens of utilities both large and small, that stimulus money -- matched by private investment by utilities and partners -- is supporting the rollout of some 18 million smart meters, 1.2 million in-home energy display units, 350,000 smart thermostats and load control devices, 206,000 smart transformers and 671 automated substations.

That sounds like a lot of work -- until you look at what’s left to be done. After all,18 million smart meters only covers 13 percent of the 142 million customers in the U.S., for example, and automating 671 substations leaves another 11,795 more to go, or 95 percent of those remaining in the United States. As befits its title, this stimulus funding was meant to stimulate a new wave of smart grid investment across U.S. utilities, not merely to serve as a one-time jobs-and-spending jolt.

But we’ve seen some worrisome signs that the stimulus boom in smart grid spending might not be translating to a longer-term shift in business as usual in the utility sector. In October, research firm GlobalData reported that U.S. utilities were still facing long-term difficulties in raising funds to invest in ongoing smart grid projects, despite the short-term benefits of the stimulus funding. Key problems include the short-term nature of much of the job growth associated with building and installing smart grid gear, as well as the fact that much of the money is going to non-U.S. firms.

3.) Smart meter foes aren’t getting any more reasonable. There may be good reasons for utility consumers and their representatives to question whether they’re receiving any benefits from being charged higher rates for installing smart meters. They certainly have a right to demand that the new smart meters are working properly and aren’t overcharging them for power.

But the most vocal and determined source of opposition to smart meter deployments has coalesced around a decidedly unscientific objection. That’s the idea that the electromagnetic radiation from the radios inside wirelessly networked smart meters is a source of health problems for human beings.

California’s Pacific Gas & Electric has been the focal point of these types of protests, with people who insist that they’ve experienced headaches and nausea after having smart meters installed at their homes joined by others who cite various points of evidence in support of their claims. But the health-based opposition to smart meters is spreading, with cases erupting in Maine, in Illinois, in Hawaii and no doubt elsewhere -- often with protesters using the same talking points.

It is not Greentech Media’s role to question individuals’ own health experiences, or to pretend to possess technical expertise on matters of electromagnetic radiation and its effect on human physiology. But it should be noted that study after study has concluded that the EMF coming from today’s smart meters is lower than that emitted by cell phones, microwave ovens and other devices in common use in homes today.

It’s also important to note that utilities aren’t equipped to make health decisions about wireless technology either. In the United States, the Federal Communications Commissions gets to decide which sources of EMF are and aren’t a danger to human health, and in the case of PG&E, the FCC has told the utility that its smart meters represent no cause for concern or investigation.

Even so, utilities have to take customer concerns into account, and they’re doing so by offering opportunities to opt out of getting new smart meters, although at a price. In PG&E’s case, the utility first offered to deliver smart meters with the radios turned off. After some customers started removing their new smart meters on their own, PG&E added the option of letting customers keep their old-fashioned analog meters in place of the new digital meters. Of course, if too many people start choosing this option, the utility will start losing the benefits of installing smart meters in the first place.

4.) Energy storage gets black eye with Beacon Power bankruptcy. It’s a truism that electricity is the only commodity that can only be used in the instant it’s created -- unless the grid can find some way of storing it in a cost-effective manner. But today’s technologies for grid-scale energy storage (by any means other than pumping water uphill) are still too expensive to justify in most cases.

That means that the batteries, fuel cells, flywheels and other technologies being used to store power and energy on a grid-level scale today are under a lot of pressure to prove their long-term viability against their competition: new, more efficient natural gas-fired turbines. Given the uncertain economics, the energy storage industry doesn’t need any negative signs, like bankruptcies.

But that’s just what happened in October, when flywheel maker Beacon Power filed for bankruptcy protection. Worse still, from a political perspective, is the fact that Beacon landed a $43.5 million Department of Energy loan to build its flagship 20-megawatt frequency regulation plant. While DOE may be able to earn back its money on continued operations of that plant, the odds aren’t looking good.

To be sure, flywheels are a niche technology with very short time spans for storing power -- but those are also some of the more lucrative markets for energy storage systems in today’s power markets. Getting storage to cost-competitiveness in future markets, such as backing up intermittent wind and solar power, will be more challenging.

5.) Smart grid security still isn’t getting the attention it deserves. Sure, every smart grid company, utility and regulator out there is paying lip service to securing smart grid systems from cyber-intrusion and attack. But what are they really doing about it? We’ve seen some worrisome signs that the industry is playing catch-up on the cybersecurity front.

Take two reports in the past month that cite specific security flaws in utility SCADA (supervisory data acquisition and control) systems made by major vendors. First came an alert from the U.S. Department of Homeland Security, saying that devices made by French grid giant Schneider Electric were susceptible to intrusion and takeover by hackers -- a problem that one cybersecurity firm said has already cost one California utility millions of dollars to fix.

Just last week came another alert about similar vulnerabilities in industrial control systems made by German grid giant Siemens, again from the Department of Homeland Security. In this case, it appears the alert may have been prompted by a cybersecurity expert who took the problems public.

In both cases, the vulnerabilities in question appear to have been common knowledge in the cybersecurity world for months prior to official alerts being made and promises of fixes being offered by the vendors in question. That highlights the question of how many more vendors are dealing with similar vulnerabilities -- and what costs utilities may be looking at to fix them.

Next year may force compliance with security standards at the threat of major fines. The North American Reliability Corp. has issued new Critical Infrastructure Protection guidelines -- so-called NERC-CIP standards -- that authorize fines of up to $1 million per day for noncompliant utilities. Expect 2012 to be the year of smart grid cybersecurity.

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