IBM rides third wave of cleantech

The U.S. House of Representatives today passed an $819 billion stimulus plan that includes $11 billion for smart grid technology (see Smart grid could be early winner in U.S. stimulus package).

The policy could remove one of the major hurdles to growth in the sector: the lack of transmission lines between renewable energy farms and consumers. The remaining challenge, of establishing standards and getting technology to utilities and their customers, is one that Armonk, N.Y.-based IBM (NYSE: IBM) is already tackling through its Venture Capital Group's work with companies such as Silver Spring Networks, eMeter, and SynapSense.

Drew Clark, director of strategy for IBM's Venture Capital Group, says the rising profile of efficiency plays is replacing the cleantech sector's previous preoccupations with solar and biofuel, both of which are hitting hard times. Solar companies such as Suntech, OptiSolar, Day4 Energy and GT Solar have all announced layoffs in recent weeks (see Is this the end of China's solar boom? and Solar layoffs continue with OptiSolar).

IBM's venture group doesn't invest funds in startups but instead tries to link startup technology companies with IBM for partnerships (see Startups get big help from Big Blue).

The new Smarter Planet initiative from IBM has emphasized the company's focus on using its technical expertise to increase the intelligence of systems such as the food-supply chain, the electric grid, data centers and water distribution.

Clark spoke to the Cleantech Group today about what the government investment means for smart grid, and what other changes are in store for cleantech. Here are excerpts.

How should the government investment in the smart grid be spent?

If utilities are given tens of millions of dollars to upgrade the grid, we need to put intelligence where it makes sense, which is to see where we can reduce the energy inefficiencies. The utility itself has to transform its business to take advantage of all that new intelligence. The utilities have been IT-starved for decades, so they don't necessarily have the systems in place to use the data.

The money from the federal government could remove one big barrier for the smart grid system, the lack of transmission capabilities. Is what's left just a technology problem?

We can't achieve our legislated goals of 20 percent of energy from renewables by 2012 in California without that extra copper. But we can do a lot now before we get those cables by being more efficient with the energy we're using. The big challenge now is to develop a smart network using IP infrastructure.

Companies such as Silver Spring, Echelon and Fat Spaniel all talk about the need for an IP-based standards system to manage the smart grid. What's IBM's role in that?

The utilities contract with IBM to build smart infrastructure. Silver Spring would provide the router or switches, and we architect it into the network. EMeter provides the software. Itron or GE makes the meter. We, on behalf of the utility, pull the pieces together.

What's necessary to establish that network?

The missing link is standards. You have to connect the smart meter to the router to the utility and to the energy producers. At each stage there's no standards. The only standard we want to have is IP.

What should those standards include?

With the Web we agreed to use http as the standard to organize packets of information. Where's the http for this? We're establishing how the infrastructure is organized so it can flow as smoothly as the Internet.

We're working hard to drive those standards because it's the No. 1 challenge to making the smart grid happen. Imagine if we could develop a platform that startups could build applications on. Look at the iPhone. Apple created a platform and software developers wrote all sorts of programs for it. Imagine if you take those clever developers and put them to work on this problem. You'd see thousands of startups in the space.

You don't see VCs funding many of these companies because there aren't any standards. Once a platform has been developed, you'll see a huge amount of startups funded.

Who should develop those standards? The government?

We want government to endorse and back the standards, but the industry should develop them. Perhaps the effort could be led by bodies like GridWise. We need a standards body with the clout of government so the same success we had with the Web we can have here.

How are smart grid companies different from traditional cleantech plays like solar and biofuels?

Many of them are based on software and IT. The growth curve and life cycle are like enterprise IT companies. They can be cheap to start, with just a couple million. It will be interesting to see whether new funds are raised to deal with the smart grid becuse the investment required and the growth curve are so differentfrom solar or biofuels, where you need $50 million or $100 million rounds. Many of today's cleantech funds were raised with those expectations of long term, big investments.

Why is water the second major focus for IBM's venture group?

Water is like electricity in that it's a scarce resource that needs to be managed. It's not that there's not enough water, but it's not in a condition that we can use it. We need to find smarter ways to make it usable. But investors are wary because water districts have even less money than utilities and are even more regulated. Water's the next thing we have to tackle.

How are you applying IBM's technologies to water?

There are two applications. For agriculture, there's micro climate forecasting. These are models that can zero in on a zip code and analyze patterns to predict what kind of weather you can expect to see. You can manage crop yields and determine what types of crops you should be planning. While this would help in places like California, it's essential in areas like sub-Saharan Africa.

The second area is water management for water utility districts, much like what we're doing with the smart grid. We're working with Sensicore out of Ann Arbor, Mich., which was just acquired by GE. Their water quality sensors can be used in water reservoirs and along the pieline to detect different impurities. Radios transmit that data to the water district headquarters, where you have a display using IBM software that analyzes the information and provides visualization on a map of the reservoir about the health of the water system and the flow.

Is this technology in use anywhere?

We're in the pilot stage with water districts to roll these systems out. We're not ready to say where because it's very early stages.

After efficiency, water is the next area of cleantech where you'll see investors. I can think of about three venture capital firms that are in the space now, but investors are wary because there's just no market for these companies yet.

Green IT and improving the efficiency of data centers are also big focuses for the IBM Venture Group. What's new there?

We manage data centers, and customers are increasingly concerned about the efficiency of energy use and cooling in data centers. We've been charged with going out and finding companies that could help us get a better handle on how much energy they're using. One firm, SynapSense, has developed wireless radios with sensors for temperature and air pressure that can transmit the data so you can get a 3-D picture of the data center from a thermal perspective using advanced analytics software that IBM developed. You can effectively see if you're cooling the right things. IBM alone can't solve the problem but IBM working with a startup company like SynapSense can bring these technologies to the mainstream.

Cleantech developments making news in the past 24 hours

• AES raises $1.58B with China Investment
• Patently unobvious
• Dow’s reverse osmosis tech picked for Australian desal plant

View the last week of cleantech developments here | Subscribe to full feed