A Smart Grid Bubble, or Business as Usual?


Photo via chefranden via Flickr CC

After the housing bubble burst and the subsequent economic muck thickened around our feet, the fear of investment bubbles became practically tangible. Even late last year, major venture capital firms were assuring investors that there isn't a bubble around clean tech investing. And they were right. Pointing out areas of smart grids, green building, alternative energy including solar, wind, and biofuels, energy storage, and transportation as particular hot spots, we've seen investments slow to a degree during the first half of the year, but certainly not stop. So, where does all this buzz about the smart grid being the next bubble come from?The smart grid is the techy revamp of our power grid that will allow utilities and customers' buildings to have a dialog, so that energy consumption is managed in real time to create an environment of energy efficiency, power reliability even from renewable energy sources, and effective real time pricing.

The Smart Grid Bubble Hype Gets Rolling

At the beginning of the year, big players like IBM's Venture Capital Group were touting that 2009 would be the year of the smart grid's big bang. Yet last week, CNET's Martin LaMonica posted that Diana Propper, a clean-tech venture capitalist at Expansion Capital Partners stated during a panel at Utility of the Future conference: "I worry that there's so much money being sloshed around, whether it's venture capital or corporate or government money, that it will be spent inefficiently," she said during a panel. "The risk of a bubble is real." Greener Computing hopped on the story and the fire really lit up.

But it seems that the buzz is more about the key word "bubble" and the image of what the last bursting bubble did to the American mindset on swift investing, than the reality of the smart grid as a fact of our future.

Investment Bubble or No, the Smart Grid is Happening

The smart grid is necessary. If we expect to generate alternative energy from sources that are inconsistently active, such as wind farms that can only generate electricity when the wind is blowing, or solar arrays when only sunny days will provide us with power, then we have to have a grid capable of incorporating these energy sources in with the ones that are more consistent.

We also have to have a grid that can provide a detailed interaction between utilities and buildings so that the power being provided is used efficiently and effectively, helping to cut down on demand and carbon emissions. In fact, a new study just released shows the energy saving potential of widely implemented demand response technology. The Federal Energy Regulatory Commission (FERC) projects that the demand response potential for the next ten years could save between 38 and 188 GW in the US - or 20% of national peak demand - depending on how extensively it is applied.

We have no choice but to upgrade our grid if we want to be energy savvy. And we do indeed want to - and have to - be energy savvy.

The Gadgety Side of the Smart Grid is Really the Fodder for Bubbles

The smart grid is our future, and it's far enough in the future that it needs any and all investment headed in its direction. As Katie Fehrenbacher of Earth2Tech points out, it's really more about all the companies hopping on to provide the recognizable consumables - the home energy management systems - that could form this bubble.

[V]enture capitalists have clearly been flocking to the home energy management space. It's a favorite for VCs partly because they can easily understand it -- it looks (and is) about connected gadgets, software and wireless communications. At this point the amount of VC-backed companies is really starting to get out of control...So basically there are a lot of new, young companies trying to sell the same things. That could be beneficial for consumers (more choice) but will not be beneficial to the companies themselves. Expect a lot of these new firms to get bought up cheaply or even fold.

And when we think about it, how often have we written here on TreeHugger about a new power monitor, a new home automation system, a new deal between a smart meter company and a utility? A lot. However, the common statistic is 9 out of 10 business start-ups fail in their first two years. So is it really a smart grid bubble, or simply a brand new industry with a lot of start-ups that are bound to fulfill this business rule of thumb?

There's More to Investing in the Smart Grid than Home Automation, like Security

There's so much more to the smart grid, and related areas needing investment, that we don't talk about as much because, well, it isn't as sexy. But still, they're areas of extreme relevance. Such as security.

Equal to the smart grid bubble buzz is the hype around smart grid security issues, which is a real concern, though it is sparking some fear-based mumbling that the smart grid isn't even close to being a reality. It's been highlighted that hackers can break into the smart grid and cause blackouts. Yes, that's a concern, but also a manageable one. Really, if we want to get freaked out about the power hackers have over our tech systems, we just need to go to a Black Hat Briefing and we'll walk away leaning on one another saying, "What's the point of using anything with a computer chip...?" Ultimately, there's no reason to think we won't be able to overcome the hiccups inherent in creating the new smart grid...especially with some investment money thrown towards companies working on solutions.

There are few risks that aren't worth taking on in order to revamp our power grid, and hackers and heady investors are two of them we should be willing to take on.

See also Wide Angle: The Smart Grid by Discovery News.

More on Smart Grid
First Batch of Smart Grid Standards Announced
The Next Big Oil: Big Smart Grid?
Smart Grids Are the Big Thing of 2009

Tags: Electricity | Energy Efficiency | Utilities

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