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Cleantech revolution: Building smart infrastructures

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December 2009

Table of contents

The heart of the matter 2

Smart infrastructure build-out takes root.

An in-depth discussion 4

Smart grid and electric vehicle infrastructures catalyze transformations and opportunities.

Smart infrastructure growth encourages new industry convergences 5What is the smart grid? 6Public and private investment drive the build-out 12VC flows back into cleantech investment 18Smart infrastructures become fertile ground for emerging sectors 27Smart grid: Emerging sectors 28Electric vehicle infrastructure: Emerging sectors 35Smart infrastructure technology adoption to drive economies of scale 39

What this means for your business 40

Defining your role in emerging smart infrastructure markets.

The heart of the matter

Smart infrastructure build-out takes root.

The heart of the matter 3PricewaterhouseCoopers

In the past year, a convergence of political and economic events has accelerated a national push to gain energy independence, conserve energy and mitigate greenhouse gas emissions. At the core of these efforts is a drive by federal and local governments to build the foundational infrastructures for a “smart” electricity grid infrastructure and an electric transportation ecosystem. At the same time, cleantech-related investments, industry alli-ances and technological advances are gaining momentum, creating markets that could potentially have significant effects on both established players and start-up companies.

Building these new smart infrastructures requires massive investments and will bring on significant change to incumbent industries, particularly utilities and automakers. The Elec-tric Power Research Institute estimates that a fully modern smart grid requires investments of $165 billion.1 As the build-out gains traction, it has the potential to support a prolifera-tion of sectors and applications, much like what the semiconductor industry spawned decades ago, and the Internet era initiated in the past decade.

A new wave of entrants has surfaced. These are the cleantech players, and they include developers of batteries and energy storage, alternative and distributed generation tech-nology, electric-car makers, developers of carbon sequestration technology, biofuels producers, and a diverse group of businesses creating the smart grid ecosystem and elec-tric-vehicle-charging infrastructure. It is premature to ascertain which players will emerge as cleantech infrastructure leaders. However, it has become clear that the growth of these infrastructures is opening opportunities not only for large, incumbent players, but also for relatively small start-ups eyeing opportunities to leapfrog swiftly to become more central and significant players.

Convergences and partnerships among industries are emerging as businesses effectively cross-pollinate key skills and assets from one industry with those of new partners. The alli-ances are varied but broadly include those between utilities and automotive industries, and between communications and information technology industries—as well as the conver-gence of producers of energy storage with automakers and renewable energy. And they will undoubtedly surprise and alter ingrained consumer behavior around energy: consider the strong likelihood of a national retail chain, in partnership with an electric battery maker, installing charging stations at its stores across America.

As the economy shows signs of recovery, cleantech investment has rebounded sharply. Venture capital (VC) investment in cleantech companies rose in the third quarter of 2009 to $897.51 million in 57 deals, up from $474.8 million in 49 deals in the previous quarter, according to the MoneyTree Report, a quarterly survey produced by PricewaterhouseCoopers and the National Venture Capital Association based on data provided by Thomson Reuters.

Anticipating the growth areas of these smart infrastructures and grasping a fuller under-standing of the investment and consumer dynamics shaping them—as well as the govern-ment’s priorities as it sets out what is emerging as new US industrial policy—will help companies filter to the most promising entry points.

1 Electric Power Research Institute, “Power Delivery System of the Future: A Preliminary Estimate of Costs and Benefits, Final Report” (July 2004).

An in-depth discussion

Smart grid and electric vehicle infrastructures catalyze transformations and opportunities.

An in-depth discussion 5PricewaterhouseCoopers

Smart infrastructure growth encourages new industry convergences

Smart grid convergencesThe build-out of the smart grid infrastructure has formed a constellation of industries gravi-tating around electric utilities (Figure 1). There are also myriad alliances within industries as consortia of companies are seeking—and beginning to receive—American Recovery and Reinvestment Act of 2009 (ARRA) grants and government-guaranteed loans to build out the smart grid. The growth of the smart grid is already enabling small start-ups to act as partners with established players in projects they may not have been able to win alone. Such partnerships will likely result in some cleantech start-ups growing much faster than they would without partnering with large, established companies. For established players, these partnerships bring the speed, agility and new solutions to strongly vie for the smart grid project opportunities that require those capabilities.

At the foundational level, advanced metering infrastructure (AMI) and the emerging tech-nologies connected to it represent, collectively, a distinct smart grid industry. The following describe sectors converging to build this industry.

Communications Communications technologies are being used in new ways to modernize power grids’ field networks. An array of communications technologies are connecting the smart grid. These comprise fiber-optic and wireless communications,

Clean carsPure electric, plug-in hybrid electric, and

hydrogen vehicle automakers

Wind and solar energy

generation Utility-scale and

distributed

Smart meter makers

Field network communications

e.g., process, integration,

applications, data/information

Computer networking

communications systems

Smart appliancesElectronics,

white goods, appliance makers

Smart buildingsHome and

commercial energy management

systems

Car batteriesLithium-ion,

hydrogen, next-gen technology

Information technologyData storage and software

solutions

Electricutilities

Smart infrastructure industry convergences

Figure 1: Smart infrastructure industry convergences

Cleantech revolution: Building smart infrastructures6

In a nutshell, creating the smart grid means adopting technologies to transform the existing electricity grid—which is fitted largely with 20th-century infrastructure—to 21st-century standards to create greater efficiencies, reliability, and the integration of renewable energy sources. This will leave its mark on the entire grid ecosystem—from electricity generation to transmis-sion and distribution to consumers. The backbone of the smart grid is the integra-tion of two-way communications between utilities and consumers through advanced metering infrastructure (AMI), or “smart meters” and sensors to discern where and to what degree electricity is being consumed. Deployment of the AMI is aimed at providing customers and utilities alike with the knowledge of real- or near-real-time energy information (pricing, demand, power, quality, etc.). (Please note: more on the AMI and other smart grid components is covered in greater detail later in this report in the section, “Smart infrastruc-tures become fertile ground for emerging sectors.”)

With knowledge accessed through the AMI, customers could improve energy consump-tion patterns, with the incentive to save on electricity bills. For example, customers who desire to wash and dry their clothes would be able to determine if demand for electricity is high by reading their smart thermostat and noticing electricity is at a peak price-point. When this occurs, some customers will delay their washing and drying until the price of electricity comes down. The benefit of customers changing their consumption behavior in this way is reflected in a lower utility bill, and the utility avoids additional

What is the smart grid?

strain on electric distribution during times when the network is already strained. Utili-ties, in turn, would collect a new, rich stream of data, enabling a more seamless and swift rerouting of energy to where and when it is most needed—as well as a more accurate and detailed prediction of future energy demand.

Building a smart grid entails initiatives going well beyond smart meters. These include laying new advanced high-voltage transmission lines, modernizing substa-tions, and gathering and managing prodi-gious amounts of data the smart grid would produce. The smart grid will also allow consumers with their own renewable energy sources to maximize the value of these assets by coordinating distributed output with that of the larger grid. It will also likely require years or decades to fully modernize the existing electricity grid into an “intelligent” one. Indeed, the enormity and complexity of the US electricity grids are staggering, as would be the efforts and investment to layer upon it 21st-century advancements. Fitting all US households—which number about 160 million—with advanced metering alone would consti-tute an enormous undertaking. Consider the sheer scope and breadth of a few of the central spines of the US electric grid ecosystem that would be affected through smart grid modernization:

• More than 3,100 electric utilities

• 10,000 power plants

• 5,600 distributed energy facilities

• 157,000 miles of high-voltage electric transmission wires2

2 U.S. Department of Energy, Office of Electricity Delivery & Energy Reliability, “Overview of the Electric Grid,” DOE Web site, as of October 21, 2009.

8 Cleantech revolution: Building smart infrastructures

which include traditional radio frequency mesh technologies for communication between grid-enabled appliances, for example, to smart meters—and, potentially, WiMAX and Wi-Fi. Software and computer networking companies, too, are integral for enabling the collection and analysis of the data flowing through smart meters along all points of the smart grid—from generation and transmission and distribution to indus-trial, commercial and residential consumers.

Computer networking Computer networking firms likewise have entered the smart grid industry as central players. Cisco Systems and IBM, for example, this year both announced respective smart grid initiatives, each enlisting a host of smart grid players as partners. Cisco esti-mates the communications segment of the smart grid will alone create a market of $20 billion a year over the next five years.3 This space is also spawning convergences and partnerships. CURRENT Group, which produces smart grid networking applica-tions, including advanced sensors commu-nications and analytics, has partnered with Tendril, which makes in-home smart grid hardware and other home energy manage-ment products.

Information technology As utilities begin gathering data from the smart grid ecosystem, the need to enlist players in data storage management and data centers will rise as precipitously as the amount of data that will be gathered.

Pacific Gas and Electric Company (PG&E), for example, reportedly expects to collect 170 megabytes of data annually from each smart meter it installs.4 Taken as a whole, when the smart grid infrastructure hits 40 million advanced meters, for example, some 6.8 billion megabytes would need to be stored and managed. Managing such a

3 Cisco Systems press release, “Cisco Outlines Strategy for Highly Secure, ‘Smart Grid’ Infrastructure” (May 18, 2009).

4 Jack Danahy, “The Coming Smart Grid Data Surge,” Smartgridnews.com (October 5, 2009).

huge amount of data will require an industry unto itself, with a network of data centers and data management and analytics also required to best inform intelligent decisions on how that data is utilized.

Energy storage Energy storage, too, is creating a union between battery makers and utilities, as they endeavor to more effi-ciently connect renewable energy sources (such as commercial-scale solar and wind power generation) to the grid through more powerful battery storage to manage intermittent generation. Finally, companies centered on electricity transmission and distribution networks will help bring about the modernization and expansion needed to create new energy transmission corridors connecting renewable energy sources from where they are created (wind or solar farms) across long distances to where they are consumed (typically, urban areas).

Home area network/commercial building energy management systems Another major convergence is developing around the evolution of smart homes and smart buildings. At the consumer side of the smart meter, a wide range of players are emerging to support the build-up of the home area network (HAN), through which home products communicate with the grid. Entrants building out the HAN include makers of smart thermostats, in-home displays for monitoring and programming electricity, and the communications needed to bring intelligence to electricity-using products such as water heaters, refrigera-tors, stoves and pool pumps.

Likewise, efforts to increase energy efficiency in commercial buildings has fostered an emerging industry around energy management systems (EMS), which link building management and software systems to cut energy use through demand response mechanisms. Building an inte-grated EMS requires the convergence of several sectors, including information technology, software and electronic device manufacturing.


Electric transportation convergencesSome of the more potentially transforma-tive alliances resulting from smart infra-structures unite automakers with industries supporting electric transportation—including electric cars, trucks, rail and the charging infrastructure needed to power these. With major carmakers producing—or plan-ning to roll out—pure electric vehicle (PEV)

or plug-in hybrid electric vehicle (PHEV) models, carmakers are aligning with utilities to coordinate the deployment of a fleet of electric vehicles with anticipated electricity capacity. Potentially, vehicle batteries could send power back to the grid in what is known as V2G, or vehicle-to-grid capability. Battery makers and automakers form the second alliance, introducing an alternative to the century-old relationship between the internal combustion engine and hydro-carbon fuels.

EV-charging infrastructure Automakers are also beginning to cast an eye on the build-out of an electric-vehicle-charging infrastructure, and that has led to some alli-ances between automakers and fledgling charging station developers, as well as with utilities. “What you’re seeing is a divorce between the auto and the oil industries. Now, the utilities and auto industries will work together. And, if we continue to see

innovations in plug-in car technology, we will see a lot of international interest in our technology,” said R. James Woolsey, former Director of Central Intelligence (1993–95), currently a venture partner with Vantage-Point Venture Partners, which invests in clean technology.

Vehicular batteries Clearly, one of the more advanced convergences is that between automakers and the fast-growing car battery developers, particularly developers of lithium-ion batteries. The strong push by incumbent automakers (such as Ford and Nissan Renault) as well as new entrants (such as Tesla Motors and Fisker Automotive) to roll out PHEVs and PEVs has created a new dynamic in the industry as battery makers poten-tially assume pivotal roles in the automo-tive supply chain. The initial signs of this are already visible and are illustrated, for example, by Michigan’s drive to become the world’s “battery capital of the world.” General Motors Company (GM) announced in August 2009 that it is building a 160,000-square-foot lithium-ion battery manufacturing plant in Brownstown Town-ship, about 20 miles from Detroit. GM expects the plant to produce batteries for the Chevrolet Volt beginning in 2010.5

5 Nick Bunkley and Bill Vlasic, “100 Jobs? It Looks Good to Michigan,” The New York Times (September 9, 2009).

“Much of the future of electric cars centers around how consumers will behave. Where and when will they charge these cars—at work, at home, during the night, or day? The assumption is that consumers will charge their vehicles at night, but suppose they choose to charge during the day? Instead of smoothing demand, such a choice could increase daily variability unless it was matched with substantial new generation such as distributed solar. To make all of this work, we’ll need to put the proper economic framework into place to make sure that electric vehicles don’t have unintended effects and to make it possible to realize the potential benefits of distributed storage.”

—Geoffrey G. Parker, Director, Tulane Energy Institute

The following are recently reported examples of developing smart infrastructure convergences.

New partners

Automakers + car battery manufacturers/developers

• Volkswagen AG and Japan’s Sanyo Elec-tric Co. partner to jointly develop lithium-ion batteries for use in Volkswagen hybrids by 2012.

• Toyota and Panasonic create joint venture to produce batteries for PHEVs.

Networking + utilities

• Cisco Systems partners with Duke Energy in three-year deal to assist in Duke’s smart grid build-out.

The takeaway

The clean energy infrastructure is a composite of many industries and will be built out through their interrelationship and convergence. At the forefront are alliances forming between the automakers, utili-ties, battery makers and communications providers. These companies are enlisting partners both big and small. As the grid takes shape, the incumbents’ changing strategies could very well spur further merger-and-acquisition activity in clean-tech. Companies that identify their roles and opportunities and capitalize on these convergences will establish early leads in nascent markets. The anticipated next wave of cleantech companies will begin to “horizontalize” the infrastructure, as more players both enter and fill in gaps and as both the smart grid and electric transpor-tation infrastructures spread and diversify beyond today’s balkanized pattern.

Automakers + utilities

• Nissan partners with San Diego Gas & Electric to build out EV charging infra-structure in San Diego.

• Ford Motor Company and American Elec-tric Power partner to pilot vehicle-to-grid communications.

• Portland General Electric and Mitsubishi partner to test Mitsubishi’s i-MiEV, or Mitsubishi Innovative Electric Vehicle.

Communications + smart-meter makers

• AT&T and SmartSynch partner to roll out 10,000 smart meters for Texas-New Mexico Power, using AT&T’s public cellular network for meter communica-tions as an alternative to conventional radio frequency mesh systems.

• Verizon Wireless and meter maker Itron, Inc., partner to develop secure, two-way, smart-grid communications solutions.

• Echelon Corporation and T-Mobile form alliance for using wireless network to connect smart meters to utilities.

Automakers + charging-station developers

• Nissan North America and ECOtality, Inc., partner to build out over 10,000 EV charging stations in the Phoenix/Tucson area.

Cleantech revolution: Building smart infrastructures10

According to the National Institute of Standards and Technology’s (NIST’s) Framework and Roadmap for Smart Grid Interoperability Standards Release 1.0 (US Department of Commerce), the smart grid will require hundreds of standards. Top-priority areas, according to NIST, are the following:

• Wide-area situational awareness: Monitoring and display of power system components and performance across interconnections and wide geographic areas in real time.

• Demand response: Mechanisms and incentives for utilities, businesses and residential customers to cut energy use during times of peak demand or when power reliability is at risk.

• Electric storage: Means of storing electric power, directly or indirectly. The significant bulk energy storage tech-nology available today is pumped storage hydroelectric technology. New storage capabilities—especially for distributed storage—would benefit the entire grid, from generation to energy use.

• Electric transportation: Refers, primarily, to enabling large-scale integra-tion of plug-in electric vehicles (PEVs). Electric transportation could significantly reduce US dependence on foreign oil, increase the use of renewable sources of energy, and dramatically reduce the nation’s carbon footprint.

• Cyber security: Measures to ensure the confidentiality, integrity and availability of the electronic information communication systems, necessary for the management and protection of the smart grid’s energy, information technology, and communica-tions infrastructures.

• Network communications: Encom-passing public and nonpublic networks, the smart grid will require implementation and maintenance of appropriate secu-rity and access controls tailored to the networking and communications require-ments of different applications, actors and domains.

• AMI: Primary means for utilities to interact with meters at customer sites. In addition to basic meter reading, AMI systems provide two-way communica-tions that can be used by many func-tions and, as authorized, by third parties to exchange information with customer devices and systems. AMI enables customer awareness of electricity pricing on a real-time (or near real-time) basis and it can help utilities achieve necessary load reductions.

• Distributed grid management: Maxi-mizing performance of feeders, trans-formers, and other components of networked distribution systems and inte-grating with transmission systems and customer operations.

NIST’s eight priority areas

Source: Excerpted from the National Institute of Standards and Technology’s Framework and Roadmap for Smart Grid Interoperability Standards Release 1.0 (U.S. Department of Commerce), October 2009.

11PricewaterhouseCoopers 11PricewaterhouseCoopersAn in-depth discussion


Companies that have identified their roles in penetrating smart infrastructure markets should understand where the greatest government and private sector priorities—as well as consumer sentiment—lie. The ARRA, having mapped out its initial priority sectors for development, has provided a valuable signal to where possible additional federal support may be funneled, should there be further rounds of stimulus-like programs in the future.

At the same time—private investors, including venture capital and private equity firms—have likewise recently re-entered the cleantech space aggressively, following a drop-off in early 2009, and, remark-ably, have done so despite the recession and a weak exit climate. “The stimulus brought a rush of optimism, and has had a tremendous effect on investors in

terms of activity,” said Steve Eichenlaub, managing director of Intel Capital. “There is a real sense that the stimulus monies will help build economies of scale, but the full impact of the stimulus probably won’t be felt for another five plus years. That said, the directional arrow it represents is a big, strong one.”

The big picture: A new industrial policy The momentum surrounding cleantech infrastructure investment and research and development has been driven in large part by the new Administration’s call to create a smart grid, to grow a national fleet of electric vehicles (not only passenger cars, but also commercial trucks, forklifts and rail transport)—and to provide seed invest-ment to fund it. The Administration’s aim in the sector is twofold: first, to support jobs growth and economic activity as part

of the stimulus package; and, second, to lay the foundation of what is emerging as an industrial policy to encourage sustain-able (and scalable) energy production and consumption. An expected benefit of the smart grid, through this policy perspective, is that efficiencies could slow the rate of electricity demand and thereby lessen the need to expand capacity in the form of new or enlarged power plants.

The drive is underscored by a call by President Obama to reduce greenhouse gas emission by 14% from 2005 levels by 2020 and to get one million PHEV cars on the road by 2015. Thus far, states have helped fuel the cleantech industry, largely by mandating the integration of renew-able energy, such as wind and solar. As of September 2009, 26 states had in place Renewable Portfolio Standards, requiring

a certain percentage of electricity power generation or capacity to be driven from renewable energy sources.6 These and other legislative initiatives demonstrate strong government support for cleantech industries. While Congress continues to debate a climate bill aimed at reducing greenhouse gas emissions, companies are assessing their own carbon footprints and will likely be more inclined to adopt energy efficiency strategies and cleantech solutions.

Follow the money A review of where federal government-guaranteed loans and other financial incentives are flowing offers a good—if incomplete at this early stage—indication of where government

6 Pew Center on Global Climate Change, “Renewable & Alternative Energy Portfolio Standards,” www.pewclimate.org (updated September 18, 2009).

“Say we succeed in passing cap-and-trade next year. You may have a 1,400-page piece of legislation. Now, how long will it take for the Department of Energy or the EPA to issue regula-tions governing this legislation, and what will the sequence of regulations look like? This is a very important question for investors.”

—Jason Burnett, founder of Burnett EcoEnergy and former associate deputy administrator, US Environmental Protection Agency

Public and private investment drive the build-out


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VC cleantech investments and the evolving economic and political landscape

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters.GDP rate growth data from Bureau of Economic Analysis, U.S. Department of Commerce (as of November 24, 2009).

Figure 2: US VC cleantech investments and the evolving economic landscape

“Essentially, we have left three large industries—oil and gas, utilities, and car manufacturing—alone to do their own thing and, as a result, our approach to energy has basically changed little since the 19th century. But all of this is beginning to change.”

—R. James Woolsey, former Director of Central Intelligence (1993–95), currently a venture partner with VantagePoint Venture Partners


priorities in this sector are heading. Some $83 billion in grants and loan guarantees for cleantech-related initiatives was included in the ARRA.7 As of December 1, 2009, the US Department of Energy (DOE) had paid out $1.49 billion, or 4%, of the total $36.7 billion the ARRA has authorized the DOE to award.8 Significant announcements of funds are beginning to emerge. Baltimore Gas & Electric (BGE), for example, was awarded a $200-million grant (with a maximum loan of $200 million) as part of the ARRA’s $3.4-billion Smart Grid Investment Grant Program for matching grants.

Clearly, it will take time for these stimulus funds to be disbursed and ultimately demonstrate material impact. “The smart grid grant awards are expected to be disbursed by February 2010, but it will take time for the funds to actually be deployed, so it may be that we won’t see material effects and actual job creation from the smart grid grant program until the middle of 2010,” said Sunil Sharan, senior fellow at theCenter for American Progress.

7 PricewaterhouseCoopers, “Cleantech Nation: Cleantech Playing a Central Role in the National Recovery Agenda” (February 2009).

8 Recovery.gov (US government’s official Web site providing data related to ARRA spending) Department of Energy page (updated as of December 1, 2009).

Filling the project finance gap The ARRA is serving to help fill the finance gap for large-scale renewable energy projects that widened during the 2009 financial crisis. This has countered, to some degree, the difficulties developers have faced as the pool of tax-equity investors has dimin-ished. For example, the ARRA’s Section 1603—which pays in cash 30% of the cost of a renewable energy project in lieu of tax credits—has helped large renewable energy projects (especially those of wind farms) to continue to be developed. The ongoing government support for wind and solar

energy will likely continue to create econo-mies of scale for these industries, as well as “grid parity,” or when renewable energy costs equal those of traditional nonrenew-able energy generation sources (e.g., coal, natural gas). “The improvements in photo-voltaic technology are bringing us closer to grid parity sooner than we realize,” said R. James Woolsey, partner with VantagePoint Venture Partners.

Overall, proposed and awarded ARRA loan and grant programs indicate a prioritization among certain cleantech industries, partic-ularly the smart grid and electric vehicle industries.


Selected government programs funding smart infrastructure

Funding type and source Announced awards/selected recipients included

Smart grid/renewable energy

US Treasury Department through the ARRA’s Section 1603—which pays in cash 30% of the cost of a renewable energy project in lieu of tax credits.

Topped $1 billion in September 2009.Ten of the 12 grantees in the first round in early September were in wind energy development projects.

The Department of Energy (DOE) created the Financial Institution Partnership Program (FIPP) to accelerate the DOE’s loan guarantee underwriting process by working with private lenders that would coinvest and carry out due diligence on energy projects eligible for government loans. Under the program, project sponsors would work through qualified private financial institutions that would apply for a loan guarantee to the DOE, with the loan risk shared by the DOE and the private lender.

$750 million available in funding to secure up to $8 billion in loans for conventional renewable energy generation projects that apply through the FIPP.i

The DOE, as part of its Smart Grid Investment Grant Program, announced $3.4 billion in matching grants (with a maximum loan of $200 million) for electricity grid modernization for projects related to integrating renewable energy and modernizing electricity transmission and distribution infrastructure.

The grant program became oversubscribed, with utilities requesting at least $14.6 billion—through about 570 applications.ii On October 20, 2009, $3.4 billion in grants was announced for 100 projects in 49 states for smart meter deployment programs (including 10 million smart meters), substation automation and sensors deployment.


Funding type and source Announced awards/selected recipients included

Electric vehicle/charging infrastructure

The DOE announced in March 2009 the selection of 48 advanced battery and electric vehicle manufacturing projects totaling $2 billion in fundingiii (Electric Drive Vehicle Battery and Component Manufacturing Initiative).

Awardees included Johnson Controls, Inc. ($299.2 million); A123 Systems ($249.1 million) and EnerDel ($118.5 million).

Awardees announced for ARRA provision of $400 million in grants for transportation electrification or initiatives focused on electric vehicles and electric vehicle charging station infrastructure (Transportation Electrification Program).iii

Awardees from this program of $400 million have been listed and include Electric Transportation Engineering Corporation (eTec) ($99.8 million), Chrysler LLC ($70 million) and Navistar, Inc. ($39.2 million).

Clean Cities grants, aimed at adding more than 9,000 alternative-fuel and energy-efficient vehicles and alternative-fuel and electric-charging stations to fleets.

$300 million granted to 25 cities (announced August 2009).

In September 2009, the US House of Representatives passed a bill authorizing $2.85 billion in appropriations for the DOE over 2010–11 to support research and development for advanced-technology vehicles.

To be announced

i U.S. Department of Energy, press release, “Energy Department Announces New Private Sector Partnership to Accelerate Renewable Energy Projects” (October 7, 2009).

ii Rebecca Smith and Ben Worthen, “Stimulus Funds Speed Transformation Toward ‘Smart Grid’,” The Wall Street Journal (September 28, 2009).iii U.S. Department of Energy, press release, “President Obama Announces $2.4 Billion in Grants to Accelerate the Manufacturing and Deployment

of the Next Generation of U.S. Batteries and Electric Vehicles” (August 5, 2009).


As government funding initiatives that trigger development and commercial deployment of the smart grid and clean car infrastructure begin to play out, a simulta-neous recovery in venture capital funding in cleantech has transpired.

VC investment in the cleantech sector rebounded sharply in the third quarter of 2009 to $898 million in 57 deals, rising considerably from $474.8 million in 49 deals in the second quarter, according to the MoneyTree Report (Figure 3). The jump continues a trend of recovery in VC invest-ment after dropping precipitously in early 2009 in the wake of the recession and the banking crisis.

Topping the deals list in the cleantech sector was photovoltaic solar company

Solyndra, Inc., which received a $286-million round of funding, followed by elec-tric vehicle manufacturer Tesla Motors, Inc., which received $82.5 million. Serious Materials, another ecofriendly-materials company, received $60 million.

Smart grid, transportation subsectors strong At the sector level, the smart grid and electric transportation sectors drew healthy rounds of funding (Figure 4), rising as the two largest cleantech asset classes behind solar.

Smart grid deals included: smart grid management software developer eMeter ($32 million), fuel cell producer ClearEdge Power ($15 million) and smart grid commu-nications and software maker Grid Net, Inc. ($13.8 million).

USD millions

$287.71

$426.64

$532.29

$245.48

$444.40

$620.46

$890.57

$720.64

$1,180.02

$912.86

$1,044.29

$986.93

$238.31

$474.81

$897.51

28 40 40 37 45 62 74 64 70 72 79 69 42 49 57

Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009

$200

$400

$600

$800

$1,000

$1,200

Venture capital cleantech investment gathers momentum in Q3 2009

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters.

Deals

Figure 3: US venture capital cleantech investment rebounds in Q3 2009

VC flows back into cleantech investment


Deals6 19 18 12 3 5 6 4 3 3 2 3 3 3 15 7 7 11 3 11 13 11 12 9 11 8 8 7 8 9 15 6 7 3 4 3 5 4 3 1 1 1 23 17 23 24 17 18 23

$0

$110

$220

$330

$440

$550

Q1 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009Q2 2008 Q3 2008

Solar energy

USD millions

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters.

Transportation Smart grid (includes energy storage)

Alternative fuels Pollution and recycling

Wind and geothermal energy

Other†

Venture capital investment flows back into cleantech sectors in Q3 2009

† Other includes the following cleantech-related sectors: business services, computer hardware/software, construction, energy conservation, industrial equipment and products, Internet specific, manufacturing, medical/health, oil and gas exploration, semiconductor, and utilities.

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Figure 4: Venture capital investment flows back into solar, smart grid and transportation in Q3 2009

Global clean energy VC and private equity climb in lockstepThe upward trend in US cleantech invest-ment reflected a global trend. Global investment by venture capitalists and private equity investors in clean energy lifted to $2.2 billion in the third quarter of 2009, up from $1.4 billion in the previous quarter, according to New Energy Finance. This third-quarter recovery is similar to

VC investment tracked in the Money-Tree Report described earlier. Global corporate mergers and acquisitions rose sharply in the third quarter of 2009 as well, totaling $7.3 billion, up from $2.1 billion in the second quarter, which was the lowest since the second quarter of 2005, according to New Energy Finance.9

9 New Energy Finance, “Global Trends in Clean Energy Finance Investment: Q3 2009 Fact Pack” (2009).


Cleantech still in high-growth stage, with stable return on assetsA PricewaterhouseCoopers analysis measuring the annual revenue growth of components of the Cleantech Index (trading symbol: CTIUS), a Nasdaq-listed exchange-traded fund, indicates the sector remains in a high-growth stage, with year-on-year revenue growth over the 2004–08 period far outpacing that of selected industries including the energy, industrial products and technology sectors, as well as the Standard & Poor’s 500 Index (Figure 5). This trend also reflects the emergence of clean-tech as a leading asset class in venture capital spending in the past three years.

A similar PricewaterhouseCoopers analysis focusing on annual return on assets (ROA) found that the cleantech sector’s ROA has been relatively stable (approximately within a 6% to 8% band) from 2005 to 2008, and exceeding ROA of the S&P 500 in 2007 and 2008 (Figure 6).

The takeaway

Paving a road for increased M&A activity? Both public incentives and funding, as well as revived funding from private investors, have helped create the capital driving the rapid build-out of the smart grid and electric vehicle infra-structures, which are, in turn, generating opportunities for companies to grow quickly—especially among smaller start-ups partnering with established compa-nies. These alliances could very well lead to consolidation within industries as well as merger-and-acquisition activity reaching across industry boundaries. In fact, there are signs that the current spate of smart infrastructure- and cleantech-related alli-ances, partnerships and consortia has already led to acquisition activity that may accelerate as the sector grows and enlists new players. For example, smart grid networking company Silver Spring Networks (with smart grid partners including Florida Power & Light, Pepco and PG&E) acquired Greenbox Technology, a maker of home energy management software, in September. And in June, Grid-Point announced it had bought Lixar, a Toronto-based energy manager software company.

If public and private support continues in the creation of smart infrastructure indus-tries, it is likely that consolidation and merger-and-acquisition activity will trend upward, as players define their strategic roles and seize upon opportunities in the markets emerging as the smart infrastruc-ture industries grow and mature.


0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%

2008

2007

2006

2005

2004

Return on assets

S&P 500 cleantech sector demonstrates stable return on assets

Cleantech EnergyIndustrial products S&P 500Technology

Source: PwC analysis based on data provided by Thomson Financial. Please note the number of companies included in the analysis for each industry are: Energy (41); Industrial Products (79); Cleantech (41); and Technology (68).

Figure 5: S&P 500 cleantech sector remains in high-growth stage

0% 20% 40% 60% 80% 100% 120% 140% 160% 180%

Cleantech sector

24% ($8,879)171% ($742)

17% ($10,298)23% ($20,298)

17% ($13,107)

15% ($9,642)72% ($793)

12% ($11,283)32% ($25,974)

14% ($14,741)

18% ($10,543)38% ($886)

12% ($12,394)21% ($27,720)

14% ($16,177)

14% ($11,594)35% ($1,061)

8% ($12,929)22% ($29,775)

14% ($17,530)

8% ($12,483)36% ($1,246)

8% ($13,857)27% ($36,827)

9% ($18,401)

2008

2007

2006

2005

2004

Annual percentage revenue growth (average annual industry revenue in USD millions)

Energy sectorIP sector S&P 500Tech sector

S&P 500 cleantech sector still in high-growth stage

Figure 6: S&P 500 cleantech sector demonstrates stable return on assets


CO36

All other states 39

NY 22

NJ 70

CT 9

MA 8

NV34

OR8

AZ25

CA528

Sources: Solar map adapted from map provided by U.S. Department of Energy, National Renewable Energy Laboratory. Figures on solar capacity from IREC Solar Market Trends Report, 2008.

Top ten US solar energy buildouts 2008 US solar power generation (cumulative grid-connected PV capacity installations, MWDC)

Annual average solar resource data is shown for a tilt=latitude collector. The data for Hawaii and the 48 contiguous states is a 10km, satellite modeled dataset (SUNY/NREL, 2007) representing data from 1998-2005. The data for Alaska is a 40km dataset produced by the Climatological Solar Radiation Model (NREL, 2003).

HI 14

(Please note that Alaska and Hawaii are not drawn to scale.)

6.78

kWh/m2/Day

2.19

Figure 7: Top 10 US solar energy build-outs 2008 US solar power generation (cumulative grid-connected PV capacity installations, MWDC) and National Renewable Energy Laboratory (NREL) annual US solar resources map


WA1,447

ID75

UT20 CO

1,068

NM497

HI63

AK3

WY676

MT272

ND714

SD187

NE72

KS815

OK831

TX7,118

AR

LAMS

AL

FL

GA

SC

NCTN 29

KYVA

WV330

PA361

NY832

VT6

NH25

ME47

MA

RI 1CT

NJDE

MDMO163

IA2,791

MN1,754

WI395

MI129

IL915

IN131

OH7

NV

AZ

OR1,067

CA2,517

Sources: Wind map adapted from map provided by U.S. Department of Energy, National Renewable Energy Laboratory. Figures on wind capacity from American Wind Energy Association.

Capturing the wind2008 US wind power generation (in MW)

This map shows the annual average wind power estimates at a height of 50 meters. It is a combination of high resolution and low resolution datasets produced by NREL and other organizations. The data was screened to eliminate areas unlikely to be developed onshore due to land use or environmental issues. In many states, the wind resource on this map is visually enhanced to better show the distribution of ridge crests and other features.

Wind power classification

Windpower class

Resourcepotential

3 Fair 300−400 6.4−7.0 14.3−15.7

4 Good 400−500 7.0−7.5 15.7−16.8

5 Excellent 500−600 7.5−8.0 16.8−17.9

6 Outstanding 600−800 8.0−8.8 17.9−19.7

7 Superb 800−1600 8.8−11.1 19.7−24.8

Wind power density at 50 m W/m2

Wind speed†

at 50m m/sWind speed†

at 50m mph

† Wind speeds are based on a Weilbull k value of 2.0

Figure 8: Capturing the wind 2008 US wind power generation (in MW) and NREL annual US wind resources map


10+%8–9%5–7%

3–4%2–3%1–2%0–1%

Penetration of advanced metering by state, 2008

Source: Based on data from the US Federal Energy Regulatory Commission 2008 Survey

(not to scale)

PA23.9%

NY0.2%

ME0.1%

WV0%

OH0.5%

ID13.8%

ND8.9%

NV0.8%

UT0%

MT1.6%

CA1.2%

MN1.5%

MI1.4%

CO1.8%

TN 1.8%

SD8.7%

OK8.6%

TX8.0%

FL8.0%

VT5.5%

MD0%

DC0.2%

DE 0%

NJ0.3%

MA 0.1%

RI 0%

CT 0.4%

NH0%

AR11.3%

MS0%

NB0.9%

MO6.6%

GA7.6%

KY4.9%

SC4.8%

KS4.3%

WY3.9%

OR2.1%

WA2.3%

AZ3.4%

NM2.3%

WI3.9%

IA2.7%

IL3.9%

IN3.9%

LA2.0%

NC3.0%

AL5.0%

VA0.2%

AK0%

HI1.6%

US VI0%

Figure 9: US penetration of advanced metering by state, 2008 (% of advanced meters constituting total metering infrastructure)


Utilities are in the infancy of a massive rehaul of the nation’s electricity grid, essen-tially modernizing it from an electrome-chanical network to a digitalized network fitted with the brains of microprocessors, software and new devices to enable intelli-gent monitoring and management of energy generation, transmission and distribution and consumption. The broad aims of the smart grid are to reduce energy consump-tion through greater efficiencies and to connect more renewable energy to the grid. A fully modernized smart grid, estimates the

Smart infrastructures become fertile ground for emerging sectors

Electric Power Research Institute, will cost $165 billion.

Smart infrastructures are being built around enabling technologies. For the smart grid, an enabling technology includes advanced meter infrastructure. Enabling technologies for the electric car infrastructure include charging stations and advanced batteries. As these infra-structures expand, newly developed technologies will likely layer upon these foundations.

“Achieving enhanced connectivity and interoperability will require innovation, ingenuity, and different applications, systems and devices to operate seamlessly with one another, involving the combined use of open system architecture, as an integration platform, and commonly shared technical standards and protocols for communications and information systems. To realize smart grid capabilities, deployments must integrate a vast number of smart devices and systems.”

—NIST Framework and Roadmap for Smart Grid Interoperability Standards Release10

10 National Institute of Standards and Technology, U.S. Department of Commerce, “NIST Framework and Roadmap for Smart Grid Interoperability Standards Release 1.0 (Draft)” (September 2009).


The Federal Energy Regulatory Commission (FERC), in its report titled National Assess-ment of Demand Response Potential, estimated that with a fully deployed smart grid, demand response has the potential to reduce national peak electricity demand by up to 20%. The ARRA includes $11 billion for a build-out of the smart grid, including laying 3,000 miles of new or modernized transmission lines and deploying 40 million smart meters.

The following describes some sectors emerging as a result of the build-out of the smart grid infrastructure and renewable energy industry, as well as the new sectors being driven by the EV ecosystem.

The smart meter as foundation Advanced, or “smart,” meters serve as the enabling architecture for a smart grid ecosystem. Smart meters allow for real-time meter reading, two-way communi-cation, real-time pricing, data collection, voltage monitoring and signaling of power outages as well as remote control of customer energy usage. Nationally, the deployment of smart meters has begun being carried out at a rapid clip, offering utilities test runs before committing to full-territory deployment.

“The smart meter industry is much more mature than the other smart grid technologies... The smart meter will become like a BlackBerry, with all sorts of applications. In ten years, the global smart meter market alone could be about $100 billion.”

—Sunil Sharan, senior fellow, Center for American Progress

For example, San Diego Gas & Electric Company (owned by Sempra Energy), which was selected in October 2009 to receive a $28.1-million matching grant toward implementing a wireless communi-cations system to connect 1.4 million smart meters, is moving swiftly.

Despite ambitious AMI rollouts, it is diffi-cult to forecast how quickly these regional build-outs will saturate nationwide. The Federal Energy Regulatory Commission, in its September 2009 Assessment of Demand Response & Advanced Metering staff report, indicated that in a partial deploy-ment, or “business-as-usual” scenario, about 80 million advanced meters could be deployed by 2019, and that under its “expanded business-as-usual” or full-deployment scenario, about 141 million advanced meters would be installed. However, the Assessment indicated that the partial deployment was “probably closer to what might actually occur.”11 At the end of 2008, there were 7.95 million smart meters

11 Federal Energy Regulatory Commission, Assessment of Demand Response & Advanced Metering: Staff Report (September 2009).

Smart grid: Emerging sectors


Existing/incumbentpower plant

Renewable energy sources

Geothermal

Distributedgeneration

Windmills Solar

Feedingelectricity

(commercial and residential)

Power/utility companies

• Collect nearly real-time data from smart meters• Obtain more accurate data on peaks and valleys• Offer incentives to consumers (in the form of credits/rebates) to participate in energy-saving programs during peak periods

Electric vehicle infrastructure

• Charging stations installed at residences or by municipalities, private businesses• Positioned where people park (shopping malls, parking lots) or drive (along roads and corridors between cities and towns)• V2G (vehicle to grid): Car batteries eventually as viable mobile storage, supplying electricity back to the grid

Home area network

• Smart meter enables two-way communication, tracks energy use in real time• Smart appliances talk to grid and can be monitored and programmed• Smart thermostats talk to grid and can adjust according to price signals• Web-based programs and in-home displays add greater energy management capabilities

Commercial buildingsenergy management

• Wider adoption of smart meter-based energy use diagnostic tools• Improved ability to monitor/manage HVAC and lighting, for example• Savings though more accurate demand response and dynamic pricing • Introduction of electric charging stations to residents of apartment buildings, employees at office buildings

Smart infrastructure connections at a glanceFigure 10: Smart infrastructure connections at a glance


installed in the US, according to FERC, for an AMI penetration rate of 4.7%, up from less than 1% two years earlier. But the penetration rates vary, producing a patch-work of high and low rates of AMI deploy-ment. Only three states had double-digit penetration at the end of 2008, according to FERC: Pennsylvania (23.9%), Idaho (13.8%) and Arkansas (11.3%). Nineteen states had AMI penetration rates of less than 1%. This is forecast to rise to 13.6 million over 2010, and to 33 million by 2012, according to Park Associates, a digital products and services research firm.12

12 Martin Lamonica, “Smart meters cracking into U.S. homes,” cnet.com (July 17, 2009).

0

30

60

90

120

150

Pike Research

Expanded business-as-usual (FERC) scenario

Business-as-usual (FERC) scenario

In millions of smart-meter installations

Advanced meter infrastructure deployment:Ten-year forecast

Source: Pike Research and U.S. Federal Energy Regulatory Commission

2009 2010 2011 2019

Figure 11: Advanced meter infrastructure deployment: Ten-year forecast

Since June 2008, at least 26 utilities in 19 states have announced or initiated deploy-ments of advanced metering pilot programs or fully deployed programs.13 Based on the results of pilot programs, at least nine utilities in four states (Arizona, California, Idaho and Texas) have started or completed AMI deployment fully across their territo-ries. Multistate utility holding companies have announced similar plans, including Southern Company, which had installed one million smart meters by March 2009 and aims to install 4.3 million smart meters

13 Federal Energy Regulatory Commission, Assessment of Demand Response & Advanced Metering: Staff Report (September, 2009).


for customers in Alabama, Georgia and Mississippi by 2013.

As referenced earlier, BGE’s application for a $200-million matching grant from the DOE in August 2009 to help fund deploy-ment of two million advanced smart meters would contribute to the state of Maryland’s achieving a statewide 15% reduction in per capita electricity usage and peak demand by 2015. Michael Butts, BGE’s director of AMI and smart grid, said he expects that once appliances and electric vehicles begin “talking to the smart grid, there are likely to be further reductions, as long as customers are incentivized.”

Major players in the smart meter space include some major established players, such as General Electric, which has been chosen to supply meters for some major utilities, including 3.3 million of 10.3 million smart meters planned to be deployed by 2011 by PG&E in California.14 Itron, a smart meter company, too, has entered the field aggressively, having won large contracts, including one with Southern California Edison for a 5.3-million-meter deployment.15 Landis+Gyr, a Swiss energy-metering concern that has supplied smart meters worldwide and is a veteran player in this space, is rolling out 700,000 smart meters in 2009 for Oncor in Dallas, and up to three million in 2012, in one of the most ambitious and swiftest deployments in the US.16 Not all players are large, though. Consider SmartSynch, a start-up, which produces meters that communicate through Internet Protocol networks such as WiFi and general packet radio service (GPRS), and so far has worked with 75 utilities.

14 “PG&E to Deploy up to 3.3 Million GE Meters with Smart Meter by 2011,” Transmission and Distribution World (October 23, 2008).

15 Itron Inc. press release, “Itron Highlights Its Continued, Industry-Leading Efforts in Securing the Smart Grid” (June 18, 2009).

16 Landis+Gyr and Oncor joint press release, “Landis+Gyr and Oncor Reach Milestone in Smart Texas(SM) Advanced Meter System Deployment” (June 29, 2009).

Beyond metersDemand response enablers Layered upon the smart meter deployment is a suite of networking solutions that are helping utilities manage smart meter data to see what was previously unobservable: a map of how much electricity is used, and where it is used. Those solutions also confer the ability to work with customers to change electricity usage patterns in ways that would not only conserve electricity but also change energy patterns—by using energy at different times to ease demand during peak periods (such as during the day) and shift that usage to low-demand periods (such as overnight). Connecting customers to utilities—and facilitating two-way communication—lie at the heart of creating demand response capability.

Demand response systems are not new to industrial energy customers; however, this technology is now being mainstreamed through its adoption by small- and medium-sized businesses and residential build-ings. For example, EnerNOC has provided demand response services for industrial and commercial consumers to help reduce energy consumption during peak loads. The smart grid build-out now mainstreams this demand response capability into a far bigger and more diverse market: residences and small- and medium-sized businesses. And this has enlisted new start-up entrants such as Greenbox Technology, which is developing a dashboard for customers to cut energy use, or Trilliant, a developer of hardware and software for metering and two-way communications. Tendril, another start-up, which makes home manage-ment software and hardware ranging from smart plugs to software, to in-home energy displays, is another such entrant.

Smart grid information technology As utilities begin receiving data from smart meters, storage issues are expected to become significant. Compare, for example, a utility’s gathering of data (collected in person by a meter reader) four times a


year with a utility’s gathering of data at 15-minute intervals throughout the day (and the night) every day via a smart meter. Utili-ties will likely need to significantly upgrade their information technology resources and expand data centers in order to manage a potentially staggering amount of data. Cisco Systems, for example, has a contract to work with Duke Energy to help the latter handle its data management and storage—not only from smart meters, but also from data coming from sensors attached across the entire grid, including those on cables, home appliances and power substations.17

A potentially bigger challenge presented by this imminent data surge is understanding and analyzing that data in a way that has the greatest operational impact. Additionally, utilities will need to be able to manage and analyze the data as quickly as the data flows in—not unlike reading emails as they arrive.

Salt River Project (SRP) received a $57-million ARRA matching grant in October to expand its smart meter network by 540,000 meters. When completed, the network will extend smart meter technology to all SRP customers, allowing SRP to improve customer service, lower customer bills and improve operating efficiencies. Carrie Young, Manager, Revenue Cycle Services, states that “Smart meter tech-nology will enhance customer services by providing customers with better access to energy usage data and time-of-use rate programs. Customers will be able to track their daily electricity usage on-line and lower their bills by using more of their power during lower-priced, off-peak periods. Smart meter technology is also helpful on an operational level, leading to efficiencies not only in energy generation, but also through reductions in operating costs such as meter reading, field work and transportation. Most activities that used to require us to roll a truck can now be done remotely. That’s a big benefit for

17 Duke Energy press release, “Duke Energy Partners with Cisco to Fast-Track Development of Utility’s ‘Smart Grid’” (June 9, 2009).

the environment. We also expect to see a reduction in outage-related services. We’ll no longer have customers calling to tell us they are out of power; we’ll know.” Young added that the smart meter network is just the first step in developing advanced smart grid capabilities for SRP customers, Arizona and the nation.

Communications Utilities can build their own dedicated communications networks when rolling out the smart grid, with most residential smart meters connected to radio frequency mesh systems. Alterna-tively, utilities can use an existing network. Communications companies are moving quickly to enter this space—for example, by offering cellular communications. Consider AT&T, which recently partnered with smart grid software developer SmartSynch to create two-way communication for smart meters in the residential market through cellular networks.18 Utilities currently are in an experimental state by adopting a variety of communications technologies to enable data flow through smart meters—and to expand on their existing communications infrastructure. Utilities can build a private communications network (traditionally the case)—or allow telecom companies to connect on the utilities’ customers’ broad-band connections. Such Web-connected applications sprouting up include Google’s PowerMeter and Microsoft’s Hohm. Utili-ties, such as National Grid and others, are testing WiMAX, an incipient wireless high-bandwidth technology for smart grid communications applications. National Grid and Alvarion, a WiMAX communications company, announced they are working on a pilot program to test the concept.19

18 SmartSynch press release, “AT&T combines new service plans with SmartSynch’s SmartMetering™ solutions to bring smart grid technology to the home” (March 17, 2009).

19 Alvarion press release, “Alvarion and National Grid Conduct Smart Power Grid Proof of Concept in the U.S.” (September 10, 2009).


Machine-to-machine communication

Electric vehicles deployed

Next-gen car battery, V2G development

Wide EV adoption, developed EV-charging infrastructure

Smart buildings, continued renewable adoption

Managing the data deluge

Machine-to-machine communication

Smart meter deployment

New PEV and PHEV models launched, increased penetration into national fleet

Electric vehicle charging infrastructure deployment to lessen range anxiety (i.e., in homes, shopping centers, office buildings, as well as parking lots, businesses, along highways)

Development of advanced battery switch infrastructure

Advanced meter infrastructure and sensors deployment throughout grid (i.e., connecting generation, transmission, distribution; residences, office buildings, etc.)

Industry standards established to facilitate interoperable and plug-and-play abilities

Ubiquitous grid-enabled home and office electric-powered devices and machines, including electronics, appliances, vehicles

Next-generation, utility-scale energy storage

Data management and predictive analysis More efficient integration of distributed energy sources (wind, solar), more efficient net-metering

Renewable energy transmis-sion corridors built out

Accelerated battery technology innovation to extend driving range, lower costs

Further development of machine-to-machine technology (cars talking to utilities)

Accelerated innovation of lithium-ion next-generation batteries (could include nanotechnology and cost-effective hydrogen-cell technology)

Two-way integrated communications networks build out, demand response programs initiated

Development of communication between smart meter and home area network (such as smart thermostats and grid-enabled appliances)

In-home energy management displays, Web-based energy management solutions

Electric vehicle battery as mobile storage for utilities, enabling bidirec-tional electricity flow back to grid

Greater saturation of charging stations/switching stations— growth from urban centers outward connecting urban clusters to accommodate greater driving range

The basic building blocks of smart infrastructures

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gri

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Figure 12: The basic building blocks of smart infrastructures


Next-generation storage of renewable energy One of the aims of a robust smart grid is to increase the capability and effi-ciency of bringing on-grid electricity from renewable sources, such as wind, solar and geothermal energy generation. One of the challenges involves the transmis-sion from generating regions to energy consumers. A second challenge involves storing electricity when the wind calms or day turns to night. The market to create more powerful and less expensive indus-trial battery storage could be considerable. Compressed-air storage, for example, could present a way to cross certain barriers that renewable energy’s intermittent generation presents. Utilities, naturally, have taken notice. Diversified energy company PSEG, Inc., for example, created a joint venture, called Energy Storage and Power, to develop next-generation compressed-air storage technology.20 Advances in lithium-ion batteries, however, may enable these batteries to reach the scales necessary to adequately serve the needs of intermittent power generators such as wind and solar.

Smart grid grows up: Home area networks and grid-enabled devices Further layered upon the AMI infrastruc-ture is the technology behind a home area network, sometimes referred to as home energy management. It is a smart grid wherein devices (e.g., thermostats, appli-ances) communicate with other devices (e.g., smart meter, home energy manage-ment systems) for the purpose of moni-toring and programming electricity use. Once the smart meter infrastructure is put into place, a wave of applications closely tied to the devices is expected to follow. First, existing appliances would require being wired with networking nodules. Appli-ance makers, for example, are ramping

20 PSEG press release, “Joint venture announced to market and deploy next generation compressed air energy storage (CAES) plants” (August 26, 2008).

up to offer networking capabilities; that is, supplying appliances with an Internet Protocol address. Whirlpool recently announced that it had accelerated its release of its smart-grid-enabled products to 2011 from 2015, aiming to produce by the end of 2011 one million smart clothes dryers capable of shutting off during peak demand and turning back on during periods of low demand.21

The US Commerce Department’s National Institute of Standards and Technology released in October 2009 proposed stan-dards for smart grid interoperability, and proposed that home area network devices be permitted to communicate through either wireless or home wiring.

General Electric, for example, is planning to pilot such a home area network with Tendril in late 2009 to supply software to connect home appliances (e.g., refrigerators, water heaters, washing machines) to smart meters. This will enable consumers to control their appliances remotely via such platforms as Web browsers or iPhones or an in-home display.22 To this end, GE plans to start selling smart water heaters in 2009. Start-ups such as New York-based EnergyHub, a software and in-home-display maker, are also entering this space. EnergyHub has been selected to supply some of Consolidated Edison’s customers in a smart grid pilot program in Queens, New York, with an in-home dashboard and Web portal, enabling consumers to monitor and control energy use.23

21 Whirlpool press release, “Whirlpool Corporation to Produce One Million Smart Grid-Compatible Clothes Dryers by the End of 2011” (September 28, 2009).

22 Tendril, General Electric joint press release, “GE Expands Relationship with Tendril to Bring the Smart Grid to the Home” (October 14, 2009).

23 Consolidated Edison and EnergyHub joint press release, “EnergyHub and Con Edison Partner to Bring the Consumer Face of the Smart Grid to New York City Customers” (September 14, 2009).


The electric fleet: Just around the bend Volatile gasoline prices and a push for clean energy at the federal, state and consumer levels have spurred automakers to develop a fleet of both pure electric and plug-in hybrid vehicles. To date, at least 11 new models of PHEVs and PEVs are planned to be launched in 2010, and 13 in 2011 (Figure 13), according to PwC Autofacts. By 2015, annual assembly of PHEVs and PEVs is forecast to total nearly 600,000 units, reaching up to 750,000 units in an upside scenario, according to PwC Autofacts (Figure 14). The degree of consumer adop-tion of these electric vehicles will likely be

driven largely by how quickly and widely a charging infrastructure can be deployed to support these vehicles in a way that fits practically within drivers’ needs and behav-iors. If President Obama’s goal of having one million electric vehicles on the road by 2015 is realized, then it would follow that the nation would require at least twice that, or two million, electric-charging stations to accommodate the demand, according to Richard Lowenthal, CEO of Coulomb Tech-nologies, an EV-charging station maker. To put this in perspective, there were 116,855 gas stations in the US in 2006, according to the 2006 US census.24

24 U.S. Census Bureau press release, “A Gas Station for Every 2,500 People” (June 27, 2008).

0

100

200

300

400

500

600

2009 2010 2011 2012 2013 2014 2015

64.1

4.25

3.95136 177 176 187 189

51.7

152 298 346 379 401

PHEV PEV

(In thousands)

Source: PwC Autofacts

Global electric vehicle (EV) and plug-in hybrid vehicle (PHEV)Forecast through 2015

Figure 14: Electric vehicle adoption. Global PEV and PHEV: Forecast, 2009–15

0

5

10

15

PHEV PEV

Source: PwC Autofacts

2009 2010 2011 2012

71177

1245

Driving electricGlobal new electric vehicle models forecast, 2009–12

Figure 13: Next year’s model. Estimated new global PHEV/PEV models: Forecast, 2009–15

Electric vehicle infrastructure: Emerging sectors


Batteries: The pivotal technology With the car battery being the most expen-sive component of an electric car, it stands to reason the major players in battery technology will potentially emerge as major players in the auto industry. Thus far, lith-ium-ion technology has been the prevailing technology, but government laboratories, universities and private enterprises are clearly racing to develop the next best

battery, including the application of nano-technology. For example, South Korea’s LG Chem (which produces batteries for the Chevy Volt), along with university researchers, is exploring how to expand lithium-ion technology storage capacity by using silicon nanotube electrodes instead of the standard graphite electrodes conven-tionally used in lithium-ion batteries.25

25 Greencarcongress.com, “New Silicon Nanotube Anodes for li-ion Batteries Hold Capacity and Efficiency Even After 200 Cycles” (September 13, 2009).

“We’re absolutely certain that we’re at a tipping point with electric vehicles affecting our elec-tricity load. We expect to see the effects of these vehicles on energy consumption later in 2010 and accelerating appreciably thereafter…. We will need the technology to monitor and manage the electricity needs of these vehicles so our infrastructure is not stressed. Right now, we’re not sure what the best technology will be and how that will play out. We might still be five or ten years out from having EVs contribute significantly back into the smart grid. BGE is now consid-ering its policy toward electric vehicle infrastructure in terms of charging stations and how cars will talk to the grid.”

—Michael Butts, director of AMI and smart grid, BGE

Wall Street has also indicated its enthu-siasm for the vehicle battery industry. The September 2009 initial public offering of rechargeable lithium-ion-battery maker A123 Systems raised $380 million.26 As the battery market grows to accommo-date a growing electric vehicle market, the battery industry will likely generate its own infrastructure via an extended value chain,

including battery service, distribution, and charging infrastructure. To what degree incumbent industries—most notably utilities and automakers—will get involved in this infrastructure is yet to be revealed.

Fuel cells back on track? As portable electricity storage becomes more critical to the transportation and smart grid

26 Phil Wahba, “A123 prices IPO above range, ups share issue,” Reuters (September 3, 2009).


infrastructures, next-generation transforma-tional technologies continue to be refined and tested—particularly the hydrogen fuel cell. Although hydrogen fuel cell vehicles have been on the market since 2002, these cells are challenging to mass produce. General Motors, for example, recently announced that a pilot fleet of its fuel-cell-powered Chevrolet Equinox has logged over one million miles in the last two years.27 Other automakers are likewise forging ahead. Consider Toyota’s High-lander Fuel Cell Hybrid Vehicle (FCHV), which has an estimated range of 431 miles on a tank of hydrogen gas, for an average of 68.3 miles/kg.28 Daimler AG is dedi-cated to commercialize fuel-cell vehicles and has made significant investments into this technology. Already in 2009 Daimler—with the experience of more than two million kilometers in both the light vehicles segment and the bus segment—will begin a limited production of a B-Class model equipped with fuel-cell drive.29,30 Honda, too, is wading in, with its FCX Clarity, which it released in the US in 2009 (in limited numbers) and plans to mass produce by 2015.31 One clear barrier to the adoption of fuel cell cars is lack of a hydrogen filling station infrastructure (estimated at only 65 in the US) and the challenge of producing them commercially in a cost-effective manner.

The ARRA includes $68 million in funding aimed at accelerating the commercializa-tion of fuel cell technology, and separately awarded $41.9 million to 12 companies for applications in electronics, back-up power supply and vehicles.

27 General Motors press release, “Chevrolet Equinox Fuel Cell Passes 1 Million Miles” (September 11, 2009).

28 Toyota press release, “Toyota Advanced Fuel Cell Hybrid Vehicle Completes Government Field Evaluation” (August 6, 2009).

29 “The Electrification of the Automobile: Technical and Economic Challenges,” Daimler AG, Dr. Christian Mohrdieck.

30 Address by the Chairman of the Board of Management at the Annual Shareholders’ Meeting of Daimler AG– Berlin, April 8, 2009.

31 Sam Abuelsamid, “Honda still plans 200 FCX Clarity leases, showroom sales by 2015,” Reuters (September 9, 2009).

EV-charging infrastructureRapid deployment expected to start in 2010 Though in its nascent stage, an electric-vehicle-charging infrastructure is growing around not only where cars drive (e.g., along highways, in city centers) but also where cars are parked (e.g., home garages, municipal parking lots). The infra-structure, then, will likely be much more ubiquitous and pinpointed to drivers’ needs than is the incumbent petro filling station infrastructure.

“It’s starting in pockets—cities are begin-ning to buy in small quantities to signal that they welcome electric vehicles. The deepest penetration at first will be on the West Coast, where consumers tend to be more progressive,” said Richard Lowenthal, CEO of Coulomb Technolo-gies, an electric vehicle charging station maker. Lowenthal predicts that charging station development will “begin to pick up in 2010 and rise sharply thereafter. We’re placing the stations ahead of the [electric] cars.” Lowenthal estimates there will be three million electric vehicles in the world globally by 2015, with one million each in the US, Europe and Asia, and at least six million charging stations will be needed in the world to power these cars. Lowen-thal said that Coulomb will have shipped about 1,000 charging stations in 2009, but estimates shipping 5,000 in 2010. “We’re still in an early-adopter stage, and this will continue through 2009 and 2010.” Coulomb has also sold stations to the Netherlands and Germany last year.


Another major player is Palo Alto, Cali-fornia-based Better Place, a builder of electric-vehicle-charging stations, which has pioneered “battery-switching” stations, which use robots to swap drivers’ batteries for newly charged ones (which Better Place owns). Better Place recently announced it will also offer drivers the option of buying a subscription for mileage, similar to the concept of buying minutes for mobile phones. Better Place has launched switching stations in North America, Europe, Australia and Israel.

There are already signs of the potential high growth of the EV infrastructure. The EV Project, led by eTec, and supported by a $99.8-million grant from the DOE, plans to deploy 10,950 Level-2 (220 volts/2 to 4 hours charge time) EV charging systems and 250 Level-3 (up to 480 volts/15-minute charge time) systems in 11 cities in five states (Arizona, California, Oregon, Tennessee and Washington ).32 The project is scheduled to begin in summer 2010 and be carried out for five years. Beginning in fall 2010, 4,700 of Nissan’s all-electric LEAF model cars will be deployed. At least 40 partners, including Nissan and electric utilities, are taking part. Additionally, solar power company SolarCity and electric-car developer Tesla Motors joined forces to build the first electric-car corridor in the US on a 408-mile stretch of Highway 101. The corridor has five charging stations between San Francisco and Los Angeles with Level 2 chargers, and one of them is solar powered.33

V2Grid: Car talkAs more and more electric vehicles get deployed, there will be a greater need for utilities to deploy load shifting: demand response to prevent an overload in the

32 ECOtality press release, “ECOtality’s eTec Finalizes Contract for $100 Million Transportation Electrification Project with U.S. Department of Energy” (October 1, 2009).

33 Tesla Motors press release, “SolarCity and Rabobank Announce Corridor of Solar-Powered Electric Vehicle Charging Stations” (September 22, 2009).

event of too many cars needing to be charged at the same time or at the wrong time. An advanced EV infrastructure will require smart charging software to enable utilities to carry out these capabilities.

For example, GridPoint, which also provides smart grid software, was selected as a strategic partner to provide smart charging software for utilities so the utili-ties could manage data from the 12,750 charging stations planned for deployment through the EV Project (as mentioned earlier). The software also enables consumers to be notified of demand response data and events through the Internet and handheld devices. Seattle-based V2Green also develops software and hardware for utilities to monitor and manage electricity used by electric vehicles, in which electronics and soft-ware are embedded and communicate in real time the vehicle’s energy usage and performance to the utilities. Essentially, this technology enables for electric vehicles and utilities a two-way communication. Such V2Grid (vehicle to grid) technology also is designed to turn car batteries into mobile storage devices that can also feed electricity back into the grid. V2Green’s technology is being piloted in the Boulder, Colorado, SmartGridCity project.

Next-generation V2Grid technolo-gies will include integration with smart meters—bridging the electric transpor-tation infrastructure with the smart grid infrastructure. Ford Motor Company, for example, announced in August 2009 that it had developed a V2Grid communications system whereby drivers can program a vehicle equipped with an on-dash computer and touch screen interface to communicate with a smart meter the details regarding when and for how long their vehicles will charge—for example, during a low-rate period.34 Ford has worked with a number of utilities to pilot the technology.

34 Ford Motor Company press release, “Ford Unveils ‘Intelligent’ System for Plug-In Hybrids to Communicate with the Electric Grid” (August 18, 2009).


Much of the success of the cleantech sector, however, hinges on how widely new cleantech products get adopted and used by consumers and businesses. For example, electric vehicles will likely be more widely embraced in urban areas with more mature electric-charging infra-structures. And, as it relates to home energy management, not all residents, for example, will power down their air conditioning on hot days in exchange for a rebate from their local utility. Smart grid pilot programs offer a glimpse into a key driver of the success of smart grid technology: customer adoption. BGE carried out a smart grid pilot deployment in 2008 and found a 22% energy reduc-tion among customers with in-home displays alerting them to a rebate offer in exchange for powering down their energy usage in advance of expected high load (due, for example, to a hot day). “When you give customers financial incentives to participate in a program such as demand response, people will respond,” said BGE’s Michael Butts. The reduction in peak load through smart-grid technology and customer adoption—as well as dynamic pricing mechanisms, asserted Butts, will mean that utilities can “eliminate or defer expanded capacity in the form of new generation and transmission.”

For the electric car, wider adoption is premised on where and how drivers will charge up. For now, electric vehicle drivers charge up mainly at home. Lowenthal esti-mates that there are 240 million cars in the US, but that there are only 53 million garages, and building infrastructure for car owners who park curbside will be increasingly necessary. In San Francisco, for example, Lowenthal said, 53% of car owners park curbside.

Deploying charging stations at places where people work could well encourage interest in the cars. According to a Pike Research survey, 48% of consumers surveyed were interested in buying a PHEV with a single-charge range of 40 miles or less.35 PricewaterhouseCoopers Autofacts estimates that by 2020, 2% to 5% of the world’s light vehicle fleet will comprise electric vehicles. The concentration of these vehicles will likely take root initially in urban centers, then grow in suburban and rural areas as charging infrastructures and advancements in battery technology enable wider driving ranges.

35 Pike Research press release, “48% of Consumers Interested in Purchasing a Plug-in Hybrid Electric Vehicle” (September 8, 2009).

Smart infrastructure technology adoption to drive economies of scale

What this means for your business

Defining your role in emerging smart infrastructure markets.

What this means for your business 41PricewaterhouseCoopers

The incipient growth of smart grid infrastructures illuminates certain industry trends that show few signs of abating. First, government and private investments are being made—and not in insignificant amounts. Second, these trends point to a growing and increasingly diverse universe of industries involved in the infrastructures’ growth, as deployments and adoption of foundational technologies such as advanced smart meters, demand response applications, and electric vehicles will support layers of additional technologies. As these infrastructures expand so, too, will the supply chains of these infrastructures’ sectors. Furthermore, the creation of altogether new off-shoot sectors will likely usher in new fields of cross-industry opportunities.

A new M&A rule book? In light of these trends, cleantech industries collectively have risen—and are likely to rise considerably going forward—into a maturing asset class. And, as this class expands, consolidation and merger-and-acquisition activity are likely to follow. During this expansion, a race for dominant technologies will likely hold profound consequences for companies seeking organic and acquisitive growth in the smart infra-structure markets. For companies examining acquisition prospects to gain or deepen their foothold in cleantech industries, the old rules of valuation may not necessarily apply. In such a fast-moving regulatory and investment landscape, it will be challenging to choose which acquisition targets hold the greatest promise in the build-out of smart infrastruc-tures—and, more important, to ascertain the right purchase price.

Forging of public-private partnerships The government-supported drive to lay the groundwork for smart infrastructures has spawned numerous public-private partnerships as well as the convergence of industries that, until now, have had little experience collabo-rating. These new partnerships are necessary to achieve an ambitious goal of creating a ubiquitous, national smart grid. But they also have created new models of collaboration that must be governed and managed so they are enduring and harmonious. Take, for example, a public utility, a communications firm, an IT networking firm, and a smart meter hardware maker codeveloping a smart grid system. How will this model develop as the smart grid matures? Which player will control—or own—what?

Smart infrastructures challenges While the many cross-industry opportunities connecting smart infrastructures are becoming clear, challenges also exist. Smart infra-structures are clearly more attractive to some businesses than to others, which may not see attractive returns on the considerable investment that a smart grid—or an EV infra-structure—requires. Building an expensive smart grid (while potentially lowering revenues) may not be an attractive investment for a utility operating in a state without a revenue decoupling scheme (in which utilities are, in effect, incentivized to sell less electricity, or more “nega-watts”). However, even for these utilities, if smart-grid electricity use reduc-tions delay or eliminate the need for investing in a new power generating plant, smart grid advancements may well prove worthwhile investments. The imperatives to feed more renewable energy to the grid add yet more challenges for utilities, and present a further impetus for smart grid modernization.


Positioning key to smart infrastructure developmentFor some companies, successfully entering a smart infrastructure market has meant forming alliances or making acquisitions. The smart grid and electric transportation sectors will likely produce a new crop of major cleantech players, but a strong trend suggests that this will be achieved through cross-industry collaborations. Making the right alliance or acquisition at the right time during this dynamic phase will benefit companies intent on getting a foothold in the smart infrastructure markets.

Sustaining cleantech’s second wave Government support and incentives—in the form of tax credits, mandates and ARRA grants and loans—have done much to grow the first wave of cleantech indus-tries, including wind and solar energy generation and biofuels. Likewise, it may be through similar government support and, just as important, further consumer and commercial adoption that sustains the second wave of cleantech players currently emerging. Fixing a vigilant eye on current and anticipated support from federal and state government sources, as well as consumer and commercial adoption of new and next-generation clean technologies, will be key for companies to spot and act early on potentially significant opportunities in existing and emerging smart infrastructure industry markets.

Customer is key In order for smart infra-structures to grow, customer adoption must take place. It is therefore critical that all stakeholders building out these infrastruc-tures—makers of PHEVs, AMI and smart grid—develop programs that accommodate customers’ needs and preferences. If the build-out of these infrastructures is not customer-centric, their adoption will likely be impeded.

Smart infrastructures as a national industrial policy The Obama Administra-tion, as part of its drive to stimulate the economy, has focused on energy genera-tion, management and consumption as key beneficiaries of government stimulus. Indeed, this Administration has laid the groundwork to modernize the nation’s electricity grid as well as to spur growth in the electric transportation sector. These initiatives follow cues already taken at the state level and signal the beginnings of a national industrial policy—with the develop-ment of smart infrastructures at its core. Going forward, continued momentum of this policy (in the forms of continued stim-ulus disbursement and a possible carbon cap-and-trade system) would likely open more opportunities for companies—big and small—with products and services needed to carry out the creation of modernized infrastructures.

Choose the “smartest” partner The beginnings of the ambitious rollout of these smart infrastructures have already demon-strated the need for companies to ally and partner with other companies. This has created cross-industry convergences that might have looked unlikely just a few years ago. However, as technologies develop, there will inevitably be some that become the standard-bearers and others that will not. Therefore, choosing the right partners (and the technologies they represent) in smart-grid-related projects will be increas-ingly important—particularly when that choice means committing to a certain technology. The winning technologies will be not only scalable, but also easily adapt-able to next-generation technologies and innovations. For example, smart meter roll-outs need to possess the reliability that this technology will endure through generations

What this means for your business 43PricewaterhouseCoopers

of new technologies connecting to them at both ends—into the home and to the utili-ties. Alliances, then, need to be forged with partners with technologies that will most easily adapt to future innovations. And, as in any fast-growing industry, committing to certain technologies—as a producer or an adopter—will continue to be a chal-

lenging undertaking, as more players enter the smart infrastructure space, offering still more technologies and solutions.

Wide adoption = the tipping point Finally, smart infrastructure development will likely reach an economic tipping point when a Moore’s Law-like cost reduction accommo-dates wide adoption of technologies—from sensors to substation automation, to home energy management systems. Clearly, all

smart infrastructure players—from energy management software developers to start-up electric-vehicle-charging-station developers to utilities—will benefit through economies of scale. Companies entering smart grid and electric transportation infra-structure markets are taking a lead and establishing early market share. However,

the incipient and high-growth stage of these markets will likely also be the most volatile. Wide and enduring adoption of these tech-nologies—from electric cars to buying grid-enabled appliances—will be the key to the maturation of the markets they are creating. These economies of scale will come about—and a tipping point will be achieved—only when industrial, commercial and consumer adoption of smart infrastructure technologies becomes pervasive and ingrained.

“The debate on climate change gives us the opportunity to become stewards of the world, to lead us toward new energy solutions and technology. There has to be collaboration between the auto makers, utilities, university research centers and the government to develop a compre-hensive energy industry.”

—Tom Vilsack, US Secretary of Agriculture

PricewaterhouseCoopers Cleantech revolution editorial team:

AuthorChristopher Sulavik, Senior Research Fellow, PwC US

Thought Leadership Institute

Research and analyticsKristopher Brown, Director, UtilitiesBrandon Mason, Analyst, PwC AutofactsDeborah Volpe, Technology Marketing/PwC MoneyTree

ReportGita Gupte, PwC US Thought Leadership InstituteSheri Phypers, Utility Sector Practice DirectorPeter Vigil, Consultant, PwC US Thought Leadership

Institute Deepali S. Sussman, Senior Research Fellow, PwC

US Thought Leadership InstituteMaryanne Coughlin, PwC Technology Sector Analyst

DesignIsabella Piestrzynska, PwC Senior Graphic Designer

We would like to gratefully acknowledge the valuable contributions of the interviewees included in this report.

www.pwc.com

© 2009 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity. NY-10-0227

This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

To have a deeper conversation about how this subject may affect your business, please contact:

D. Timothy Carey US Cleantech Practice Leader 408.817.5000 [email protected]

Wayne HeddenUS Cleantech Practice Senior [email protected]

David EtheridgeUtilities Practice [email protected]

Matthew LabovichUtilities [email protected]

Thomas McGuckinUS Automotive Sustainability [email protected]

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