Smart Grid/Demand Response: an Alternative Energy Space to Watch

March 5th, 2007

It struck me that most of the attention in the cleantech/alternative energy space seems to go to solar and biofuel technologies. A look at 2006 venture investment trends confirmed this impression, so I bugged a friend who knows far more about the space than I. He pointed me toward Demand Response, or “Smart Grid” technology, as an up-and-comer. After a bit of research, I think he is on to something.

Both terms refer to a distribution system for electricity that can detect and manage peak loads more efficiently. The electric grid is designed to handle loads up to a certain amount. Past that and adding capacity becomes much more expensive (esp. if it requires new plants to be built) and/or reliability becomes a concern (witness the East Coast US blackout of 2003 and various “brownouts” in California over the past few years). And then there’s the issue of added pollution and CO2 emissions arising from inefficiencies in the existing system, where the grid has excess capacity for parts of the day and struggles to meet demand at others.

Enter the Smart Grid. There are some really interesting technologies maturing in this field and I believe it is going to start getting more attention in the near future. In particular, two companies in the field have filed for IPOs in 2007. Investors will be watching Comverge and EnerNoc closely as bellwethers for the sector.

Comverge is a fascinating business because it demonstrates the power in aggregating small changes. The company sells equipment that lets utilities reduce demand during peak periods- for example by turning down air conditioners and hot water heaters slightly across a large group of consumers. The net effect can be enough in the short term to keep the lights on, or reduce the need to buy expensive “emergency” power. Long-term, the idea is that the savings can help the grid make do with fewer power plants.

EnerNoc focuses on commercial and industrial electricity customers instead of residential ones, especially customers with their own backup generators. By monitoring demand and capacity, EnerNoc is able to switch on these generators both to reduce overall demand at peak periods, and to put energy back into the system as well. The result for these users is not merely cost savings due to reduced drain from the grid, but potentially money back for the power supplied back into the system.

VentureOne (subscription required) described in a recent article a host of companies that can help monitor and regulate demand, including chipset, broadband-over-powerline and wireless sensing companies such as Current Communications, BPL Global, Intellon, Miartech, DeepStream Technologies and SmartSynch. These companies will be falling in behind the Comverge/EnerNoc vanguard, I am sure.

Coming at the issue from a different part of the spectrum is Fat Spaniel, a provider of online monitoring tools to users of grid-based electricity as well as solar systems. The principle is to let consumers see their energy consumption in better detail and decide when to increase loads and when to conserve. The company doesn’t appear to aggregate customer data right now, or plug into DR management systems, but to me it seems like a natural adjunct to something like Comverge’s technology. I have to think that consumers would be a lot happier about having their ACs turned down if they could see the savings to them personally.

It will be fascinating to see how the Comverge and EnerNoc IPOs play out. If successful, I have to think that the space will start getting a lot more attention. Many of the companies are past the startup phase as well, so we could see some real growth in fairly short order. We will stay tuned to see how things unfold.