Smart-grid companies feel growing pains

An early mover in the smart grid, GridPoint is expanding into commercial energy management, a sign of how slowly utilities are adopting smart-grid technology.

If you think utilities will swiftly adopt smart-grid technologies, consider the story of GridPoint.

Despite being only seven years old, the high-profile energy start-up has adjusted its strategy a few times and made a string of acquisitions. At first, it planned on selling home energy management systems and batteries to consumers, then shifted its focus to selling smart-grid equipment to utilities, such as software to manage home energy or charge electric cars.

Last week, GridPoint announced that it has signed a deal to supply energy management software and hardware to the United States Postal Service, which has set a goal of lowering energy use by 30 percent by 2015. It could bring in as much as $28.7 million over three years to GridPoint.

The deal is significant because GridPoint sees commercial and industrial energy management, which it entered through its acquisition of ADMMicro last November, as a business with better near-term potential than smart-grid gear, according to the company. Utilities are slow at buying IT-related technology, whereas businesses make quicker decisions based on a return on investment, the company has found.

"The fact of the matter is that the (smart-grid) marketplace is taking time to evolve from pilots to significant rollouts. As a business, we need to make sure we have an opportunity to generate business from multiple sources," said GridPoint Executive Vice President John Clark, who joined the company after it acquired V2Green , which made utility software for managing electric vehicle charging.

GridPoint isn't alone in noticing how slowly things are moving in certain areas of the smart grid.

Between the federal government and utilities, about $8 billion will be spent on modernizing the grid with two-way meters and other digital technologies. But for companies that aren't directly linked to smart metering, that money, which has been slow in coming, may not be all that meaningful.

"There is some disappointment, or disillusionment, that the market did not materialize as fast as people thought, particularly for the tech start-ups and investors that targeted it," said Rick Nicholson, an analyst at IDC's Energy Insights service, which recently adjusted its forecasts for spending in North America. "It's still going to materialize into a multibillion-dollar market, it's just going to take longer."

Finding a niche
Smart-grid technologies are designed to make the grid more reliable and efficient for utilities and give consumers more control over how they use energy. But the nature of doing business at a utility means the technology upgrade process is slow .

Utilities typically negotiate with public utility commissions on how they will recoup the costs of capital investment, such as smart meters, batteries, or in-home energy displays for consumers. That investment cycle, coupled with utilities focus on reliability, means they don't have big incentives to move quickly, said Rob Day, an investor at Black Coral Capital.

The decision to buy IT to use energy more efficiently at commercial or municipal organization is more straight-forward. At the U.S. Postal Service, GridPoint will be installing submetering hardware, which can report energy usage of big energy consumers in a building, such as heating and air conditioning units. Data from hundreds or thousands of locations is collected with an on-board computer and can then be viewed by energy managers through a portal. With that level of detail and alerts, organizations can find ways to lower energy use and troubleshoot equipment problems, Clark explained.

GridPoint hopes to parlay its energy-management services into revenue from installing solar arrays or performing energy audits, a line of business it gained in February when it acquired Standard Renewable Energy, which also caters to residential customers. GridPoint can also work with utilities on demand-response programs where customers are paid to dial down electricity use during peak times, Clark said.

There's ample opportunity to make money by lowering energy use at businesses , but it's a crowded market, said Day. Established building-automation companies, such as Siemens and Johnson Controls, have broad product lines and the demand-response field also has a number of suppliers. "I've seen a lot of start-ups and established companies targeting that sector," Day said.

The consumer end of the smart grid is also taking time to take shape. There are a number of companies that have developed home energy management systems to give consumers more detailed electricity consumption data and recommendations on how to be more efficient. GridPoint's customer-facing software is being used at smart-grid programs in Boulder, Colo.

But there are some doubts about how large that business can become and questions over whether utilities can effectively market these products. A recent survey by the Boston Consulting Group found that many consumers were eager to reduce energy use, but few understood the benefits of smart meters or utilities' smart-grid programs.

There are certainly still a number of companies earning money by supplying utilities. Smart meter makers or industrial conglomerates, such as Siemens, ABB, and General Electric, have many utility-related products while metering related companies, such as SilverSpring Networks, are doing well, said IDC's Nicholson.

GridPoint, which has raised more than $220 million in equity financing, is considered visionary in the smart-grid field and continues to pursue business with utilities. In the past several months, it has announced that its products will be used in stimulus-funded smart-grid programs and an electric vehicle charging trial with utility Baltimore Gas and Electric Company. But given the pace of technology change in the power industry, companies like GridPoint need to find a lucrative corner of the market while the smart grid matures.

"Would our investors have liked for the smart-grid space to take off and be the billions and billions of dollars people thought it would be two or three years ago? Absolutely," said GridPoint's Clark. "We believe it will, and part of being a successful early-stage company is making sure you're there to participate."

 

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