Read this Bloomburg article as we watch the change crawl along. The year--2009
Source ArticleEnerNOC Returns 260% From Lowering Lights in 2009’s Power GridAug. 14 (Bloomberg) -- Donn Dresselhuys used to shake his head in disbelief every time he saw a utility’s meter reader trudge from house to house to record how much electricity people had used. The ritual demonstrated how the power industry had shunned innovation and changed little since the 1950s.
Dresselhuys, a retired executive who had spent 30 years running a water purification company in Milwaukee, set out in 1995 to build a device that would enable meters to transmit data to utilities every hour, sending signals through the air much like mobile phones do. His tiny company soon confronted the realities of changing an industry in which old habits die hard.
“If we knew what we were going up against, we wouldn’t have done it,” says Dresselhuys’s son Eric, 43, a former Procter & Gamble Co. marketing executive who joined his father’s enterprise in 1996. “We were chronically underfunded, there was tons of engineering and testing and we underestimated how long it would take to get contracts with big-name utilities.”
The Dresselhuyses persevered and, 13 years later, their company, Silver Spring Networks Inc. of Redwood City, California, has become a front-runner in the race to build the so-called smart grid, the effort to remake America’s antiquated electrical system with the Internet technology that’s revolutionized telecommunications since the 1990s. The biggest names in Silicon Valley, including Cisco Systems Inc., Google Inc. and Intel Corp. are also investing in chips and software to upgrade the grid.
President Obama
The global market for these products will soar to $65 billion by 2013, according to a 2008 report by Lux Research Inc., a Boston-based consulting firm. And Silver Spring may hold an initial public offering in the next year or two as utilities serving 8 million customers in nine states install meters equipped with its networking technology.
The U.S. government is doing its part to make the grid smarter. The administration of President Barack Obama is planning to spend $4.5 billion this year to finance the installation of 40 million digital meters -- about a quarter of the U.S. market -- and other technology. The government’s immediate goal is to keep the creaky electrical grid from breaking down when Americans crank up their air conditioners in the summer. Beyond that, Obama envisions a more efficient system that will help curb global warming by accommodating large-scale renewable-energy plants.
Federal Stimulus
“Energy efficiency isn’t very sexy, so it doesn’t get the attention that building solar panels does,” says Philippe de Weck, manager of the $600 million Pictet Clean Energy fund, a Luxembourg-based mutual fund run by Swiss private bank Pictet & Cie. “Efficiency is the easiest and most elegant way to reduce carbon emissions, and we think there’s going to be immense investment activity in what should grow into a large, profitable industry.”
The grid is in effect one of the largest machines ever built, a network of power plants, towers, wires and equipment reaching into every corner of the U.S., from factory assembly lines to public buildings to living rooms. Utilities and state regulators are loath to make sweeping changes to this system, especially after California’s disastrous experiment in deregulation that enabled Enron Corp. energy traders to create artificial shortages and rolling blackouts in 2000 and 2001.
While Obama’s stimulus cash may spur some power providers to embrace the smart grid, it’s only a fraction of the total amount needed to produce a systemwide transformation, says Erich Gunther, chairman of EnerNex Corp., a Knoxville, Tennessee-based energy industry consulting firm.
Smart-Grid Investing
State regulators govern the power industry with rules that were established 50 years ago to fuel the surging postwar economy. The regime, largely unchanged, rewards utilities for building fossil-fuel-burning power plants rather than introducing energy-saving technology. Power providers in almost every state earn profits by convincing public utility commissions to raise rates on customers to cover the cost of putting up new plants, transmission lines and substations. Since power companies can’t make the same case for a rate hike to save energy, they have little reason to spend money on innovations such as smart meters.
“It’s much more complex and challenging than investing in solar or biofuels, where you just have to make products and sell them to customers,” says Josh Green, a partner at Mohr Davidow Ventures who backs clean-technology startups. “Here you have to navigate between regulators driven by politics and consumers wanting to keep rates low and utilities. None of this is going to happen overnight.”
Saving Energy
A few investors are cashing in on smart-grid companies that cater to corporations rather than utilities. In 2005, Foundation Capital, a Menlo Park, California-based venture capital firm, funded a startup called EnerNOC Inc. with $21 million. The Boston-based company makes software that helps Marriott International Inc. and other customers reduce power consumption and reap savings by shutting down lighting, air conditioning and even water fountains when they’re not in use or when electricity prices are high. And energy system operators pay EnerNOC to dial back its customers’ usage during heat waves or outages, lessening the need to tap carbon-spewing “peaker plants” for emergency juice.
“They add new supply into the market while we take demand off the grid,” says Chief Executive Officer Tim Healy, 40, who co-founded EnerNOC in 2002 with President David Brewster when they were business students at Dartmouth College in Hanover, New Hampshire.
EnerNOC Shares
EnerNOC went public in May 2007, and its shares jumped 260 percent this year, closing at $26.75 on Aug. 9. Foundation’s stake has more than tripled to $77 million.
Nothing exposed the grid’s dire shape more than the blackout in August 2003. Overgrown trees short-circuited power lines in Ohio and triggered a chain reaction that left 50 million people in eight Northeastern states and parts of Canada without electricity for up to two days in some cases. Six years later, most utilities still can’t detect outages remotely because they haven’t upgraded residential meters that date back to the 1970s.
The glass-encased devices attached to the sides of houses tick off the electricity used but can’t transmit data back to utilities. Power providers must rely on customers to tell them when the lights go off. Even when the grid is functioning, it’s not very efficient: 14 percent of the energy generated at plants is lost through leakage by the time it reaches household sockets, according to the Electric Power Research Institute in Palo Alto, California.
Eric Schmidt
“We’re powering today’s digital economy with a grid that uses 1950s technology,” Google CEO Eric Schmidt says in an e- mail. “It’s a challenging undertaking, but our future depends on building a smarter system with better information for consumers and utilities.”
With the digital grid, high-tech meters will send consumption data from homes to utilities every hour, automatically alerting officials of outages. People will be able to monitor via Web sites how much power each of their appliances uses and the best time of day to operate them to save energy and cut costs, says Andrew Tang, senior director of San Francisco- based Pacific Gas & Electric Co.’s smart-energy program.
Utilities will have sensors on transmission lines to spot and reduce leakages. Software and data management programs will help utilities accommodate hundreds of thousands of electric cars that may hit the roads in the next decade. Technology will also unite the thousands of different power jurisdictions in the U.S., so wind energy generated in Wyoming can be delivered instantly to auto plants in Tennessee -- a virtual impossibility with today’s patchwork system.
Kleiner Perkins
“Modernizing our electrical grid is an urgent national priority,” U.S. Energy Secretary Steven Chu says in an e-mail. “We need a grid that can move clean energy from the places it can be produced to the places where it can be used.”
The entrepreneurs and venture capitalists who transformed the telecommunications industry are now trying to do the same with the grid, says Adam Grosser, a partner at Foundation Capital, one of the first venture capital firms to invest in energy-efficiency technology. Kleiner Perkins Caufield & Byers, which funded Amazon.com Inc. and Google, led a $75 million investment in Silver Spring in October. John Doerr, a senior partner at Kleiner Perkins, and former U.S. Vice President Al Gore, who received the 2007 Nobel Peace Prize for his crusade against global warming, both joined Silver Spring’s advisory board that month.
Meter Battle
Companies developing different wireless technologies to connect utilities and households are competing for a huge prize: There are 144 million residential meters in the U.S.
“The battle for the meter is raging,” says Alain Harrus, a partner at Crosslink Capital, a VC firm in San Francisco.
Silver Spring’s networking technology uses radio waves to transmit data from meters to utilities. Its archrival, Grid Net Inc. in San Francisco, has opted for WiMax, a broadband wireless technology. Still another startup, SmartSynch Inc. in Jackson, Mississippi, has joined forces with AT&T Inc. to shoot data across that carrier’s cellular telephone network.
These companies aren’t above a little trash talk.
“No one is going to build a smart grid on Silver Spring’s radio,” Grid Net CEO Ray Bell says.
“We’ll let customers vote with their wallets and see who wins,” counters Warren Weiss, 53, a partner at Foundation Capital, which has poured $52.5 million into Silver Spring.
‘I Was Crazy’
The company has overcome technical and marketing hurdles since Donn Dresselhuys, 79, first started tinkering with a gadget for transmitting electricity use data. For almost a decade, the enterprise, then called Innovatec Inc., struggled to perfect its networking gear and draw commitments from utilities, which had long-standing relationships with General Electric Co. and other equipment suppliers.
Eric Dresselhuys, who marketed air fresheners at P&G in Cincinnati, kept tabs on his dad’s pet project. As the dot-com boom took off in 1996, he grew convinced that utilities would eventually have to adopt new digital technologies, prompting him to abandon corporate America and move back to Milwaukee and join his father.
“I left a perfectly good job, and all my friends said I was crazy,” he says. “But if you followed the logic, you knew that this wasn’t going to be just about reading meters; it was about improving the efficiency of the entire electricity grid.”
Foundation Capital
By 2002, the Dresselhuyses’ dreams were in tatters as Innovatec ran out of cash and shut down. There was one bright spot: San Diego Gas & Electric Co. had agreed to buy their product if the device passed performance tests. So Jack Thompson, a retired software executive and angel investor in Denver, agreed to bankroll the father-and-son duo in a new company, Silver Spring Networks, which was named after a neighborhood in Milwaukee.
Then, in late 2003, Foundation Capital invested $8 million and moved Silver Spring’s operations from Wisconsin to Redwood City to hire local software and networking engineers. Ray Bell, an entrepreneur-in-residence at Foundation, joined Silver Spring as interim CEO and chief technology officer.
Within a year, Bell was clashing with the new CEO, Scott Lang, and other senior executives over the company’s technology and strategy. Bell, 53, a former senior manager at Oracle Corp. and Cisco Systems, argued that Silver Spring should question the purpose of the meter.
Competing Visions
He believed the company’s reliance on radio technology would limit the ability of utilities to deliver on the smart grid’s promise. Instead, Bell pushed for embracing broadband technologies that would turn meters into digital gateways and allow power providers to offer everything from energy efficiency programs to Internet access.
The company rejected Bell’s vision as too ambitious a change for the utilities. So Bell quit in 2005 and founded Grid Net. He’s betting that WiMax, which could emerge as the successor to the so-called 3G network used for smart phones and other devices, will become the conduit of choice for utilities. He says its massive bandwidth and secure, standardized spectrum will enable utilities to cope with the possible huge flows of data from electric vehicles, rooftop solar panels and other green-energy technologies in the next decade.
“The moral of this story is cable,” says Bell, sitting in a Spartan office adorned with a desk, a computer and a whiteboard covered in mathematical scribbles. “You saw an evolving market in broadband there, and the same thing is happening here.”
‘It Was Horrible’
Silver Spring’s radio technology almost sank the company shortly after Bell’s departure. In April 2006, SDG&E informed Silver Spring that it wasn’t going to move ahead with its order. The company’s networking card, a component inserted into digital meters that transmits the data, had failed the utility’s tests due to a variety of technical glitches.
“It was horrible,” says Grosser, 48, a Silver Spring director. “We lost our flagship customer, which was the basis of our investment.”
Foundation, wagering that Silver Spring’s setback wasn’t fatal, invested another $44.5 million to keep the company afloat. The company turned to George Flammer, an electrical engineer who’d developed a precursor to Wi-Fi, the technology that uses radio waves to deliver wireless broadband connections for computers. Flammer redesigned the radio components to boost the strength of the signal sent by the meters. The fix worked.
Utility Rollout
In October 2006, Juno Beach-based Florida Power & Light Co. deployed 100,000 meters equipped with Silver Spring technology as part of a pilot program. In July 2008, PG&E agreed to replace meters for more than 5 million customers in California with Silver Spring’s gear by mid-2012.
On a balmy day in April, Tirso Ortega, a PG&E meter installer, entered the backyard of a suburban house south of San Francisco. He gently removed a 40-year-old Westinghouse meter encased in thick glass and swapped in a new one built by GE featuring Silver Spring’s technology. Within seconds, a digital readout blinked on and the meter started transmitting data wirelessly via the Internet to a control room miles away.
Utilities in Illinois, Maryland and Oklahoma are also installing and testing digital meters that use Silver Spring technology. CEO Lang says the company will make its first profit in the third quarter, with revenues expected to more than double to $200 million in 2010. Its publicly traded rival, Itron Inc. in Liberty Lake, Washington, is selling smart metering and networking technology to Southern California Edison Co. and SDG&E. Xcel Energy Inc. is converting Boulder, Colorado, into a “smart-grid city,” installing digital meters in about half of its homes.
Home Area Network
“We are seeing signs of progress by some utilities, but we clearly have a long way to go,” says Russell Read, former chief investment officer of the California Public Employees’ Retirement System, the No. 1 public pension fund in the U.S., with $176 billion in assets. Read now manages Cambridge, Massachusetts-based C Change Investments LLC, which serves institutions and wealthy individuals and invests in clean-energy projects.
Google and several startups are working on the next phase of the planned smart-grid buildout: the creation of so-called home area networks to save energy. The companies are trying to change the behavior of consumers who have shown an almost insatiable appetite for power-hungry flat-screen televisions and other appliances.
Google’s PowerMeter
The home area networks will allow consumers to use the data collected by meters to monitor and reduce their energy use. Google.org, the search giant’s philanthropic arm, is developing an Internet service called PowerMeter that aims to provide consumers with a daily or hourly readout of their electricity use. Kirsten Olsen Cahill, PowerMeter’s program manager, says the service may help consumers cut power use by making them more aware of wasteful habits. In a 2006 study by the Environmental Change Institute at the University of Oxford in England, consumers who were shown their daily energy use shaved 5 percent to 15 percent off their monthly bills.
Today, most utilities send customers bills that show only the total amount of electricity used in the prior month and the charge. Cahill says that’s like going to a store with no prices, filling up the shopping cart and then receiving a bill four weeks later.
“We are purchasing electricity every day but we have no idea how much it costs, so how can you expect users to make good decisions?” she says.
Programming Appliances
Control4 Inc., a Salt Lake City-based startup, and other small companies are creating technology to help measure how much juice each appliance consumes and at what price on a kilowatt- hour basis. Control4 is working on software that would link all electrical devices -- including refrigerators and clothes dryers -- into a network that’s managed via a Web site or a dedicated monitor.
Homeowners would be able to set preferences so that dishwashers or air conditioners would turn on or shut down in line with low and high electricity prices. If enough residences cut power consumption when prices are high, that would lessen demand for more peaker plants, PG&E’s Tang says.
A home area network could also tell a utility that either the electric car in the house’s garage or the rooftop solar panel has surplus juice. The utility could then pull the electricity from the car or panel, distribute it to the grid and reward the customer on the next bill.
“This is the utopian vision,” says Tod Francis, a venture capitalist at Shasta Ventures in Menlo Park.
Silver Spring IPO
Smart-grid investors will profit only if consumers embrace the technology and become active managers of a commodity they now take for granted. Americans haven’t curbed their power consumption even as prices have soared 38 percent from the start of 1999 to April 2009, according to the U.S. Department of Energy.
“Are consumers going to be interested for a week and then go back to their regular lives?” says Lorie Wigle, general manager of Intel’s ecotechnology product development unit in Portland, Oregon, which is designing chips for the smart grid. “That’s the critical question.”
A Silver Spring IPO would show that the smart grid is taking root and paying off for investors. Even so, the fortunes of Silver Spring and its rivals will continue to hinge on more handouts from Washington to utilities for the adoption of new technologies. With the federal government facing a projected $1.4 trillion budget deficit in 2010 and a possible costly overhaul of health care, lawmakers may choose to shut down support for the digital grid and kill its momentum.
“Hopefully the political will is stalwart,” Mohr Davidow’s Green says. “But that’s a nerve-racking thing to rely on.”
To contact the reporter on this story: Edward Robinson in San Francisco at edrobinson@bloomberg.net
Last Updated: August 14, 2009 00:00 ED