Smart Money Aims to Power the $200 Billion Smart Grid Sector

To date, the primary emphasis in alternative energy investments has been on new ways to create power. But that's changing fast as entrepreneurs dream up new ways to conserve energy and use the existing power grid more efficiently. That's why alternative energy experts and venture capitalists have pegged the so-called smart grid sector as one of the hottest emerging areas for investment. Greentech consulting group Pike Research released a report on Dec. 28 that put the value of smart grid infrastructure investments and technology development at $200 billion between 2008 and 2015.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% If anything, that number may be low. Utilities in the U.S. alone aim to replace tens of millions of electricity meters with newer versions that can better report what's happening in a home or a building, and help both the power company and the customers save money and energy. That massive swap-out, already under way in California and Florida, among other places, will cost billions of dollars.

Pike Research Managing Director Clint Wheelock says smart meters are only a small part of the total smart-grid investments. Said Wheelock in a press statement, "Smart meters are currently the highest-profile component of the Smart Grid, but they are really just the tip of the iceberg. Our analysis shows that utilities will find the best return on investment, and therefore will devote the majority of their capital budgets, to grid infrastructure projects including transmission upgrades, substation automation, and distribution automation."

The Trick: Delivering Power When It's Needed

Those additional investments in automating the grid's infrastructure will dramatically increase its ability to handle electricity supplied by renewable energy sources, which can fluctuate widely. Wheelock estimates these types of investments will represent more than 80% of the total and will be essential to the success of alternative energy.

Wind power, for example, is highly variable, and the battery or electricity storage infrastructure required to buffer against the variations remains in the earliest stages. Solar power, too, works only when the sun shines, leaving utilities that are heavy buyers of solar energy with the need to figure out how to balance this renewable stream of electrons with legacy power production.

To make matters somewhat worse, photovoltaic cells stop generating power right after sundown, which happens to be a peak demand period for most of the hot-climate states. Solar thermal power can buffer that differential, but to date this type of solar power, which harvests heat to turn turbines, remains little used in the U.S. and abroad.

There's no doubt, however, that venture capitalists and investors are working themselves into a lather over smart-grid prospects. Kleiner Perkins-backed smart-grid technology supplier Silver Spring Networks raised $100 million in December and denied rumors of a pending initial public offering. Another prominent company, smart meter-maker Itron (ITRI), is a favorite of hedge fund investors, who have ridden it up to the $100 range and down to around $40 before it settled into its current $70 price range.
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