Category Archives: Green Energy

Understanding Implications of China’s Technology Ambitions

Today I want to expand on ideas I have presented previously. I think these concepts, relating to China’s industrial strategy for its technology sector, are important for readers to understand and internalize. Eventually, they will affect most o us, one way or another.

I’ve written often about how the Western companies seeking to sell their products in China confront a genuine dilemma. They really must choose between two outcomes that are likely to be undesirable: They can enter the Chinese market at the risk of losing intellectual property and long-term competitive advantage, or they can refrain from playing in China, perhaps retaining their IP and competitive advantage in other markets but surrendering short-term gains in China to others.

In the end, no matter what path they take, they still might find themselves threatened on the global stage by vendors from China.

Most public companies, with institutional investors breathing down their necks, will plunge headlong into China for the near-term pop. Most of these companies, facing quarterly pressures to deliver results, will not consider, or will choose to studiously ignore, the long-term implications of their decision to play in China by China’s rules. In their minds, they have no choice but to play the game. They don’t want to explain to shareholders why they aren’t chasing what is ostensibly the biggest technology growth market in the world.

Other companies, admittedly in the minority, will choose not to play in China or will limit their exposure there. In limiting their exposure, they’ll also limit their near-term gains, but they’ll also keep most of their core IP and have a better chance of holding off Chinese technology competitors when those players seek hegemony beyond their home base.

And make no mistake: China is pursuing nationalist mercantilism as industrial strategy for its technology sector. China aspirations for the technology sector aren’t limited to its current stereotype as the world’s low-cost manufacturer of consumer electronics, computers, and networking gear. For China, development of its technology sector — encompassing cleantech as well as strategic aspects of information technology and communications — is integral to its long-term economic, industrial, political, and social stability.

China goal isn’t to let Google, Cisco, HP, Applied Materials, Microsoft, Apple, and Nokia boost their stock prices on Chinese’s sales. Instead, China wishes to create its own Google, Ciscos, Applied Materials. And China has created an industrial policy, within the framework of a concept called “indigenous innovation,” to achieve that goal.

Toward that end, China not only promotes companies, such as Huawei, that it wants to grow into world leaders, but it also develops a regulatory structure that inhibits and restricts that gains that foreign companies can make on its soil. In this respect, the aim is to ensure that Chinese companies dominate China’s markets, as Baidu did against Google, and as Huawei is doing against HP and Cisco.

With is “China Out” strategy, 3Com’s H3C master plan was not dissimilar from the national technology blueprint of China itself. There are differences, of course. 3Com is but one company, and it’s less Chinese now, after being bought by HP, than it was before, as an entity that grew from 3Com’s joint venture with Huawei. What’s more, 3Com has less power and fewer resources at its disposal. It essentially wanted to win early customers with low-cost, good-quality products in China, then use economies of scale and aggressive pricing to capture market share elsewhere.

China wants to do essentially the same thing for its technology companies, but it has tremendous power, influence, and resources at its disposal. It can use regulations, policies, and prohibitions to condition the result it desires. It can make life easier for indigenous companies while making life much harder for Western firms operating on Chinese soil. It can devise and enforce rules that require Western companies to disclose intellectual property or other trade secrets as conditions of selling products or winning accounts in the country. It can, and does, establish intellectual-property laws that favor the home side.

I think it’s critical for denizens of the technology industry to fully appreciate what China is trying to achieve. This is not business as usual.

3Com Concerned About China’s “Indigenous Innovation”

In a DC Velocity article in which a senior executive of the U.S.-China Business Council says conditions for foreign companies doing business in China have reached a new low, a quote from a 3Com spokesperson makes for interesting reading.

3Com is a networking vendor that manufactures nearly all its products in China. Most of its design and development is done there, too. As such, it’s notable that 3Com should have concerns about China’s “indigenous innovation” polices, which are intended to boost the research, development, and manufacture of Chinese companies — relative to foreign competitors — in computing, software, telecommunications, and cleantech.

One might think that 3Com, essentially a Chinese company with an American moniker, wouldn’t have an objection to China’s industrial policy. Nonetheless, 3Com is concerned, as the following paragraph from the DC Velocity makes clear:

Not only does that policy erect unfair trade barriers, it also puts intellectual property at risk, said Misty Rutter, trade compliance director for 3Com, a telecom hardware maker that manufactures almost exclusively in China. Rutter warned that the process of certifying a product’s compliance with the “indigenous innovation” policy exposes design and other intellectual property to Chinese government scrutiny—and potentially, to piracy.

HP’s pending acquisition of 3Com has been held up, awaiting official approval from China’s Ministry of Commerce (MOFCOM). If 3Com has concerns that China’s indigenous innovation might compromise its intellectual property, one can only wonder what HP will make of the situation.

Smart-Grid Success Depends on Alignment of Interests

I wonder whether utility executives are suffering from survey fatigue. Every week or so, new smart-grid market research, derived form surveys of the utility industry, hits the streets.

Maybe the utility executives enjoy the attention. That, at least, would explain why so many of the studies seem to receive participation rates that result in useful sample sizes.

Interestingly, the surveys are producing similar findings. One thing that seems clear is that utilities aren’t certain when the smart-grid payoff will come — for them or for their customers.

For instance, according to the results of a Comverge survey of 100 utility-industry attendees at last week’s DistribuTech utility conferencein Tampa, almost an equal number of respondents believed that measurable smart-grid benefits are one to three years from realization (27 percent) as believe that measurable benefits will accrue in 10 or more years (29 percent). Ten years, or more, is a long way off.

While spending on smart-grid initiatives seems strong, with 77 percent of respondents indicating budgets allocated to energy-management resources have increased in the past year, the industry’s smart-grid vision would benefit from greater clarity, coherence, and consistency.

Indeed, if the utilities aren’t sure when they’ll realize a return on their smart-grid investments, they seem even less certain about how and when their customers will derive benefits. I get the distinct impression the utility industry has’t fully thought through the customer angle. The formation of the Smart Grid Consumer Coalition (SGCC) was a sign that the industry at least recognized the problem, but the smart-grid spending priorities of the utilities suggest that remedial action is lagging.

How else to explain why smart meters are getting an aggressive push while smart energy outlets, in-home energy displays, residential energy-management systems remain afterthoughts?

Let’s consider: The smart meter is just a digital two-way, real-time meter. It allows the utility to implement time-of-use (TOU) billing based on variable pricing. Consumers will pay more when energy is in peak demand, and presumably they will pay less when consuming energy during off-peak hours.

But f consumers have no means of accessing information and services that help them reduce their energy consumption during periods of peak demand, they will not realize savings on their energy bills. In fact, if experience is any guide, they’ll receive higher energy bills, which will sour them on smart meters and the smart grid.

That would be unfortunate, not just for utilities and for the vendors that supply them, but for everybody. The smart grid has the potential to deliver value that flows downstream from technology vendors and utilities all the way to their commercial, industrial, institutional, and residential customers.

What needs to happen is proper alignment and reconciliation of interests.,It will not be enough for utilities to foist feel-good sentiments on consumers about how smart meters contribute to energy conservation and environmental sustainability. That’s great, for as far as it goes, but it doesn’t go nearly far enough — not during an era in which tapped-out consumers already will be trying to do more with less.

The smart grid can’t be exclusively about utilities saving money, either as result of not having to utilize higher-cost energy-generation facilities for peak loads or of not having to build new electric-generation facilities to cope with rising demand. Consumers will have to share in the benefits; if they don’t, they’ll become adversaries, not partners.

Of course, the smart grid shouldn’t just be about making or saving money. It plays into a bigger picture, having to do with economic viability, industrial growth, technological innovation, and environmental sustainability. (That’s another post, which I will save for another time.)

Nonetheless, to the extent that money can and will be made, the utility industry must give careful consideration to ensuring that everybody in the value chain derives real benefits. If such consideration isn’t paid, then the rosy market forecasts might never come to fruition.

IBM-Johnson Controls Partnership Signals New Automation Wave

As Internet protocol proliferates, pervading every device that can possibly be networked, automated solutions are reaching into new realms and exploring untapped possibilities.

They’re also providing a dynamic foundation for new technology partnerships. One such partnership, which includes a smart-grid aspect, involves IBM and Johnson Controls.

The two companies are combining forces to improve the energy efficiency of office buildings and other commercial and industrial facilities. They’ll achieve that result by integrating IBM’s business-analytics software and middleware with Johnson’s building control technology. The objective is to deliver an automated system that will automatically turn off lights in unoccupied rooms or buildings, identify areas of heat loss, and shut off and turn on HVAC systems as required.

IBM and Johnson Controls worked together previously to deliver energy-efficiency solutions for the data center. As a result of those customer engagements and others, they realized more was possible.

Clay Nesler, Johnson Controls’ VP for Global Energy and Sustainability, explained how the partnership evolved:

“These capabilities have been available for a long time, but they haven’t been widely applied . . . . Both organizations are committed to open standards and Web technologies. So while this would have required a lot of engineering and R&D work several years ago, we now hope to leverage as many standards as possible,”

That’s the key: Standards are facilitating the development and delivery of automated-management solutions, including many of those applicable to the smart gird, that were too cumbersome, too unwieldy, too ocustomized (and therefore too expensive) in the past.

This is why the networked machine-to-machine (M2M) market is seen to offer so much promise, not just for IBM and Johnson Controls, but for every major information-vendor that has its eyes open and its skin in the game. Think of Intel, which can provide chips for the embedded devices; Cisco and its network infrastructure; Oracle with its analytics applications and databases; Dell with its servers; Ericsson with its wireless-networking technologies. Also consider the new business possibilities for wireless operators worldwide.

It’s a huge opportunity, and the smart grid, broadly defined, is a big piece of it. Technology vendors have a correspondingly large stake in ensuring that it is done right. Expect them to become active and involved partners with utilities, regulators, and governments.

Cisco Invests in Smart-Grid Management Vendor

Cisco doesn’t fall in love with technology, but it is enamored of big market opportunities.

As such, Cisco’s unspecified investment in smart-grid management vendor Grid Net shouldn’t be construed so much as a bet on WiMAX than as a hedged wager on utilities requiring more than relatively low-bandwidth wireless mesh networks to carry all the aggregated traffic that will be generated by multitudes of embedded devices.

Oh, and Cisco probably liked Grid Net’s existing partners, which include previous investors Intel and General Electric. Both companies stand to benefit from Grid Net’s success, and from the proliferation of WiMAX somewhere other than in the 4G networks of wireless operators, most of whom are gravitating toward LTE, WiMAX’s nemesis.

Bear in mind, too, that utilities — who can’t have their networks go down — are inherently cautious entities that prize reliability above all else. They tend to avoid doing business with startup companies, favoring tried-and-true suppliers such as GE. That GE already was in Grid Net’s corner no doubt figured favorably in Cisco’s calculations.

One other factor played a role, too. Grid Net competes against Silver Spring Networks, an IPO-bound vendor of smart-grid management systems that Cisco views as a looming threat, what some have even called an aspiring Cisco of the smart grid.

Not surprisingly, Cisco wants to be the Cisco of the smart grid.

Non-Profit Group Formed to Engage Consumers on Smart Grid

Consumer backlashes to smart meters in Bakersfield, Calif., and Dallas have gotten the attention of utilities and smart-grid technology vendors in the United States.

Too many consumers associate smart meters not with energy conservation and personal-energy savings, but with higher energy bills and no discernible benefits. That’s a problem not just for disaffected consumers, but also for the entire smart-grid ecosystem — utilities, technology vendors, regulators, and governments — which ultimately depends on consumer acceptance of smart meters and other consumer-facing elements of the smart grid.

The smart-grid industry, if I might call it that, has recognized the problem. An awareness has grown that while the industry might have done well in defining its technological requirements and evolving its business practices, it hasn’t been nearly as proficient in educating and communicating with consumers, many of which don’t know much about the smart grid and don’t understand the benefits of smart meters.

To address the matter, the Smart Grid Consumer Coalition (SGCC) has been formed. A non-profit organization, the SGCC comprises a number of consumer electronics and technology companies, retailers, consumer advocacy groups, and utilities. Defining itself as a cooperative rather than a trade association, the SGCC’s mandate involves making sure that consumers understand how and why they will benefit from the adoption of smart meters and other smart-grid technologies.

Founding members of SGCC include Magnolia/Best Buy, Control4, GE, GridWise Alliance (GWA), IBM, NREL (National Renewable Energy Laboratory), Ohio Consumers’ Counsel (OCC), and Silver Spring Networks (SSN). Membership fees haven’t been specified, but the non-profit group has encouraged consumer advocacy and privacy groups to get involved.

The vendors and utilities spearheading the SGCC aren’t entirely selfless. They understand how much their own success is contingent upon consumer acceptance of what they’re selling. To quote Richard Walker, president of Control4 Energy Systems, in a column he wrote for the San Jose Mercury News:

Consumers don’t know what the Smart Grid is, or understand why they should care, and they’re suspicious that the new “smart meters” will mean higher bills, not cost savings. But here’s a certainty: If they don’t embrace, accept, and use the technologies and services the Smart Grid makes possible, none of its benefits can be realized — for consumers, or for anyone else.

Perhaps the SGCC was formed belatedly, but it also has come together with a good deal or urgency and clarity of purpose. We’ll have to see whether it fulfills its mandate.

Resolution of Tax Issue Clears Path for Smart-Grid Projects

While the smart grid is endowed with a grand vision and considerable promise, it’s been honored more with words than with deeds until now.

The problem? According to the National Association of Regulatory Utility Commissioners (NARUC), electric utilities put their respective smart-grid projects on hold because they were concerned about the tax status of their government grants under the American Recovery and Reinvestment Act (ARRA) of 2009.

Additionally, there were reports of a dispute between the U.S. Department of Energy (DoE) and the Treasury Department over whether the grants should be subject to taxation.

Apparently the dispute has been resolved. The Treasury Department announced yesterday that companies that receive smart-grid grants will not have those funds taxed by the federal government. Also yesterday, the DoE announced that the Treasury Department’s Internal Revenue Service (IRS) will provide a “safe harbor” for utilities that qualify for the government’s $3.4 billion in smart-grid stimulus spending.

The news means the Energy Department can proceed with grant agreements in the coming weeks, according to a joint statement from the Treasury and Energy departments.

Katherine Hamilton, president of industry group GridWise Alliance, said Wednesday that most of the contracts for the $3.4 billion stimulus package could be in utility’s hands by the end of this month.

Said Hamilton:

“We are thrilled that the IRS has made this decision and that our advocacy efforts played a positive role in their decision.”

“Now these smart-grid technologies can be deployed and begin doing what they are intended for — stimulating the economy. These projects will make our electric grid more reliable, flexible and efficient, while creating much needed jobs in utilities, manufacturing and across the energy value chain.”

Thoughts on HP-3Com, MOFCOM, and China’s Smart Grid

As China’s Ministry of Commerce (MOFCOM) continues its review into HP’s pending acquisition of 3Com, I am attempting to get more information on how the MOFCOM process works and what conclusion the ministry might reach.

After doing some digging, I know more about how MOFCOM operates, what its current priorities seem to be, and how it has resolved previous acquisition reviews. Still, I would not want to wager heavily on the outcome of HP’s 3Com purchase. It should go through, but MOFCOM remains a significant wildcard, consistent in some respects but seemingly arbitrary in others.

If you care to learn more about MOFCOM, how it’s handled recent cases, and how it has become more assured and ambitious in its rulings, I direct you to the MOFCOM website. a recent article on MOFCOM from law firm Sidley Austin, another from law firm Allen & Overy LLC, and a third article (which appeared at The Deal’s website) by lawyers in the employ of Weil Gotshal.

None of those law firms was involved in the HP-3Com deal. That transaction was handled by Cleary Gottlieb Steen & Hamilton, which represented HP, and by Wilson Sonsini Goodrich & Rosati, which acted on behalf of 3Com.

Separate from the deliberations of MOFCOM, another piece of news surfaced this week that might have implications for HP and 3Com. According to a Reuters report that quotes market researcher Zpryme, China will invest $7.3 billion on smart-grid technology and services this year. Moreover, China could spend more than $100 billion upgrading its power-infrastructure in the next decade, according to Yuanta Securities analyst Min Li.

Why, you ask, is that relevant to HP and 3Com? As Cisco knows, realization of the smart grid involves deployment of two-way communications and network infrastructure. Meanwhile, in an IDG News Service story that hit the wires just after HP and 3Com announced the acquisition, we learned that 3Com has a strong presence in Chinese energy sector. To wit (quoting from the aforementioned IDG story):

One area where HP may increase its focus after the 3Com deal is China’s energy sector, said Adam Jura, a senior analyst at Ovum. Gear from H3C is used in Chinese backbone networks including those for its energy and transportation sectors, giving 3Com strong ties in those areas, said Jura. HP could benefit, for instance, from potential smart power grid projects in China spurred by government funding, he said.

If 3Com can hold off Huawei, its former H3C partner, and repel Cisco’s push into China’s smart grid, 3Com and HP could benefit significantly from China’s energy-related splurge.

Cisco Counts on Smart Grid for Growth in Mature Markets

Information technology and communications (ITC) companies are looking to play a valuable and lucrative role in furnishing the two-way communications infrastructure that will be integral to the smart grid.

Cisco Systems, for example, sees the smart grid as $100-billion opportunity

Ned Hooper, a chief strategy officer and senior vice president in Cisco’s consumer business, touched on the smart grid today while speaking at the Morgan Stanley Technology Media & Telecom Conference about his company’s transition from legacy business models to new growth-oriented strategies.

The reference to the smart grid arose as Hooper addressed a question regarding growth opportunities in mature geographic markets (such as North America), where market saturation limits the incremental gains Cisco can achieve among enterprise and service-provider customers.

In answering the question, Hooper pointed to the smart grid as having considerable potential for growth.

Quoting from a post by Sam Diaz at ZDNet’s Between the Lines blog:

The energy infrastructure has gone decades without an update. But through Cisco’s technology, the utilities can build information and knowledge into the power distribution network so they can not only operate more efficiently but also help their customers to better manage their own power consumption. For example, the company is working on launching some pilots this summer that basically puts a router-like device into a home so that the energy consumption data networks with other information databases so the consumer knows, for example, how much he is spending per hour by running the air conditioner on a hot summer day – in real-time, not just when the bill arrives.

Remember that Hooper’s purview is the consumer space. Cisco’s role in the smart grid will extend throughout the communications and transport layers of the entire ecosystem. The company also could emerge as a meaningful player in some aspects of the smart-grid application layer.

Google Energy Open to Interpretation

Google isn’t on the cusp of entering the electricity business, but in forming Google Energy, a Delaware-based subsidiary, and requesting regulatory permission to buy and sell electricity on the wholesale market, the search giant has signaled more than a hobbyist’s interest in the energy industry.

The official story from Google headquarters is that Google Energy has sought regulatory approval from the Federal Energy Regulatory Commission (FERC), the agency with oversight over the power grid, because of the parent company’s desire to have flexibility in pursuing its corporate goal of carbon neutrality.

Quoted by Martin LaMonica of CNET News’ Green Tech, Google spokesperson Niki Fenwick explained:

“Right now, we can’t buy affordable, utility-scale, renewable energy in our markets. We want to buy the highest quality, most affordable renewable energy wherever we can and use the green credits.”

I don’t doubt this is Google’s near-term objective. In the long run, well, anything is possible, even Google as an energy purveyor.

Google retains a longstanding interest in energy-efficient computing, particularly in its immense data centers, where savings from reduced energy consumption have the potential to deliver favorable results to the bottom line. With a 1.6-megawatt solar installation at its headquarters in Mountain View, Calif., Google already produces energy to support its operations. Clearly, as its application to FERC attests, it would like to do more, on its own and through the purchase of low-cost, utility-grade electricity on the open market.

In this context, Google’s corporate goal is carbon neutrality. If it attains that objective, though, would Google consider something more ambitious, taking it into the realm of serving the energy requirements of others?

At this point, Google says it doesn’t have “concrete plans” for its energy subsidiary, but that it wants “the ability to buy and sell electricity in case it becomes part of our portfolio.”

That could happen, as Katie Fehrenbacher writes at earth2tech. She cites a New York Times interview with Bill Weihl, Google’s energy guru (yes, that’s what he’s called), who admits to ambiguity about what the future holds for his employer.