Smart Grid has trouble attracting smart money

As reported in IVC:

As the Israel Smart Grid consortium gets underway, venture capital isn’t rushing in.

Cleantech is a new and ill-defined field. It covers several areas of technology, with most of the companies labeled as cleantech being identified with developments in environmental protection and energy efficiency.

One cleantech sub-sector that is the province of computing and telecommunications companies is the Smart Grid, which uses advanced infrastructures for real-time data communications to coordinate between demand for power and power production.

A few days ago, under the aegis of the Chief Scientist’s MAGNET program, a consortium called ISG (Israel Smart Grid) got underway. Nine companies and five academic centers currently make up the consortium, which is meant to provide support amounting to NIS 75 million in its first three years of activity. Among the companies are Ceva Inc. (Nasdaq:CEVA); LSE:CVA), Motorola, Yitran, IBM, ECI Telecom Ltd., the Israel Electric Corporation (IEC) and WiNetworks, bought by Canadian company RuggedCom two years ago.

Most of these companies are known for technological activities that have no connection to cleantech, but they believe that the know-how they have accumulated in data communications on telecommunications networks will help them provide an appropriate solution. Some of these solutions involve continuous real-time reporting of power consumption to a computerized device, and estimates of the electricity consumption of products sent automatically to the cell phone just before a product is used.

The market has huge potential. Ericsson recently estimated that within a few years there will be 50 billion electronic devices dependent on Smart Grid capabilities.

Power usage is currently monitored using electricity meters, as part of the traditional connection to the power supply. It is believed that most electric equipment will be replaced in the coming years in order to provide the technology that will improve control and prediction of power usage. If the cost of a smart electricity monitor is in the tens of dollars, the potential market could reach $100 billion annually.

VC still on the fence

However, while governments around the world, including in Israel, are open to the idea, the classic investors are still keeping their distance. According to a report by US-based Mercom Capital, investment in the area fell substantially in the first half of 2011, amounting to $76 million worldwide, of which two thirds were invested in the US. This represents a 60% drop in comparison with the first quarter of 2010, and is in fact the lowest quarterly figure since the second quarter of 2009.

Since 2010 was a fairly successful year in this field, it is still not clear whether this is a trend, or just a weak quarter. At the same time, there have been several exits. According to the report, nine mergers and acquisitions took place in the first quarter of 2011, following on 40 deals closed in 2010.

In early July this year, US company Silver Spring, which develops Smart Grid solutions on wireless infrastructures, filed a prospectus to raise up to $150 million. However, after recent events on Wall Street, the offering will probably not go ahead on time.

Meir Ukeles, founder and partner at Israel Cleantech Ventures, describes the reluctance of investors as part of the need to the field to mature. “This is a difficult area for venture capital,” he says, “The consumers of this technology are heavily regulated infrastructure companies. This has implications for the funds, which are looking to move fast.” Nevertheless, the funds are taking an interest in products for end-users designed to improve consumption and power distribution.

Israel Cleantech’s main investment in this field is in Panoramic Power, which provides technology for smart monitoring of power consumption by enterprises and organizations. The company has raised $6 million so far from Israel Cleantech, Qualcomm, Greylock Partners, Clal Energy, and IEC.

“There is no lack of companies and entrepreneurs active in this field in Israel, although in this world it takes investors linger to understand whether the technology has a raison d’?tre,” says Ukeles, adding that we may soon see successes in information security in power usage monitoring.

%d bloggers like this: