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California's ambitious green agenda is swiftly pushing startup Silver Spring Networks into the black. In July 2006, the Golden State leapfrogged to the forefront of the environment-friendly tech movement when regulators gave the state's largest utility the go-ahead to spend big on so-called smart meters that can moderate energy use. Once a dumb electro-mechanical machine that garnered little attention outside a once-a-month reading, the lowly meter has become a cornerstone of energy innovation by morphing into a two-way communications device.
And thanks to a measure approved by the California Public Utilities Commission, Pacific Gas & Electric (PCG) had $1.7 billion to spend on them. To fulfill its mandate, in July 2008 PG&E tapped a digital meter technology from Silver Spring Networks in Redwood City, Calif. Over the next four years, PG&E plans to replace all 5 million of its electric meters with Silver Spring's technology.
Smart meters are part of what's known as the smart grid, an upgraded national power infrastructure designed to dole out energy more efficiently and make both consumers and companies more knowledgeable about their use of electricity, gas, and other utilities. The government stimulus package signed into law on Feb. 17 includes billions of dollars for smart grid technology. "Smart grid is pretty critical to the future of our company," says Andrew Tang, senior director of PG&E's smart energy Web division. Rolling out millions of Silver Spring meters will mark "the beginning of a smart grid solution."
Demand for smart meters in particular may make six-year-old Spring Networks the most important green technology startup you've never heard of. Thanks to contracts from PG&E, Florida Power & Light, and other utilities, Silver Spring boasts a backlog of orders for meters and related technology worth $500 million, a princely sum for a company of Silver Spring's age. The company is on track to generate positive cash flow in the second half of 2009, says President and CEO Scott Lang. "We are trying to transform the power industry for the 21st century," Lang says.
Before the government announced plans for smart grid spending, Lang says Silver Spring was on track to hit $75 million in sales this year. The company now is revising those estimates "significantly upward," Lang says, though he won't say by how much. Silver Spring's backlog is expected to double in the next 12 months, he adds.
Some of the most powerful players in Silicon Valley believe Silver Spring could be one of the first home runs to emerge from the clean tech boom. The latest sign: On Feb. 9, Google (GOOG) confirmed that it made an investment in Silver Spring. Representatives from Silver Spring declined to comment, but a source close to the company says it was in the range of several million dollars.
Last October, Kleiner Perkins Caufield & Byers, an early investor in Google, led a $75 million investment in Silver Spring. According to the National Venture Capital Assn., that brings the total raised by Silver Spring to $167.5 million. That money will help fund a global expansion and should give utilities more confidence to form a partnership with the little-known player on a critical project. "This company is potentially one of the largest outcomes in clean tech," says Warren Weiss, a Silver Spring director and general partner with Foundation Capital, one of Silver Spring's early investors.
Google is likely to use Silver Spring's meter technology as part of its own PowerMeter, an online service now under development that would give users up-to-the-minute information about their energy use. "At Google, we are committed to helping enable a future where access to personal energy information helps everyone make smarter energy choices," according to an explanation of the project on Google's Web site. The company says studies have shown that access to such information could help consumers cut their energy consumption by 5% to 15%. Google is testing the service internally and later this year plans to conduct pilot projects with consumers.
To fulfill its promise, Silver Spring must continue to navigate the complex waters of the heavily regulated utility industry. The hefty price tag of smart grid technology has already triggered criticism from some politicians and consumer watchdogs. In late 2007, when PG&E asked the state for a further $677 million to pay for more smart grid technology, the San Francisco Board of Supervisors challenged the plan. PG&E has since reduced the amount requested to about $572 million. On Feb. 20, the California Public Utilities Commission is expected to rule on whether the utility can spend more than the already approved amount.
Other consumer advocates question whether the meters will reduce power usage and bridle at the rising cost to utility customers. PG&E is seeking rate increases that range from 49¢ to 99¢ for the average user of gas and electric service for the first five years before decreasing afterward.
Utilities are steadfast in their view that technology will cut costs and help the environment by conserving energy. Since the meters transmit data about power usage over wireless networks, thousands of meter readers may go the way of the milkman. And technicians may no longer be needed to drive their trucks to homes to turn the power on or off; accounts could be controlled with a keystroke. "Rather than dispatching someone to reconnect service we can do it online," says Brian Alford, spokesman for Oklahoma Gas & Electric, which has a pilot program with 6,600 meters running on Silver Spring technology.
Other cost savings could come from spreading out power usage to times when it is cheaper. Now, consumers have no idea how much power costs on a minute-to-minute basis. But with smart meters, utilities could send consumers price information in real time over the Internet, giving them an incentive to use power, say, at night when it is costs less. That could help eliminate the need to build more plants or use so-called peaker plants, the oldest and dirtiest power plants that kick in when normal plants are tapped out. "All this technology helps us become more efficient with how we move power around the grid," says PG&E's Lang.
Silver Spring should also get a boost from the $11 billion that Congress allocated to smart grid technology in the stimulus package. Because utilities will be able to tap those funds, analysts say it could double or triple the rate of smart meter deployments.
Now, Silver Spring needs to prove that its technology will work on a massive scale. In addition to smart meters and networking gear, the company offers utilities a range of software programs designed to help them manage power flows and outages and customer billing. Silver Spring is also poised to announce some new customers from Australia and other regions outside the U.S. "If we execute well, this is a global play that becomes a brand name known to every citizen in the world," says Lang.
Ante is the computers department editor for BusinessWeek.