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Is Smart Grid in a Lull?

Aug. 12, 2013
Lessons from Wind

For some it may be a  little troubling to see venture capital funding of smart grid technology companies trending downward (see VC Funding in Smart Grid Remains Lackluster in Q2 2013.) A few years ago, smart grid was a darling media topic. There was even a mind blowing smart grid super bowl ad. Most power industry professionals have some involvement in smart grid activities, but their next door neighbors have long since forgotten the news articles and half-time ad.

Is the paradigm changing train of technologies and methodologies gathered under the umbrella "smart grid" losing steam? Nope – but it definitely is entering a tedious stage of implementation and maturation. Just as in every other technology revolution, there will be fits and starts. Check out the history of wind power as an example.

In the early 1970s the University of Massachusetts in Amherst started up the Wind Energy Center (WEC). The small faculty, led by professor William Heronemus looked for optimal ways of converting wind kinetic energy to useful electric power. Those were the days of the OPEC oil crisis and the critical need for US energy independence was constantly headlined in the public media and in political forums. So a renewable resource, such as wind, became a high-value national goal. As a result, the National Science Foundation awarded the center a grant that led to the construction of the first modern turbine design – a 25kW wind turbine sited on the university campus.

The technology might have remained a curiosity had it not been for the next stage of American entrepreneurship: a group of WEC alumni rustled up enough venture capital (VC) to form the first modern turbine manufacturing company. U.S. Windpower was founded in 1979 in Burlington, Massachusetts.

A year later, in 1980, the new company installed the world's first wind farm on Crotched  Mountain in New Hampshire. It consisted of 20 turbines, and a total windfarm capacity of 600 kw.

From that humble beginning, wind generation has grown to about 6 percent of total U.S. generation capacity. Last year broke the record for new wind installations – 12,000 megawatts nationwide, a 25 percent increase that exceeded capacity additions from any other fuel source.

But, as these things often go, U.S.  windpower didn't make it to the finish line. It changed its name to Kenetech, went through some rough spots with turbine failures and a weak market and then went bankrupt in 1996. However, many of its assets eventually ended up in GE Wind, which is doing quite well world-wide, thank you very much!

I like to tell that story because it illustrates how successful the combination of thoughtful R&D, public and government agreement, and private VC funding can be. But the process takes a long time, particularly in an industry like ours. It took wind 3 decades to get a toehold..

Right now it seems to me that there are good reasons for a pulling back of VC interest in smart grid technologies: First of all, the period of federal stimulus funding allowed huge leverage of VC funding. And that was the whole idea, to stimulate private financing. But that windfall is mostly over. Secondly, although the field of numerous smart grid companies and start-ups is being winnowed and consolidated through mergers and acquisitions, many of the M&As have already happened and much of the VC backed feeding frenzy is over. Of course, along with all the above, the U.S. (and world) economy is still pretty flat, discouraging new startups.

But still, there's the question of how much more private money or government subsidy is needed to develop and build out the smart grid as we envision it? Isn't it more a matter of implementation by utilities? Or am I wrong and the whole smart grid movement is beginning to lose momentum and grinding to a halt?

Now it's your turn.

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