Wave of Investment Gives Smart-Grid Companies a Power Surge

Utilities across the country are gradually replacing old meters and communications equipment with ones that can quickly tell them the energy usage of a home or business and whether there's equipment failure in their power distribution network. This new type of network, typically called the smart grid, has been grabbing a lot of private and public investments lately.

On Thursday, Silicon Valley's eMeter said it has raised $12.5 million to help it expand its business and compete in an increasingly crowded field. The private company develops distribution-network management software for utilities to automate meter readings and respond to power outage and equipment failures. The software also helps utilities to figure out where and how to roll out new smart meters and communications equipment.

eMeter also offers software that allows consumers to monitor online their energy usage and resulting cost. This service would have to be provided by utilities and aims to encourage consumers to reduce energy use during peak hours, when electricity can be more expensive.

Some States Require Conservation

Utilities and operators of electric grids want to be able to more closely monitor energy use so they can better figure out how much power to produce, buy and sell at any given time, and to reduce chances of blackouts.

In addition, some states have policies that require utilities to set up energy conservation programs. In some states, utilities can't simply make money based on the amount of power they sell. They must seek approval from state regulators on how much money they can collect from customers, and they get incentives for carrying out conservation efforts successfully (here is a website that lists states with energy-efficiency policies).

eMeter, which previously raised $32 million, has lined up quite a few customers, including Southern California Edison (SCE-E), Central Vermont Power, Independent Electricity System Operator in Canada and Vattenfall in Europe.

Replacing the Old Grid With a Smart One

Major U.S. utilities have announced plans or are in the process of replacing old meters and communication networks. Investors have taken note and thrown a lot of money at startups creating a variety of software and equipment for the smart grid.

Smart-grid technology companies raised $255 million in venture investment in the second quarter of this year worldwide, according to preliminary data from the Cleantech Group and Deloitte. Some of the biggest deals include the $165 million raised by Swiss meter maker Landis+Gyr and $52 million by Florida-based OpenPeak, which makes table-top display devices for consumers to see how much energy they consume.

In an ABI Research report released today, the market research firm estimates that investments in replacing the old electric grid with smart-grid technologies, including upgrading the transmission equipment, could be close to $46 billion worldwide from now to 2015. Installing smart meters will account for $4.8 billion, or 10%, of the spending during that time.

Giants Enter Fray

Increasingly, major players in the communications equipment field are getting into the smart-grid business. Last week, Cisco said it was rolling out a display device that utilities can offer to consumers for displaying their energy use at home. The company is coupling that offering with software for utilities to control communication equipment and adjust electricity delivery, such as by reducing power to specific homes or business during peak hours (the customers could get incentives, such as credits on their bills, for participating).

Cisco (CSCO) has lined up Duke Energy (DUK) in North Carolina as its customer, but Duke only plans to do a field trial of Cisco's offerings in 100 homes this summer so far.

Some smart-meter makers, such as Itron (ITRI), have developed their own data-management software, making them direct competitors for eMeter. In the home energy-management market, eMeter is also up against a host of newer entrants and tech giants, including Tendril Networks, EnergyHub, Google (GOOG) and Microsoft (MSFT).

Google is peddling its PowerMeter software for displaying energy use, electricity pricing and other information online. The software is already showing up in gadgets that consumers can buy directly today.