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Smart Grid Bubble? Heck No. Home Energy Management Bubble? Yep

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smartgridgeneralimageCNET’s Martin LaMonica raised the interesting question last week: Is there an investment bubble building around the smart grid? He cites the opinions of several investors worried about too much money being invested by venture capitalists, corporations like Cisco (s CSCO) and IBM (s IBM), and even governments. From my perspective,, there is one clear area of the smart grid that is seeing too much investment from venture capitalists, specifically — home energy management tools — but much of the smart grid investments coming from IT firms and the federal government just represent the first phase of funds that will help build a potentially huge market. At this point I don’t see unreasonable amounts of money being invested into many other areas of the very nascent smart grid sector.

First off, it’s hard to make such blanket statements about the smart grid as a whole. It will be made up by many types of technologies (both hardware and software) that have various attractive and not-very-attractive business models. We know we’ve been guilty of using the general smart grid term in headlines (that’s the problem with having a word-count limit) and lumping the billions of smart grid stimulus funds together, but the infrastructure will actually be very complex. At the moment a lot of companies are just starting to scratch the surface when it comes to discovering possible areas of innovation.

But venture capitalists have clearly been flocking to the home energy management space. It’s a favorite for VCs partly because they can easily understand it — it looks (and is) about connected gadgets, software and wireless communications. At this point the amount of VC-backed companies is really starting to get out of control. Earlier this month both home energy management dashboard companies Tendril and AlertMe raised multimillion-dollar rounds; last week home energy management startup EcoDog raised $4.6 million. Here are 10 startups that are offering home energy management tools and another that is using open source to make the products even cheaper (and result in lower margin for the companies that make the tools). Never mind the huge, blue chip companies that are also building these tools, like GE (s GE).

Ultimately a lot of these home energy management ventures are offering very similar options, typically a ZigBee-based wireless sensor kit that connects energy data from a meter (smart or not), and possibly appliances, to a viewing device, like an energy dashboard or a PC. This market is either a consumer electronics play (difficult in terms of scale and margins for a startup) or a utility partnership play (less to do with the tech and more to do with the relationships created.)

Some companies are trying to differentiate themselves by offering only the software management piece, and there could be some successes for those that can seal strong partnerships, like that of Lixar SRS and Cisco. But Google’s (s goog) free PowerMeter will make a pure software play pretty difficult as well — a startup’s software had better be significantly better than what a team of Google programmers can create, which costs the user nothing.

So basically there are a lot of new, young companies trying to sell the same things. That could be beneficial for consumers (more choice) but will not be beneficial to the companies themselves. Expect a lot of these new firms to get bought up cheaply or even fold.

Other areas of the smart grid are maturing. Cisco entered the smart grid space to tackle end-to-end communications networking, while Silver Spring has turned into a well-established, well-funded firm in that sector. But end-to-end communications networking hasn’t yet produced a bubble, not by any means. Utilities and power companies are still moving relatively slowly to upgrade the power grid, and the communications portion of the smart grid could still grow to be worth as much as $20 billion a year over the next five years, according to Cisco.

There are even some areas of the smart grid that haven’t seen much investment. Smart-charging software, which would manage the rate at which electric vehicles charge, comes to mind. One of the only companies that’s developed a product in this space is V2Green, and it was quickly bought up by GridPoint. If we’re all going to be plugging our cars into the grid, there’s a huge untapped opportunity out there.

Image courtesy of Horizontal.integration and creative commons.

20 Responses to “Smart Grid Bubble? Heck No. Home Energy Management Bubble? Yep”

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  2. Katie, once again spot on.

    We are publishing a list of ll these wireless monitors, and it has gone through the roof. Google have selected two so far, TED in the US, and Alertme in the UK. TED promptly were unable to meet the increased demand!

    At todays count we have:

    opensource – 1
    US monitors – 28
    UK monitors – 8

    And not one of them saves a single Watt – they may make users more aware, and I agree than an increase in awareness can lead to increased savings.

    But is is only a can – please can we put legs on the saving and converts the can’s into do’s

  3. In my interpretation, a bubble means a lot of money flowing into one area inflating valuations to the point that when it pops investors can potentially lose a lot of money — that could mean the bubble is just too early for the market. Many years after the Internet bubble burst it was largely realized that some of the crazy market estimations for things like e-commerce were actually totally valid.

  4. dan kaplan

    What constitutes a bubble? There’s NOT a ton of money being invested yet…I know this personally as someone involved in a home energy management company. The dollars being invested in the smart meter side of the equation are 20-30X more than the dollars being invested in home energy companies. I would say that less than $100 million has been invested so far in home energy management companies, while $1 billion + has been invested in smart meter/smart grid companies. Will there be some sorting out, and likely consolidation? Sure. But the term “bubble” (think: inflated values, hundreds of millions of dollars) does not apply…yet.

  5. I think Bilsko’s comment needs some expansion. The future grid is not about distributed generation, at least not in any major way. Most of that will not be cost effective for quite some time, if ever.

    But he’s correct in that the utilities still want to hold onto the top-down approach with respect to CONTROL. This, I believe, in the long run, will be both inefficient, and hated by consumers. The best fate for the smart grid (and this even includes distributed generation) is real-time pricing, which will allow consumers to make the best energy purchasing decisions that will optimize the use of power to the generation available.

    With respect to home control products, and smart meters being peddled by utilities, it’s important that they have adequate smarts to accommodate real-time pricing. If they don’t they will end up being a huge waste of money.

  6. Bilsko

    Great post – good to finally see a more analytical light being shined on the “Smart Grid” and what people are talking about when they use the term.

    To date, as you point out, the lion’s share of the attention has gone to smart meters (think Cisco & Duke, Silver Spring, Xcel + Bouder, CO)_ and the home energy management players. There is some buzz about smart appliances and players like GridPoint are certainly headed in that direction – they’ve got controls at the circuit breaker level now, and will probably get it down to the appliance level within the next few years.

    The issue with all of these smart-meters is that they wont really do the utilities any good -and lets be absolutely clear here, there is no way the utilities would be getting behind any of this if they hadn’t figured out how they’ll benefit – unless the utilities are able to upgrade all of the 1950s vintage technology that they use at their substations and along the distribution feeders.

    There are also several components that would be integral pieces of a Smart Grid that haven’t gotten much mention. Distributed generation configured so that power grids are set up more like P2P networks (and, yes, Vehicle 2 Grid will be a big part of that) is going to be one of the big benefits of a smart grid that can manage sideways power flows.

    All of this talk of smart meters and home energy management just presupposes the continued top-down hierarchy of electric power delivery (again, as risk-averse as they are, utilities have shown almost no interest in changing that paradigm). Until we move past the image of one way power flows (generator–>transmission lines–>substation–> distribution feeders–>customer) and begin to think of how power will look moving up, down, and sideways, then some of the most valuable inherent features of an IT-enabled Smart Grid won’t be realized.