What the Smart Grid Stimulus Funds Will Do For Startups

powergrid2Scan our list of the companies lining up to get a piece of the roughly $4 billion in stimulus funds for the smart grid and here’s what you’ll find: utilities far and away dominate the queue. But dig a little deeper and you’ll see that a growing number of startups are finding a stake in the smart grid stimulus funds, either by joining up with various consortia to jointly apply for the grants, or by working on projects with utilities that are contingent on the stimulus funds. For startups that played their cards right, the boost could enable young firms or companies with new technology to leapfrog the competition.

Take the case of 4-year-old home automation company Control4. The company only recently started focusing on utilities as its customers, and raised $17.3 million in July to launch a division to focus on home energy management. But this morning Control4 said it will supply its home energy management products for Texas utility Bluebonnet Electric Cooperative’s smart grid project — its first utility customer — if Bluebonnet manages to secure an $18.8 million stimulus grant for which it applied.

Control4 might have a substantial amount of home automation gear shipped and established dealers for distribution, but in the utility energy management space, it’s a newbie (albeit a well-funded newbie with financing from big names like Best Buy Capital and Foundation Capital).

Then there’s 1-year-old Viridity Energy. The company wants to take demand response to the next level, and its software dynamically manages loads on the grid in terms of energy pricing, renewable energy generation and energy storage. Yesterday, New York utility Consolidated Edison said it has applied for $46 million to fund a smart grid demonstration project in conjunction with a bunch of firms, including Viridity.

Viridity Energy is pretty much the only tiny tech startup mentioned in Con Ed’s announcement yesterday — other names include Boeing and Columbia University — and Audrey Zibelman, president and CEO, tells us it’s “thrilled” to be in such company. Viridity only closed its Series A funding (the size and investors weren’t disclosed) back in February and will be looking for more funds next year, Zibelman says. In the utility sector where, bigger is usually better in terms of partners, that’s a rare deal.

For other, larger startups, the smart grid stimulus funds could offer a way to test brand new markets. Lithium-ion battery maker A123Systems is building a sizable grid-based battery project for utility Southern California Edison. While A123Systems has mentioned the grid market before, the bulk of its focus is on plug-in vehicles and power tools. But for a utility that wants to test out cutting edge technology, paid for by the government, why not take the risk?

So, now that the deadline to apply for the first two waves of smart grid stimulus funds are over, what’s the lesson here? If the government sets out a massive chunk of money for a nascent sector, with undefined leaders, it doesn’t matter if your company is tiny, unproven or normally sells into a different market, jump in there — it’s a land grab and the larger companies (in this case the utilities) will be willing to take more risks to navigate the grants.

This is also just the beginning of the effects of the smart grid stimulus funds on startups in the space. First off, this is only the firms applying, so we’ll see who emerges successful in securing these funds, likely in November. Secondly, these projects will create a snowball effect in the U.S. smart grid market and will deliver market opportunities directly and indirectly for many more new firms selling consulting, software, networking devices and consumer electronics.

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