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News AnalysisSmart grid funding falls off cliff; M&A activity also drops
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Apr 12, 2011
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By Jesse Berst
Just when the rest of the economy is reviving, venture investing in smart grid plummeted in the first quarter of the year according to Mercom Capital Group. Only 13 deals were funded for a total of $76 million, the lowest since Q3 2009.
M&A activity also took a dive, but partly because only 2 of the 9 transactions disclosed the amount.
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Mercom's interpretation: Smart grid venture investing dipped in Q1 of last year only to come roaring back. Maybe the same thing will happen this year.
My interpretation: Venture investors always try to stay ahead of the curve. The first and most obvious areas (smart metering, communications and demand response) have come and gone. The next hot area is still not apparent. This is reminiscent of the investment pause between Web 1.0 and Web 2.0.
Jesse Berst, founder and chief analyst of Smart Grid News, has been covering smart grid technology and marketing trends for the past decade.
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| Where's the savings and programs |
| Now that the buzz is wearing off over having real time data customers are asking "What can I do with it and how will it save me money?" Meters never have saved a dime, regardless of how fast and digital they are. |
| Tom Fenimore - 04/13/2011 - 06:19 |
| Funding falls off . . . |
| My gut is that it's more than a slight pause. I see that vc's have a fear that the pilot light for smartgrid will get snuffed out, between bizarre customer backlash and government impotency. The guys at Silver Spring were riding high a year and a half ago, now they're dealing with consumer based push back for digital metering. Unexpected to say the least. In addition, the big fight over the budget the last few months and the conservative focus to strip the EPA of it's ability to regulate GHC, doesn't help either. The whole SmartGrid initiative is a critical piece of a solution that addresses what was to be a big problem: reducing carbon output by moving energy more efficiently with granular insight into the network. If law makers have their way and the "Problem" ceases to be of national importance, then a lot of companies will be relegated the "Solution in search of a problem" bucket. |
| Dana Hillman - 04/13/2011 - 06:31 |
| Trough of Disillusionment |
| The wave of smart grid spending we have experienced was driven by artificial factors including chasing stimulus money. Now reality sets in---getting the benefits of smart grid involves spending more on the rest of the solution beyond the meter ON TOP OF mandates for renewable energy, soft electric demand, ratepayer pushback. |
| Gary Hunt - 04/13/2011 - 06:34 |
| Possible Link with TOU? |
| Jesse - perhaps there's a connection here between your recent piece on how few regions have yet implemented time of use (TOU) variable pricing in their markets. Without TOU, and the carrots and sticks pressures it brings, I imagine much of the work we're doing makes little sense to consumers. |
| Andy Bochman - 04/13/2011 - 06:42 |
| The Smart Grid won't be led by the utilities. |
| In some kind of idealized world, energy efficiency, renewable power, and the smart grid would all be delivered by a centrally planned utility. In the real world utilities hate the idea, although they won't say so publicly. Meanwhile, the same technologies can be delivered through micro-grids. That may be a little messier, but it will allow for more experimentation and bypasses many of the security and regulatory obstacles. The existing diesel powered micro-grids have a huge incentive now that oil is over $100/barrel. |
| Peter Lilienthal - 04/13/2011 - 07:28 |
| Utilities Playing Catch-up |
| Perhaps utilities need some time to absorb new innovation. Like you said, Jesse, the most obvious areas have been played out, but many utilities have yet to implement smart meters, demand response, and communications. Because so much of the smart grid is capital (and labor) intensive, it will take some time before the industry can seriously consider adopting another round of innovation. VC's may also be getting cold feet about smart grid based on the rising negative sentiment from consumers about smart meters. I think in a few years when people realize that their meters will not cause planes to fall from the sky, we will see another round of innovation. As usual, the consumer ultimately drives demand. |
| Brook Low - 04/13/2011 - 08:32 |
| National Differences |
| In the UK, we have a mandated rollout so the money will be spent. As far as TOD tariffs are concerned, a competitive market will mean that customers will move to suppliers who give them TOD tariffs which suit their lifestyles. If all of the customers who use eletricity during low-cost periods move to tariffs which reflect those, and therefore cease to subsidise those who use eletrcity at peak periods, then the customers who choose to stay on single rate tariffs will pay more, even for their off-peak use. As far as distribution is concerned, in the UK it is a heavily regulated regional monopoly and National standards apply. A very different market to the US and just about everywhere else as far as I can tell. |
| Paul Scotson - 04/13/2011 - 08:40 |
| VCs are smart, meters are not |
| The situation is more fundamental, utilities have constructed their operations to deliver energy to all users at anytime averaging the cost. They do not have cost data to intelligently implement TOU billing. Government wants TOU for social change. Consumers want TOU only if they can lower their bills. This isn't a solvable equation. All smart grids will do is prove the incompatibility of the perspectives and the VCs see this plus the stimulus money (immediate profit) has dried up. |
| Jim Diestel - 04/13/2011 - 13:56 |
| Smart Grid Funding |
| As I have said in several venues this is the year were Smart Grid success must be delivered and success stories publicized. Major Smart Grid projects have been in progress for several years and should be beginning to demonstrate real benefits to both the utilities and the consumers. Smart Grid early adopters must achieve real benefits before other utilities and commissioners commit consumer investment for expensive Smart Grid programs. Many of these Smart Grid project have a technology component (smart meters, communications, associated systems) and financial components such as Time of Use rates. The utilities can do the technical component but regulatory organizations must implement the financial component. The industry will not continue to invest in the technology unless the whole program is in place and benefits are achieved. |
| Chuck Drinnan - 04/13/2011 - 16:58 |
| 1. Google/MS 2. "goal 6" uncertainty 3. IEEE P1901 |
| As a first guess I would credit the following factors, in reverse order of importance: 3. Standards for gigabit IEEE P1901 (and its sub-megabit longer-range equivalent P1901.2) were anticipated, but not finished, during this period. It's normal for investment to cease entirely when a major standards shift is anticipated, and there's no commentator that would not consider a gigabit to any AC outlet worldwide to be a game-changer. The wireless approach to networking devices has major issues, and pointless/expensive for devices that must be plugged into an AC outlet to work anyway. So waiting to see how your existing investments can adapt or will fare under the new standards regime that includes IEEE P1901/IEEE P1901.2 and what the new silicon will look like, etc. are good reasons to avoid new investments. Any story told without these standards in it is wrong, any story told with them in it was suspect prior to the standard itself. 2. US National Broadband Plan "goal 6" states that energy consumers have a right to real-time access to all usage data (which they own) and can share it with any service that helps them reduce their usage. This big stick will eventually *force* all power distributors to provide AES-128-or-better backhaul for this purpose. For now this means deals with Verizon etc., but eventually it may mean localized distributors (e.g. Marin Energy Authority) breaking away from regional distributors (PG&E in that case) and paying for upgrades by deploying lotss of fibre (and probably P1901 to every AC outlet at the edge). broadband.gov as of today emphasizes services that would require really robust bandwidth and security: "From technologies that restore paralyzed limbs to devices that monitor heart functions from home, mobile health reduces cost and improves outcomes." Seriously, you don't trust this to commodity Wi-Fi. But it's still unclear on what schedule goal 6 will be enforced. Google erred, as Jesse says, treating utilities as mere "bumps in the road", but it's also an error to kowtow or pander to them or put them in a contractual position to slow deployment. It remains hard to invest not knowing the deadline on which utilities will be *forced* to meet goal 6. But it's hard to force them without the standards in place and silicon shipping, so (see 3. above). 1. Google and MS entering home energy applications must have scared off a good many smart investors. They'll be less timid sans MS Hohm and Google PowerMeter. |
| Craig Hubley - 07/06/2011 - 10:19 |
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