Last week, I heard pitches from entrepreneurs based in Iceland, Malaysia, Denmark, and the USA.  There were some very interesting Smart Grid applications.  However, there aren’t enough pitches for Smart Grid innovations to convince me that Silicon Valley is fully apprised about the challenges and opportunities inherent to the Smart Grid.  In fact, I felt that the innovative spark had reached a new low as I listened to an entrepreneur make his pitch for a location-based smart phone application that would let you identify the type of underwear you are wearing.  Really???  The world’s climate is changing, causing disruptions in global food supplies and dislocations of populations.  Our ill-advised global dependence on oil is jeopardizing fragile economic recoveries.  And these bright minds can only come up with an idea to make it easy for us to let everyone around us learn about what we’re wearing.   Let’s file that under the “too much information” category. 

It’s also filed under the “bad news” category because it illustrates that significant parts of the entrepreneurial community are not engaged in the Smart Grid and developing the innovations that will solve important issues.  Issues such as improving the siting and energy intensity of clean renewable sources; improving the management of distributed generation  and microgrid assets; creating cyber secure or “hardened” distribution automation solutions;  developing  massively coordinated residential DR programs; and creating the best infotainment applications that educate energy consumers on the smartest ways to use energy, manage buildings, and transport things.

The good news is that Smart Grid investments in the USA rose by 88% over 2009 funding levels to a record $769M spread over 51 deals.  The deals range from network solutions to help utilities and other energy aggregators manage electricity production and consumption to Home Energy Management System (HEMS) plays that help consumers intelligently use energy.  Businesses in other countries are also putting significant investments into Smart Grid technologies – the big electronic firms in China, Japan, and South Korea, just like Cisco – have identified the Smart Grid as a big growth area – possibly bigger than the Internet. 

These trends hold the glimmer of hope that despite the lack of a national energy policy, investors are willing to take the plunge.  Some of that is most likely due to individual states like California creating markets through their energy policies.  The federal government delivered much needed stimulus to the Smart Grid market through the American Reinvestment and Recovery Act (ARRA), but this funding is now committed.  It will take a combination of more education to the entrepreneurial community about Smart Grid issues and opportunities and steady investment to ensure that the USA continues to be an innovation and technology leader in this strategic business sector.

Take a look at where Smart Grid investment funds are based.  Of course, the Federal government’s American Recovery and Reinvestment Act (ARRA) stimulus fund kickstart of $3.4B beat all other sources of money.  But from a venture capital perspective, the top 3 US geographic sources of funding in 2009 were

• Silicon Valley (Northern California) – $1.2B
• Southern California  - $329.5M
• New England – $283.7M

Much of this investment is going to a category called energy efficiency (EE) rather than alternative energy technology.  There are several reasons for this, and the primary reasons are that EE plays have lower funding requirements than alternative energy investments which are capital-intensive, can be brought to market faster than many other Smart Grid technologies, and have a comfort level with many venture capitalists who can relate EE research, development, and deployment (RD&D) to familiar ICT (Information and Communications Technology) RD&D. 

 Silicon Valley has tremendous intellectual expertise in a number of areas that can and should make significant contributions to advancing Smart Grid solutions.  The centers of expertise include

• Software for any application
• Security and encryption
• Semiconductors, processors, and chipsets
• Game design
• Communications and networks

There are more Smart Grid-related conferences, seminars, and webinars here that expose workers from all backgrounds to the challenges and opportunities in this business sector. What I call the region’s innovation infrastructure encourages interesting fusions of different areas of expertise.  Workforce mobility and mindset supports innovation with a near constant circulation of resources in companies that expose employees to new technologies, business models, and problem-solving approaches.   There is an expectation of sharing knowledge and synthesizing data into new insights.  Silicon Valley also has a number of incubators – organizations and business plan competitions that encourage and support the growth of great ideas into viable companies.  The concentration of world-class colleges and universities in this region further enhances this concentration of intellectual capital.   

The big challenge is how to engage Silicon Valley and utilities together into a full-throttled drive to create the optimal Smart Grid solutions that will reduce energy costs for consumers and utilities, reduce greenhouse gas emissions, and build national energy security.  I recently read an article that examined the reasons for Ford Motor Company’s success in revamping its business operations.  Mark Fields, EVP and Americas President was quoted as saying, “These high-tech companies work at a very different clock speed than us, a much faster clock speed.  We had to jump in.  We had to learn.  We started thinking like a software company.”   

Can utilities learn to move at faster speeds?  Can Silicon Valley cultures learn to work with utilities and respect their regulatory and operational environments?  For example, utilities need to test all new solutions to ensure that they won’t “break the grid”.  Telecom companies have been doing this for years, too, and the lengthy and repetitive investigations not only test the solution, but the patience and financial resources of the solution vendors.  Here’s one area where a little process and model innovation should be welcomed by both utilities and Smart Grid vendors to drive down costs of doing business and accelerate introduction of solutions. 

The stakes are high, and it’s not a given that the Smart Grid will be built in the most intelligent and cost-effective ways, but the good news is that the great innovation engine called  Silicon Valley is going to be a real player in this game.