Hot to Trot at the Smart Grid Party, but Your US DOE Date is Not!

That must be how the smart grid vendors feel after US DOE announced the first $47 million in grants for smaller scale demonstration projects.  But the “date with the hottest girl at the party”, US DOE, probably won’t happen until next year’s prom since awards of “dates” from the $3.375 billion of stimulus money for larger commercial-scale projects like smart grid deployments, now seem unlikely to happen until early to mid 2010.

Worse is that eight of the projects selected to receive the $47 million award previously had “dates” with USDOE and got $17 million last year.  What is that telling you?  Several things:

  1. US DOE Does Not Have a Clue What it’s Doing and is High Maintenance.  The $47 million in grants awarded were merely add-ons for existing projects to give the impression of progress in getting stimulus money out where it will do some good. If you can’t get the stimulus money moving in time to stimulate the market, why do we need to spend all this “stimulus” money?
  2. By the Time Stimulus Money is Released You Won’t Need it.  Either because the market will have turned around enough that you will have better chances for funding from traditional sources like utilities interested in buying your stuff or private equity funds seeking to cash in on the Government’s screw-ups which put many more players at risk in this emerging segment of the energy industry.
  3. You Will Starve to Death Waiting for Help from the Government.  The inconvenient truth is that the stimulus program for smart grid is having the perverse effect of distracting many players who hoped for a date with the US DOE prom queen and thus passed up a chance to dance with another girl at the party where your odds of having a good time were better.

So Who Got Lucky?


Award

Winner

Project

$8.1 million

Zenergy Power (AIM: ZEN)

Fault current limiters demo project in California to test equipment to shut down transmission lines overloading to reduce blackouts

$4.8 million

$7.6 million

American Superconductor Corp. (NSDQ: AMSC)

Advanced superconductor fault current limiter technology; same stuff different vendor.  AMSC also got $7.6 million to extend the Long Island Power Authority (LIPA) voltage level superconductor cable system

$4.8 million

Fort Collins, CO Municipal Utilities FortZED

Ft Collins Zero Energy District project combined distributed generation, smart grid and other technologies to achieve 15% demand reduction at a neighborhood level.

$5.4 million

Illinois Institute of Technology’s perfect power prototype.

Similar project only for ITT’s Chicago campus combining smart grid technology, renewable energy, efficiency and demand response

$5.5 million

University of Hawaii Natural Energy Institute-Manoa

Project to integrate wind and other renewable energy at the distribution grid level to improve energy efficiency and reduce emissions.

$5.6 million

ConEd, New York

Project to install devices at customer premises to cycle power use at peak to reduce system load.

$5.7 million

University of Nevada-Las Vegas

Develop a “community of green homes” using distributed gen, DSM strategies and monitoring data devices to test alternatives and publish research results.

Meanwhile, a recent report from a market research firm tracking the smart grid segment says that the global economic recession is slowing the deployment of advanced smart metering systems to no one’s surprise.  According to Parks Associates [1] there are about 8.3 million smart meters in use as of May, 2009 representing a market penetration rate of about 6% of total residential electric meters in the US compared to the FERC estimate of 4.7% a year earlier.

While that sounds like real progress despite the recession, the pace of growth is not fast enough to enable the many vendors to reduce their costs of installation and scale their market share.  Many vendors fear being overtaken by stronger competitors in a coming shake out of the segment.

The Parks Associates study expects smart meter market penetration to reach 13.6 million meters by the end of 2010 and 33 million by year-end 2011 as some of the largest utilities and smaller but greener municipal utilities find funding to bring smart grid solutions to fruition.

Stimulus funding was initially seen as a dramatic shot in the arm to realize those fast growing market penetration rates, but the slow pace of the Federal Government release of the stimulus money and the high cost of doing business with the government and enduring its bureaucratic process is leaving many to worry that the aggravation may not be worth the effort—especially if the awards are not expected until 2010.  Worse for the smart grid vendors, their best utility customers now eager for a piece of the stimulus pie to offset their costs and look good with their regulators are more than willing to wait in the US DOE queue effectively slowing the market penetration growth rate near term.

This significantly enhances the leverage of private equity players seeking to take advantage of the cash starved needs of smart grid start-ups.  Expect an increasing pace of M&A in this category as deal flow slows and private equity sharks smell blood in the water.

For utilities shopping for systems, the added time in the stimulus queue is also good insurance against making an unfortunate choice of a weak player. The expected consolidation of vendors also brings together more complete solutions in better integrated packages.

One throat to choke, more competitive prices, an excuse to avoid spending cash in the recession, fewer hassles from regulators who know you are waiting in the USDOE queue for money to reduce ratepayer costs—all music to the utility CEO’s ears.

So what?

The good news in this for ratepayers and taxpayers is that time is an ally in smart grid selection allowing the market to ruthlessly weed out weaker players, improving the value propositions from the ‘survival of the fittest’ best technology available, and getting that technology at more competitive prices because of market forces and, if the date with the US DOE prom queen goes well—she might even go ‘dutch” and pay for dinner in a stimulus award.

A little stimulus, well timed is a wonderful thing and the Federal Government’s willingness to spend fast to jump start the economy is good—but not if it is just a tease or the kiss comes after 100 other guys got one first.


[1] http://newsroom.parksassociates.com/article_display.cfm?article_id=5168