Behind SDG&E's 'intellectual capital' partnerships
Utilities find power in investing in tech companies that aim to advance microgrid, analytics and other emerging grid tech.
While most investor-owned U.S. utilities have a reputation for being slow to innovate, San Diego Gas & Electric has gained valuable insights into a rapidly changing business model by carefully forging "opportunistic" relationships with emerging microgrid, forecasting and analytics technology developers.
As of late October, the utility counted almost 20 active relationships — with at least as many waiting in the wings, pending patent processes and favorable market conditions, according to the executive in charge of these alliances. Just three partner examples: Green Power Labs (which provides solar siting and forecasting analytics), GridX (a developer of sophisticated smart grid billing software), and Spirae (a maker of microgrid controllers).
"Working with technology companies like this has helped us stay ahead of the curve," said Chris Chen, manager of intellectual capital-strategic planning, new products & service for SDG&E.
Chen's comments came during a panel discussion at the GreenBiz VERGE event last month in San Francisco that examined the relationship dynamics between SDG&E and its technology partners. To be clear, his initiative isn’t your average corporate venture incubator.
Many companies that fall under its umbrella would probably be partners with the utility in some shape or another, but the joint development agreements SDG&E is creating are seen as having a strategic value to the utility's rate papers in the future.
"We're not investing cash, we're investing intellectual capital," he said.
For smaller startups that have aligned the models with SDG&E's mission, the relationships offer a way to gain valuable feedback along the road to commercialization. Spirae actually worked with the company on various projects for about four years before deciding to commit to a deeper relationship, said Oliver Pacific, chief technology officer of the Fort Collins, Colo.-based company.
"They were really the leading utility really looking at — whether it was microgrids or similar projects — they were really leading the way in thinking of what the utility of the future might look like," Pacific said. "They were looking at how their utility business was going to change. That was the attraction for us. Of course, you're looking for, as you're breaking new ground on certain technologies, you're looking for a safe place to go do that."
In many ways, SDG&E has been a valuable beta customer that helped Green Power Labs refine its technology, said Tony Daye, vice president of smart grid operations, Green Power Labs, based in Dartmouth, Nova Scotia. "It's been a critical component of gaining feedback," he said.
The same goes for GridX, Sunnyvale, Calif., which had limited industry experience when it first teamed with SDG&E. Its relationship with the utility is one of the closer ones in the tech partnership ecosystem: equity is involved.
"We started our company in collaboration with them," said GridX CEO Jian Zhang. "Big data wasn't a concept they knew about, but it's where we have expertise. We decided to put our knowledge together."
These relationships didn't happen overnight. Here are three tips for other utilities and emerging grid technology developers considering this sort of partnership.
1. Define value clearly
The representatives speaking on the VERGE panel cautioned startups to carefully delineate what technologies are covered under these joint development agreements. When assigning a value for equity purposes, it's important to consider future plans to raise venture funding or whether an initial public offering is in the company's future, noted Daye.
2. Do your due diligence
SDG&E is super careful in vetting potential partners not just to avoid the appearance of favoritism, but to ensure that the value for ratepayers is tangible.
3. Be patient
Because of regulatory considerations, investor-owned utilities often move far more slowly than the typical technology startup. But that's the nature of the business. "I don't think of utilities as inflexible," Pacific said. "They may move slower than you want, and the decision-making process may take a bit longer, but they're pretty flexible."