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Getting leaner and meaner
The driving force for smart-grid technologies is efficiency. It's no surprise, then, that outfits such as EnerNoc and Comverge are among the green-tech companies to go public in the past few years. They sell so-called demand-response software, which throttles down energy use to lighten the load on the grid during peak times.

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Here's how it works: A customer gets paid to let the utility temporarily turn off a fan at a factory or reset the thermostat on a building's air conditioner. Shaving energy use a little bit across several customers means the utility doesn't need to turn on expensive and dirty auxiliary power plants to meet peak demand. It saves money, and it reduces carbon emissions, one air conditioner at a time.

Networking and software tech can also help manage wind and solar energy. Andy Kruse, the CEO of small-wind turbine maker Southwest Wind, envisions wind turbines that can communicate with utilities through wireless Internet connections to shift voltage during times of peak demand and to get software updates. Some solar-electric panel installers have developed Internet gateways that tell customers and installers when panels have a problem and need to be fixed.

Adding more intelligence to what's already there, like using sensors to better monitor wind turbine performance, may seem incremental. But when times are tough, the companies that sell affordable products are the ones most likely to thrive. Just ask Wal-Mart.

"There will be massive amounts of software optimization developed over the next decade" in the name of energy efficiency, said Rob Bernard, Microsoft's chief environmental strategist. Software user interface design also plays a key role in engaging consumers with better home energy management systems, he added. "It will be like going from your old VCR (to) TiVo."

From a carbon emissions point of view, efficiency is the proverbial low-hanging fruit. A landmark 2007 study by consulting firm McKinsey found that the cheapest way to reduce greenhouse gas emissions was by reducing consumption in the first place--making appliances, vehicles, buildings, and power stations more efficient.

Many energy experts, including Amory Lovins, chief scientist at the Rocky Mountain Institute, say efficiency should be the cornerstone of a rebuilt energy infrastructure because the technologies already exist, and they have the quickest impact. "We know how to save half the oil and gas, and three quarters of the electricity in this country," he said at a forum on clean tech last year. What's preventing wide-scale adoption are "institutional barriers" such as regulations that reward utilities to sell more, not less, electricity.

Laying a foundation
Certainly, changing something as big and old as the energy business isn't easy. Scientific and engineering advances in energy storage are badly needed to make the electricity grid flexible enough to use renewable-energy sources at a large scale.

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There's a wide range of technologies being pursued: zinc air batteries to charge consumer gadgets, flywheels that dispatch stored energy to smooth the flow of electricity on the grid, and "flow batteries" that enable huge tanks holding liquid electrolytes to dispatch megawatts of electricity within minutes. Having one megawatt of storage--enough to power a large retail store or about 300 U.S. homes--helps a utility stabilize the grid, and more smoothly pull in wind and solar energy.

But the slumping economy makes completing big projects difficult. In 2007, oil-tycoon-turned-clean-energy-advocate T. Boone Pickens announced plans to build a $6 billion wind farm large enough to power 1.3 million homes. But when financing became tough late last year, Pickens had to admit that he wasn't sure when it will get done.

Solar energy, perhaps the most glamorous of green-tech businesses, is also poised for a shakeout, industry executives say. Solar outfits received 40 percent of green venture investing last year, according to the Cleantech Group. But price competition and manufacturing costs are making it a rough business.

Abu Dhabi-based Masdar PV, for example, last year said it was investing $600 million to build two thin-film solar-cell manufacturing plants, which would produce enough solar cells for roughly 100,000 homes. Now that private financing is so hard to come by, that's a war chest few companies can muster without government aid.

"Shock to trance"
The flow of venture capital to green-tech start-ups exploded from 1 percent of venture capital in 2001 to 10 percent last year. But getting beyond the early stage to high-volume sales has proven difficult. Can the government help?

"Where there is technology risk, this is where government support like loan guarantee programs has to come in," said Scott Brown, the CEO of project finance firm New Energy Capital. "This so-called valley of death (from product development to commercial scale) is a tough problem."

But there are risks to taking taxpayer dollars. Beyond irking the public by investing in technologies that don't pan out, some companies are wary of letting politicians and lobbyists pick the winners and losers of green tech, as they essentially do now with military contractors.

It's also still unclear how effective future climate regulations will be in getting utilities, automakers, and other big polluters to adopt new technologies. In the power sector, for example, about a third of utilities are actively investigating smart-grid technologies, said Tendril CEO Adrian Tuck. But another third are still tentative, while another third aren't doing much at all.

The energy industry invests about 1 percent of its sales in research and development, General Electric CEO Jeffrey Immelt lamented last year. By contrast, Microsoft earlier this month said it intends to invest $10 billion this year in R&D, or 6 percent of last year's revenues.

The size and sustainability of consumer demand for green-tech products is also an open question. Interest in energy independence in the United States peaked after the oil embargo of the 1970s, only to fade when energy was cheap again. President Obama referred to the rise and fall of alternative-energy interest as "shock to trance," in which consumers buy fuel-efficient cars when gas prices are high but then go back to buying SUVs when they fall.

Matt Golden founded San Francisco-based Sustainable Spaces to be sort of a real-estate developer in an energy-focused redevelopment project. For a few thousand dollars, his company retrofits homes to be more energy-efficient, starting with simple things like insulation and moving on to more expensive options, such as ground source heat pumps.

Clearly, high energy prices are a strong incentive for consumers to explore solar power for their home or for a business to get energy-efficient computing gear. Golden's bigger concern is about the long term--figuring out how to make his corner of the green-tech industry grow so that it positively affects millions of people.

"There are great plans (from politicians) and talk of money, but none of it has hit the ground yet," Golden said. "It looks good for the future. But at the moment, we're in a painful place."



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