The Cisco of smart grids?

Silver Spring Networks' technology helps power companies gather intelligence about their users,­ making utilities smarter, and greener, in the process.

By Adam Lashinsky, editor at large

SAN FRANCISCO (Fortune) -- Concepts like "smart grids" and "intelligent metering" are difficult for the non-expert brain to grasp. So instead, wrap your mind around a simpler set of facts. Utilities experience peak demand -- for example, on blistering hot days when air conditioners are pumping all out -- just 2% of the year.

Yet to serve their customers on such days, the utilities will incur as much as 15% of their total costs for the year while using their oldest, dirtiest generating plants to satisfy the demand.

In other words, it's a dirty, costly affair to keep us comfortable for a relatively short period of time.

Imagine, then, the benefits of an electric network ­-- often called a grid because of the wired interconnections among power plants, homes and businesses ­-- that "think" intelligently.

Such a smart network would tell customers things like the cheapest time to wash the dishes or charge an electric car. It would represent huge savings, financially and environmentally.

It's the vision, anyway, behind a wave of companies funded by Silicon Valley venture capitalists. It's also the strategy of energy and technology behemoths like General Electric (GE, Fortune 500) and IBM (IBM, Fortune 500), who see the same potential gold mine as tech-industry entrepreneurs. (Jeffrey M. O'Brien's smart-grid feature on IBM offers a good primer on how the big boys are approaching the task.)

In between the tiny startups and the giants aiming to exploit a niche are some early leaders in making dumb power grids smart. One is Silver Spring Networks, a Midwestern transplant in Silicon Valley funded by Foundation Capital (which got in early) and Kleiner Perkins, which invested more recently.

Silver Spring --­ named for a street in Milwaukee, where the company started in 2002 ­-- makes software and other technology that turns electric systems into the equivalent of an Internet network. By installing its cards into traditional utility metering technology, utilities have near-perfect information about their customers' usage. Customers, in turn, get helpful data from their power provider about how to save money.

"Billions of devices have been deployed that need to be managed on the network," says Scott Lang, Silver Spring's CEO. The company's technology, he says, manages that process across the network in a secure manner --­ the latter a nontrivial concern given that the equipment resides in or near the homes of millions of customers.

A private company that doesn't disclose financials, Sliver Spring clearly is preparing for an initial public offering. Lang says the company will be cash-flow positive this year on the strength of large-scale pilot projects it has put together with major utilities including PG&E (PCG, Fortune 500) and Florida Power & Light (FPL, Fortune 500).

An IPO would be welcomed by investors; Silver Spring already has raised $175 million and employs more than 250 people. In fact, a Silver Spring IPO would be resonant of the dot-com era: a fledgling company pursuing a big idea with the tailwind favorable public opinion.

As an added bonus, the company stands to benefit from the Obama Administration's stimulus plan, which will apportion "smart grid" funds to utility customers. "Utilities are lining up to apply," says Lang, who adds that state regulators around the country have been "invigorated" by the prospect of their utilities finding alterative sources of funding from Washington.

Utilities that pollute less while lowering prices to their customers. There. That's an easy concept to like. To top of page

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