Why Buying and Selling Energy Is a Smart Grid Advantage

March was already a huge month for smart grid acquisitions, then last week, Schneider Electric announced it would spend $268 million purchasing Summit Energy. It was one of the bigger M&As in the smart grid sector, and also it was a little different. Where most smart grid buys have focused on technology, Schneider’s deal was a wholesale dive into the new market of buying and selling energy itself.
That’s because Summit already manages $20 billion in annual power purchases for some 650 corporate clients, making it a power broker in its own right. If Schneider succeeds in integrating that market power with its grid and building power control technologies, it could add a whole new level of complexity — and potential — to the concept of the smart grid.
Jeff Drees, president of Schneider’s U.S. business, explained the reasoning to me in a Wednesday interview. The idea, he said, is to integrate Schneider’s existing strengths in building energy efficiency with Summit’s ability to cut the best power deals with customers.
“There’s a race to be the true smart grid provider,” he said. “We know how to build substations, automate the grid, automate the building, and now we know how to help customers make buying decisions when they go procure.”  That, in turn, can yield benefits that weren’t possible before, he said.
For example, retrofit customers could invest in equipment that allows shedding power load for demand response, then market that load-shedding ability via Summit’s services to demand cheaper power supply agreements.
That’s a pretty complicated task, but Summit should be up to it, Drees said. “They know every state, deregulated and regulated… they know how to look at real-time pricing for power and gas… and they bring the best real-time agreements to their customers,” he said.
Drees expects the combination of Summit’s and Schneider’s expertise could cut in half the time it takes to return the cost of efficiency investments, from 3 to 4 years today, to less than half that over time. Schneider isn’t targeting that kind of improvement right away, however, it will take three to four years of integration and growth to get there, he estimated.
In the meantime, Schneider will face a lot of competition, both on building-side power systems and automation from the likes of Honeywell (s HON), Johnson Controls (s JCI) and Siemens, and on the utility side of the smart grid via its acquisition of Areva’s distribution business, where it faces contemporaries like Siemens (s SI), Alstom, General Electric (s GE) and ABB.
All these players are busy acquiring their own pieces of the smart grid puzzle as well. This month saw two innovative players in the demand response software space get bought up: EnergyConnect by Johnson Controls and UISOL by Alstom. On the smart buildings side, IBM (s IBM) bought real estate energy and sustainability software provider Tririga.
Since the start of the year, we’ve also seen ABB acquire Obvient Strategies, which makes smart grid business intelligence software, and U.S. demand response leader EnerNOC (s ENOC) snap up M2M Communications, which makes technology for the agricultural and water demand response markets. Schneider hasn’t been left out of the technology race; in December, it bought French software startups Vizelia and D5X.
Another interesting competitor to Schneider’s plans for Summit might come from Constellation Energy (s ceg), the big energy company that bought demand response provider CPower last year. Earlier this year, Constellation launched its VirtuWatt platform for giving its own customers an interface between their own demand response systems — the technology that turns power use off and on to shave peak grid loads — and the markets that determine how much customers get paid for that service.
In the future, however, Constellation says it hopes to use VirtuWatt to help its customers better plan power purchases from Constellation itself. That ability could expand the concept of load-shedding from something you do to earn a payment from a demand response program to something you do to play energy markets on an hour-to-hour basis.
Image courtesy of Tulane Publications via Creative Commons license.