A smarter, greener grid
Our clunky, brownout-prone electricity distribution system is about to enter the Computer Age, and Ray Bell's smart meter could be the key.
(Fortune) -- The electric industry has been talking for decades about bringing the nation's antiquated, inefficient, glitch-prone energy grid into the Computer Age. Now, with energy demand rising twice as fast as supply, it's finally happening, thanks to a rare alignment of interests - government, business, consumer, and environmental.
Government and industry studies estimate that a modern digital energy grid could trim the country's power usage by 10%, reduce greenhouse gas emissions by 25%, and eliminate the need for $80 billion in new power plants. "It's not a question of whether such a grid can be built," says Rick Nicholson, an energy analyst at the market research firm IDC, "but when."
The basic idea is to replace a passive, analog electricity delivery system with one that is two-way and aware of what is happening to it at any moment. In other words, a smart grid. It's not going to be cheap.
According to the Edison Electric Institute, utilities over the next 20 years will spend hundreds of billions of dollars on infrastructure improvements, including computers, sensors, and networking systems. This is a huge new market for IT and networking companies, and there is no shortage of firms big and small scrambling for a piece of the business, including IBM (IBM, Fortune 500), Siemens (SI), Google (GOOG, Fortune 500), and Goldman Sachs (GS, Fortune 500).
One of the players best positioned to capitalize on the rollout of the smart grid is a Silicon Valley entrepreneur named Ray Bell. Bell, 52, a veteran of Oracle (ORCL, Fortune 500), Cisco, and a network services company he started called SmartPipes, has focused on what may be the most profitable component in the new system: the electric meter that sits in your basement and ticks off the watts as you consume them.
There are 1.4 billion of these meters in the world, about 10% of them in the United States, but many are the electromechanical type that hasn't changed much since it was invented in 1888. It costs roughly $300 apiece to replace them with one of Bell's so-called smart meters. Southern California Edison will spend $1.7 billion over the next four years to equip 5.3 million homes with smart meters made largely by competitor Itron, based in Liberty Lake, Wash. Bell thinks he has made a better one.
He has some important backers. His main partner is the biggest, most dependable name in the business: General Electric. In addition to building giant power plants, GE Energy, through its transmission and distribution division, generates some $2 billion a year making meters, transformers, capacitors, and the like for utilities around the world.
A couple of years ago GE decided to get serious about the smart grid. "As soon as you put communications across the power grid, huge opportunities emerge," says Bob Gilligan, head of GE's T&D unit. He estimates that the worldwide market for smart grid components and software is about $20 billion a year.
The idea Bell pitched to GE two years ago was a meter that could measure electrical usage and act as an Internet router, communicating wirelessly with both the utility and the end user. Utilities could monitor energy usage remotely and would know at the first sign of trouble what had gone wrong - without having to dispatch a truck to the site. Consumers, for their part, would know exactly what they were paying for electricity at any moment and could adjust their behavior during peak hours.
GE and Bell struck a deal. He designed the wireless interface and the network software, which he is licensing to GE; the company is manufacturing the devices and selling them - along with some other solutions - to utilities.
Two utilities have already agreed to test GE's smart meter: American Electric Power, which has five million customers in 11 states, and EnergyAustralia, a large utility based in Sydney. Another half-dozen utilities have expressed interest, says Bell.
There's plenty of competition. The biggest company in the field is Itron, with revenues of $1.5 billion. But independent observers say the market is very much up for grabs. Itron won the big SCE contract last year, says Erich Gunther, chief technology officer at EnerNex, an electric power consulting firm in Knoxville, Tenn., not because its technology was so great, but because the alternatives were so much worse.
The GE brand means a lot to utility operators, a beleaguered bunch with regulatory agencies breathing down their necks; no utility manager ever got fired for buying from GE. But Bell's system has another feature that has captured the interest of Internet users: his meters communicate with the outside world using WiMax, a networking standard that works something like Wi-Fi but has roughly 50 times the range. Intel builds WiMax chip sets, and Intel Capital has invested (along with GE Capital) in Bell's startup, Grid Net.
Nobody would be happier to see Bell's venture succeed than Craig McCaw and his team at Clearwire Corp., the company McCaw founded to provide high-speed WiMax Internet access across the U.S. Clearwire's deal with Sprint to build a nationwide WiMax network stalled last year (see update). An electric meter with WiMax built in could be just the thing to bring Clearwire's wireless Internet into American homes, if not through the back door then perhaps through the basement.
To Clearwire's chief strategy officer, Scott Richardson, it sounds like a pretty sweet deal. "The utilities get a device they can manage remotely, the home user gets to assess how much energy he's using, and we get the opportunity to sell broadband to that end user." Everybody's happy, especially Ray Bell.
Editor's note: Clearwire's WiMax strategy got a jumpstart after press-time when a consortium of tech heavyweights, including Comcast, Time Warner Cable, Google and Intel, announced on May 7 a $3.2 billion venture to help Clearwire and Sprint deliver a national WiMax network. Return to story.