Why Aren’t VCs Investing in the Smart Grid? is an interesting Research & Analysis article written by Eric Wesoff on May 4, 2011. Its subheading adds that "So far in 2011, only two percent of greentech VC dollars have gone to smart grid companies. Updated with feedback from some VCs." Next is my response to Eric:
This is a bad news first. The problem with the semantics is due to the Integrated Energy and Communication Systems Architecture (IECSA) project, circa 2003, where under the title “THE NEED FOR AN INDUSTRY ARCHITECTURE,” on page 2-1 of the final release of IECSA Volume I, it is written that “There is a two-part answer to the question, “Why it is necessary to develop an industry architecture?’ First, it must be understood that the challenge facing utility executives is keeping the lights on while also enhancing the value of services to consumer… The second, and more powerful argument, is that the only way to address the challenge utility executives face is to go back to basics, understand why the current system doesn’t perform as needed, and then to design interoperability into the system from the ground up.” It is very clear that VCs investors were not part of the Smart Grid definition, but to a challenge faced by utility executives.
In fact, it was defined that among the Areas beyond IECSA were “changes to the overall business and regulatory structure of the industry.” In other words, semantics were limited to a technological system to protect the status quo of the Investor Owned Utilities Architecture Framework (IOUs-AF). To read additional architecting evidence in support of the urgent need to restructure the electric power industry can be found in the article Should the Smart Grid be a Technological Project to Address a Challenge Faced by Utility Executives?
I have created the replacement of the IOUs-AF and it is the Electricity Without Price Controls Architecture Framework (EWPC-AF) by explicitly including in a socio-technical system “changes to the overall business and regulatory structure of the industry.” The EWPC-AF is structured on two highly cohesive systems with lightly coupled interfaces among them:
(1) A primary regulated power (integrated transmission and distribution) transportation service system compact with a responsibility to transport electricity of commercial quality of a given area; and
(2) A complementary open market business system on the value chain generation, retail, pro-sumer (consumer that may produce). I later named those systems as the Enterprise side and the T&D Grid side of the EWPC-AF.
It should not surprise any one that most of VC investments are on the Enterprise side, as they concentrate on the development of the resources on the demand side, in an industry that has concentrated almost exclusively for many years on the development of the resources of the supply side. In fact, the real problem of the power industry is an overinvestment on the resources of the supply side.
This is the good news. Please take a look at the post The Coming Renaissance" of Business Model (not Price) Competition under #EWPC-AF . It should become clear that a predictable environment will be available for VCs investments.