Is smart grid the next green-tech bubble?

WASHINGTON--Here at a conference on the utility of the future, the starring players are Google, IBM, Cisco Systems, Intel, and smart grid start-ups. The reason? Data.

Modernizing the grid isn't just about installing more transmissions lines and smart meters. It's a giant information challenge as well, said attendees of consulting firm Kema's Utility of the Future conference here on Thursday.

The heavyweight IT companies are seeking to capitalize on initiatives around the world to upgrade the power infrastructure. The U.S. Department of Energy is expected to soon announce how billions of dollars in stimulus money for smart grid will be allocated.

Smart grid has also become one of clean-tech venture capitalists' favorite areas, spawning dozens of start-ups with ways to make the grid run more efficiently and integrate more solar and wind power.

Altogether, it's a combination that could end up creating a bubble, said Diana Propper, a clean-tech venture capitalist at Expansion Capital Partners.

"I worry that there's so much money being sloshed around, whether it's venture capital or corporate or government money, that it will be spent inefficiently," she said during a panel.

"The risk of a bubble is real."

People have been talking about the smart grid for 10 years but a combination of factors is pushing the vision closer to reality, she said, citing the need for reliability, the need to reduce carbon emissions, and the emergence of more technology-savvy end users.

"We've passed a tipping point. I think we're going to see a tremendous amount of capital in this area."

Venture investors in the past two years poured hundreds of millions of dollars into thin-film solar technology companies, many of which aren't expected to survive. Smart-grid technology (and energy storage) is generating a similar excitement level this year, but there are some differences to the solar bubble, said Ben Koch, managing director of investment banking at Southwest Securities.

"With smart grid, there are fewer companies and they are more mature," Koch said, noting that demand-response company Comverge had 500 utility customers before it went public.

On the other hand, a rush of available money tends to mean more risky ventures will get funded. "We won't have irrational exuberance...but there could be some bad investments," he said.

Koch added that the stepped-up presence of IBM, Cisco, Intel, and Google in the utility industry could stiffen competition for smaller firms.

Data overload
To understand the interest of the major IT companies in the smart grid, consider Duke Energy's program.

It has 5 million meters installed in its territory and each customer has a few major appliances, such as water heaters and refrigerators. Each one of those devices--in addition to hundreds of thousands of sensors on the distribution grid--could be networked.

To collect and make sense of the mountains of data these devices produce requires a robust network and sophisticated IT systems.

"Just the number of devices to be connected and the volume of data that needs to be processed--it's enormous," said David Mohler, the chief technology officer of Duke Energy. "We realized early on that we needed to create an information architecture. That's not a utility's sweet spot."

Instead, the utility contracted with Cisco to build that data communications network. Duke is already testing smart-grid technology and plans larger-scale deployments in Ohio and Indiana starting at the fourth quarter of this year.

Home energy management is another important piece of smart-grid programs. Microsoft and Cisco as well as telecom companies, such as Verizon, have said they expect to make energy monitoring an extension of existing home networks.

Yet, there's some concern that the majority of U.S. consumers won't act to lower electricity consumption even if they do have more detailed information or they won't be willing to allow utilities to control devices in the home, executives said.

Power at the edge of the Net
With its smart grid programs, Duke plans to do as much processing near the edge of the network as possible, rather than at its data centers, executives said.

For example, substations servicing a neighborhood could collect data from devices such as street lights and plug-in electric vehicles to signal to the utility what the demand for electricity is. Rather than sending reams of real-time data back to a utility employee, Duke envisions equipping the substation with controls capable of some low-level processing to, for example, spot when an outage might occur.

Transmission line owners are investing in IT and control systems as well so they can better manage the flow of electricity, particularly with an expected increase in wind power, said Terry Boston, the CEO of grid operator PJM.

"Today our communications is very siloed. We need a steady flow of data from the generator to the customer and the grid operator," Boston said, adding that the company is developing a services-oriented architecture with a unified data bus.

Google's director of climate change and energy initiative, Dan Reicher, was a speaker here as well, where he talked about Google's plan to develop products in energy, particularly those that cross IT and ET, or energy technology. "Information technology can make a major improvement to the smart grid we're all talking about," he said.