What Silver Spring’s IPO means for the smart-grid landscape

Last week’s launch of Silver Spring Networks’ long-awaited IPO is a big deal for the smart-grid industry. The company’s early public performance could be considered a gauge of the sector’s health as it emerges from a stimulus-backed growth spurt into an uncertain future. And in the longer run, Silver Spring’s success or failure will be closely tied to its plans to build a smart-grid application-delivery platform from its smart-meter networking base — a challenge many utilities face in integrating smart-meter deployments into their smart-grid offerings.

The company, whose networking technology is inside 8 million deployed connected devices and another 9 million under contract, has benefited from the $4 billion U.S. federal smart-grid stimulus. Its S-1 reports $422.2 million in deferred revenues, compared with 2010 revenues of $70.22 million, with much future revenue tied up in stimulus-funded projects. But that stimulus is coming to an end, and last week’s federal action plan on demand response (PDF) said the industry shouldn’t expect any more federal funds beyond existing stimuli. Likewise, the Obama administration’s smart-grid initiative, launched last month, contained little new funding beyond $250 million for rural grid projects.

For Silver Spring, that means new growth must come either from outside the U.S. — something that has begun to happen in Australia and that could happen in markets such as South America — or by adding new businesses to its existing smart-metering deployments. How to tackle that challenge is an important question, not just for Silver Spring but also for competing startups such as Trilliant, SmartSynch, Tantalus and Tropos Networks, not to mention giants like Itron and Landis+Gyr.

Home energy management could be one route. Silver Spring has home-energy and demand-response platforms, and pilots show that it works to drive down energy use. But home energy management remains a very uncertain market, as the withdrawal of Google and Microsoft from the field indicates. A June survey by Black & Veatch (PDF) found lack of customer engagement the biggest barrier to utilities’ justifying investments in customer-facing smart-grid deployments. Silver Spring might have to wait awhile for its utility partners to start spending on home energy management. Even then, utilities may choose another HEM provider to run over Silver Spring’s networks.

Silver Spring could also tackle the utility side of the smart grid. Corporate smart-grid M&A activity has been booming, and most of it has been aimed at utility-centric software and hardware systems. Silver Spring has distribution grid systems, and it is testing them with utility AEP in Ohio. But it will be competing against some huge multinationals like ABB, GE, Siemens and Alstom for that business.

In the long run, Silver Spring wants to build a host of applications — plug-in car management, demand-response controls and the like — on the foundation of its smart-grid networking platform. Whether utilities will choose Silver Spring’s in-house systems or pick other companies in those fields to run over Silver Spring’s networks may decide whether the company’s growth potential is limited to making smart-meter networking cards or whether it will expand to become a services provider for the grid — a move it will want to make to take part in the broader transformation of power grids to come.

In an interesting way, U.S. utilities at large face a similar challenge. They invested at least $2 billion last year into more than 12.8 million smart-meter deployments and are expected to invest a little bit more this year and next. This investment is with the promise of using the smart meters not just as digital cash registers but also as grid-management devices and gateways to new forms of customer interaction. Maybe Silver Spring can be the smart-grid champion to get the ball rolling. If utilities can’t deliver the full range of services and savings they’ve promised from their smart meters, however, regulators and customers might start to believe the entire smart grid is a waste of money, spelling disaster for everyone involved, Silver Spring included.

Question of the week

How will Silver Spring Networks’ IPO gauge the market’s interest in the smart-grid sector writ large?

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Smart grid — what’s in it for us? That’s the question that big industrial and commercial power customers are asking of the multi-billion dollar smart grid push that will eventually extend into the buildings they own, according to a recent opinion piece by Bob Zak, president of Powerit Solutions. As far as he’s concerned, it’s not clear that utilities are making the right pitch to their biggest power users. He should know, working for a company that specializes in industrial power management gear made to link to smart grid and demand response programs. Without smart buildings to talk to the smart grid, big industrial and commercial clients could find that new technology doesn’t really yield a payback. After all, if your building can’t react to demand response signals, it can’t really capitalize on the opportunity to shed power load to make money. Things could get even worse as utilities move more toward time-of-use and variable power pricing to get customers to lower power use during peak demand times, since those that don’t upgrade their own buildings could be stuck paying much higher power costs.

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Can Oracle help utilities link smarter grid systems and more energy-aware utility customers? That was the subject of an interesting phone conversation I had yesterday with Linda Jackman, Oracle Utilities Group vice president of product strategy and management. Oracle’s been much more of a back-end player in smart grid to date, with its utility customer billing and management platform, as well distribution grid management with partners such as Grid Net and Current Group. But its next steps involve helping utilities manage all the new forms of customer-facing technologies — smart meters, rooftop solar panel management systems, plug-in vehicle chargers and the like — from their back-end systems, Jackman said. Examples include work Oracle’s doing with the Irish utility Bord Gáis Energy, which operates in a deregulated market where retail power providers can offer various plans like pre-pay, time-of-use and variable pricing plans, or a real-time pricing pilot Oracle’s setting up for 200,000 smart meter-enabled customers of an unnamed California utility. Utilities certainly face a lot of challenges bringing their back-office systems up to handle the more real-time interaction that new smart grid technologies can provide.

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Can the municipal Wi-Fi concept make the leap to all-inclusive smart grid communications solution? Sunnyvale, Calif.-based Tropos Networks is trying it out, and this morning unveiled new products and networking architecture meant to bridge every smart grid application from super-fast distribution automation gear to millions of smart meters. GridCom 2.0 includes both mesh and point-to-multipoint radios for a range of different bandwidths, including those commonly used for industry standard WiMAX. While Tropos has some large-scale contracts outside the U.S. (including a 1.5 million meter-reading system in Abu Dhabi), its U.S. business consists primarily of municipal utilities like Silicon Valley Power in Santa Clara, Calif.. But these newly announced products sound  similar to systems Tropos has been installing for Spokane, Wash.-based investor-owned utility Avista since last year. Tropos CEO Tom Ayers told me about the Avista project last fall, describing a comprehensive distribution automation program aimed at squeezing at least 5 percent greater efficiency out of the grid, as well as a “permanent infrastructure” to add new systems in the future. I’m awaiting a call with Tropos to learn more and will report at Earth2Tech later today — stay tuned.

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As far as smart grid prognostications go, I’d have to say I’m on the same page as in Pike Research’s new white paper, “Smart Grid: Ten Things to Watch in 2011 and Beyond.” Among Pike’s predictions for next year: Europe and China will overtake the U.S. as the key smart meter markets; smart meters will fade in importance compared to distribution automation; demand response providers will keep expanding their business models; stimulus funds will start to have a real impact; and smart meter enabled customers will continue to complain (the “Bakersfield effect”), though others may actually like their new smart meters. Pike’s biggest worries?  Cybersecurity for the smart grid, and data management for the petabytes of information flowing from new smart meters and other grid devices.

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