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Source: Keoni Cabril

DistribuTECH, the major smart grid conference and exposition  for the utility industry, wrapped on Friday with the buzz term “data analytics” as an emerging theme. At the same time many have mused on the challenging realities for smart grid vendors of trying to innovate in a sector where investor returns have been slow to materialize and new investments are in decline.

So with that in mind, it’s worth looking at the core issue at the heart of innovating in the smart grid market, which comes down to a simple question: Who is your customer?

The problem with utilities

The typical answer for most smart grid startups is the utilities. And while I’m as excited as anyone about the potential of improving analytics tools to improve network reliability, ease reporting requirements, help integrate renewable energy to the grid and reduce energy consumption, I’m also aware that the utilities are not your ideal customer.

Utilities have many issues. For starters, there are only so many to sell to so it’s often better to have a metered SaaS model rather than a one price for everything model (this also makes utilities more likely to be willing to try your product). Also difficult for startups is that utilities move very slowly in adopting new technology because rollouts take years. Their profits are often tightly regulated so any additional up front costs for the utility often can’t be passed on to the customer.

And perhaps most importantly is that utilities aren’t IT companies and as we enter into the age of smart grid data analytic where utilities are overwhelmed with a large volume of unstructured data, startups have the daunting task of convincing non-IT cultures to adopt IT tools.

So any startup in the smart grid space has to make life easier for the utility by addressing key pain points like peak demand, grid reliability or renewable energy integration, areas where the utility has no choice but to opt for better tools.

Another way in

The alternative to attacking the smart grid customer issue is not to sell to utilities. How else can you take advantage of the smart grid market?

Well, getting consumers interested in their smart meters and energy management is no easy task. But it’s fair to say we’ve seen at least one giant success in smart thermostat maker Nest, which has raised another $80 million and is now shipping over 40,000 units a month. Not everyone will have the type of cutting edge design that defines Apple influenced Nest but the company has managed to interest consumers in their own energy use and their device is ready to communicate and network with a smart meter.

Additionally Nest has scored deals with retail utilities like Texas energy service provider Reliant to provide smart thermostats to Reliant’s customers. Texas is a deregulated energy market and retail utilities compete for customers, creating a situation where any technology that improves the lives of that customer has an appeal to utilities. It’s a powerful argument for further deregulation of the utilities in the U.S.

So I think there may be potential for a software app or platform to back end their way onto utilities’s payroll by first earning trust with direct to consumer applications.

The other way to attack the smart grid is to sell to commercial buildings, as the Energy Information Agency reports that 65 percent of electricity consumed in the U.S. goes to buildings. Building IQ, a vendor of building energy management systems raised $9 million a couple weeks ago, and part of Building IQ’s promise is that its management system integrates well with the grid so that buildings can easily participate in demand response programs. Building IQ has also taken the smart step of partnering with Siemens and Schneider Electric, which will help get their products in front of additional customers. In the end, the company will use its own analytics platforms to serve the sizable buildings market, an alternative to serve up analytics tools to the utilities themselves.

Neither the successful partnerships of Building IQ or the consumer centric focus of Nest will be much immediate help to those startups trying to find their way into utilities’s purchase orders, but it’s worth considering other market entry points onto the smart grid. And perhaps changing the landscape and consumer expectations enough that they push utilities to change.