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Smart Grid Funding Outlook – VC Perspective

This article provides an outlook on funding trends in the smart grid sector from a venture capital perspective. It discusses the decline in cleantech VC funding since 2008, the importance of energy efficiency and smart grid investments, the challenges faced by renewables in fitting the VC model, and the drivers and opportunities in the smart grid market.

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Smart Grid Funding Outlook – VC Perspective

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  1. Smart Grid Funding Outlook – VC Perspective Dharmesh Thakker Vice President Advanced Technology Ventures (ATV Capital) dthakker@atvcapital.com

  2. Cleantech VC $$ Trend Source: Cleantech Group • Cleantech VC $ declined significantly from 2008, but on par with ‘07 and reversing trend from early ‘09

  3. Cleantech Relative to Other Sectors Source: Cleantech Group • More importantly, cleantech investments as % of overall investment $$ showing clear positive trends • Recent IPO – A123 and S-1 filings, and DoE funding further driving investments

  4. Not All Sub-sectors Equal! Source: Cleantech Group • Energy Efficiency & Smart Grid Investments significantly higher at the cost of solar, wind and biofuels

  5. Why the Trend from Generation towards Efficiency / Smart Grid? Source: Lazard Analysis , July 2008 • Pure Economics!! From an LCOE perspective, Energy Efficiency and supporting Smart Grid initiatives most cost-effective in achieving our GHG and RE goals, relative to “sexy” technologies including Solar, Biomass etc.

  6. Renewables – Fit the VC Model?Need Tremendous Tax Equity Apetite • Need almost $45B in tax equity for project finance by 2012, while # Tax Equity players dwindled from 17 to 3 in 2009! • “Valley of Death” for commercially-ready renewables, hard to fit the VC model

  7. Strategic Drivers for Smart Grid • Expected Demand outstripping Supply • Electricity consumption expected to grow 31% to 4,870B KWh in 2030, while generation including renewables only expected to grow by 22% • Shrinking reserve margins, intermittent renewables and distributed generation driven by RPS • Aging electrical system • DoE states 70% transmission lines and transformers > 25 years old and approaching EOL • $1.1T in US energy economy riding on aging infrastructure! Urgency to effectively network and manage grid to ensure reliable energy delivery

  8. Other External Drivers • Technology Drivers: • Improved two-way communication technologies • Enhancements in human-machine interface (think iPhone!) leading to increased comfort around energy mgmt systems and rules engines • DoE Stimulus: • $32B in ARRA funds for energy infrastructure transformation • $3.4B in grants to 100 projects, matched by $4.7B in private investments • $620mm for advanced smart grid technology demos

  9. How BIG is the Opportunity Anyway? • U.S. electric utilities have an installed asset base that is 2x the size of telecommunications, but staffed with 60% less people. Urgency to enhance infrastructure automation. • 29 States (+DC) have Renewable Portfolio Standards, but Federal RPS would accelerate oppty • Conservative estimates size the US opportunity at $100B by 2020 (WW market 2-3x) • 37-45% for grid sensing and communication • 23-25% in metering infrastructure • 23-24% in data storage, IT, systems integration • 6-17% in home energy mgmt solution

  10. Smart Meters / AMI Laying the Foundation • 70 utilities in 30 states with ongoing AMI activities • 4mm installed by ‘09 with regulatory visibility into 30mm more • European utilities represent 70mm meters in 2012 (EDF, Endesa, E.ON)

  11. Smart”er” Grid Evolution

  12. Next Up in the Investment Landscape

  13. Investment Landscape by Sub-sector

  14. Summary • Electricity supply-demand imbalance and surging intermittent renewables require significant upgrades to aging electrical infrastructure • Tremendous opportunity NOW to build a fully-integrated smart”er” grid to support $1.1T electricity economy in the US and $6T world-wide • AMI / Smart Meter roll-out laying a strong foundation to build next-gen smart-grid apps to enable a clean energy ecosystem

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