VC funding for smart grids “extremely weak”

Venture capital (VC) funding for smart grids has remained “extremely weak” for the past three quarters, according to new data from Mercom Capital, a market-research company.

In its latest quarterly update, Mercom reveals that VC funding was only $66 million in the second quarter of this year, covering just nine deals. In the same period of 2011, VCs invested as much as $112 million in 16 deals, but funding dropped to $97 million the following quarter and to just $66 million in the final quarter of the year.

Venture capital (VC) funding for smart grids has remained “extremely weak” for the past three quarters, according to new data from Mercom Capital, a market-research company.

In its latest quarterly update, Mercom reveals that VC funding was only $66 million in the second quarter of this year, covering just nine deals. In the same period of 2011, VCs invested as much as $112 million in 16 deals, but funding dropped to $97 million the following quarter and to just $66 million in the final quarter of the year.

The first quarter of 2012 marked a low point of $62 million, but VC funding has now remained below $70 million for three consecutive quarters.

Mercom says the slowdown has happened because the industry is struggling to understand customers’ needs and address their misconceptions. It also blames the rising concern over the security of smart-grid infrastructure.

Although strategic investors, and not VCs, are responsible for much of the activity in the smart-grid sector, Mercom’s research comes just weeks after Pike Research, another analyst company, predicted that shipments of smart meters in North America would decline by 42% between 2011 and 2013, falling from 12.4 million to 7.2 million units.

In its latest “Smart Meters” report, Pike says the first wave of smart meter deployments in North America has met with a largely negative response from consumers. Many are concerned about meter accuracy, data security and privacy, while the health effects of RF-based systems also remain an issue. In many cases, policy makers, regulators and utilities are being forced to reconsider their plans in response.

No doubt, the economic gloom partly explains the slump, with investors also worried about the interoperability and standardisation of the technologies. In addition, US policymakers announced a significant stimulus package of $7.1 billion for smart grids in the wake of the global financial crisis, providing a short-term boost to the sector. Some of the initial deployments have recently been finished.

The situation contrasts sharply with that in the Asia Pacific, and particularly China, where smart-grid penetration is set to close some of the gap with that in North America over the next two years, according to Pike. Although just 23% of meters in the Asia Pacific are currently classified as smart meters, compared with around 34% in North America, penetration is forecast to hit 37% by 2014, next to 42% in North America.

The State Grid Corporation of China (SGCC) is racing ahead with the rollout of meters, aided by a government stimulus package even bigger than America’s, at $7.3 billion. Nevertheless, there is some debate over whether these meters meet the definition of “smart”, says Pike, with two-way communications and the ability to read and store data on an hourly basis.

Despite the short-term setback, Pike expects the North American market to pick up again beyond 2014, lifting penetration to 67% by 2020.

Mercom says the top VC deal in the second quarter of this year was the $15 million raised by Power Plus Communications, a broadband powerline communications systems company. The next-biggest deal was the $11.3 million raised by energy-management company Tendril.