October 08 2008 / by Garry Golden
Category: Energy Year: 2012 Rating: 7 Hot
Red Herring is reporting on a $75 million investment round led by Kleiner Perkins Caufield & Byers for Smart Grid startup Silver Spring Networks. Kleiner’s involvement lends support to forecasts that ‘smart grid’ systems are a near term possibility.
The ‘smart grid’ is coming, but arriving at this future is likely to include some twists, turns and battles led by some ‘Big Grid’ utilities who might struggle to see their role in this alternative future.
At the surface ‘smart grid’ concepts sound like a logical next step for the modern day utility grid: minimizing downtime, managing peak demand, improving efficiencies, and anticipating problems before they occur all sound like a positive step for the world. But underneath it all the ‘smart grid’ is incredibly disruptive to the regulatory framework, operational standards, capital investment strategies and business models of most large utilities.
To understand the evolution of the ‘smart grid’ and the utility of the future, we can imagine two initial stages of development.
Part One: Software for Managing Infrastructure
The first steps to building a ‘smart grid’ utilize the power of software to maximize the efficiency of the grid. Simply put, we add a layer of information technology to improve management of existing one-way grid infrastructure to improve performance and reduce costs.
Part Two: Onsite Power Generation & Electron Storage
In essence the software phase of ‘smart grids’ is an incremental improvement and only a minor threat to business-as-usual future for utilities. It preserves the current model of central power plant to wall socket ‘stream’ of electricity.
The real disruptive potential of smart grids could occur when we actually produce energy locally, and store electron energy at the edges of the network. This future transforms this one-way grid into a two-way flowing ‘web’.
Distributed power generation via solar, wind turbines, fuel cells, generators (et al) could undercut the core business model of big utilities and require significant investments in new metering capabilities. This distributed power model is even more disruptive when we can effectively store electricity at the edges of the network via batteries, capacitors or hydrogen fuel cells.
This evolution of the grid is often described as a two-way flowing ‘web’. Advocates argue that this strategy helps to alleviate the strain on our grid during peak demand and could lower costs for both producers and consumers. But there is no denying that it shifts revenue models and opens up the power generation market to non-utility companies providing distribution power systems solutions.
[Note: While we might naturally look to consumer grade energy solutions, the implications of residential consumers generating their own power is minimal when compared to the potential of megawatt consuming institutional buyers who see real cost savings around onsite production and storage. The greatest potential for disruption might be based on choices made by hospitals, factories, and computer server / telecommunication centers.]
Utilities confronting a new reality
There is certainly more to this story – especially as we move towards an age of ‘embedded objects’ where low-cost sensors, wireless infrastructure systems (e.g. Zigbee) and micro power systems begin to really change how we manage energy consuming devices and appliances.
But for now, we’ll keep things simple! The ‘smart grid’ is certainly a good thing for the future, but change is never easy. And it will likely be ‘Big Grid’ utilities confronting the disruptive potential of this convergence of software, distributed production, storage and sensors known as the Smart Grid.