Smart Grid Gold Rush: Echelon Lands First Big US Contract

Competition among companies that can provide reliable, scalable– and secure– smart meters, automation and control systems has grown to be pretty fierce in recent years, even more so lately given the $11 billion allocated in the federal government’s American Reinvestment and Recovery Act. Youngish, entrepreneurial IT-driven companies such as Echelon, Itron, and Silver Spring Networks are now battling it out, competing and, at times, working in conjunction with such IT and power industry equipment heavyweights as IBM, SAP and Landis & Gyr.

The latest potential coup is a long-term contract awarded by Duke Energy, the 3rd-largest utility in the US, to Echelon Corp. An initial order that calls for San Jose, California-based Echelon to supply Duke with $15.8 million worth of its two-way smart meters has the potential to grow to as much as $150 million in revenue, according to news reports.  Echelon shares jumped 40% right off the back of the news being released.

The smart grid marketplace was already getting a bit frothy without the large-scale federal stimulus. Now it may be boiling over. As promising as the potential benefits–more efficient use/less waste of electrical power, more flexibility and greater control of grid flows for utilities, incentives for home, building owners and businesses to invest in renewable power systems, and savings to consumers as well as power producers–big questions about the readiness of smart grid technology remain. The apparent  lack of strong security measures designed into increasingly IP-based smart grid networks ranks up at the top of the list.

Big Win for Echelon

Last week Duke Energy filed an application for $200 million in federal stimulus funds to carry out a $1 billion smart grid project that stretches across Ohio, Indiana, and Kentucky. Something of a dark horse in the race to supply what may well eventually total more than 2 million smart meters, Echelon won the contract.

Echelon has won some big contracts before this one, but they’ve been overseas, notes Jeffrey M. O’Brien in this Fortune-CNN blog post. The company’s NES smart-metering system is up, running and networked across nearly 30 million homes in Italy, Germany, France, Russia, as well as in Asian countries, but this is its first major win at home.

“This is not our first big win. We’ve been successful all over Europe and in the Asian markets. But this is our first really big win in the US, and that’s very important to us,” Ken Oshman, chair and CEO of the San Jose, Calif.-based Echelon was quoted as saying. “Right now, [Duke Energy has] approval from the Ohio PUC to deploy a smart grid for 600,000 customers. And by early September it’s expected they’ll get approval from Indiana for 800,000 more there.”

In contrast to most of its major competitors, which use mesh or some other type of independent, dedicated communications network to send and receive billing and usage data between the smart meters and the utility, Echelon is partnering with Verizon to build a system that will enable Duke to transfer all data over existing power lines.

As promoted, and noted earlier in this post, smart grid technology appears to hold a lot of promise, not the least of which is the capacity to create jobs in these difficult, challenging economic and financial times. With the herd stampeding into the smart grid space, industry execs, and investors, should be even more careful and cautious, especially as this deals with vital new infrastructure.

Maybe Not So Smart After All

Security, or the lack thereof, is of special concern when it comes to smart grid systems. “As has been the case of the software industry throughout history, programs are written for functionality with the concept of security being a consideration only a recent and far from ubiquitous phenomenon,” notes IT security expert Randy Abrams of ESET. “It truly is time for the Underwriter’s Lab equivalent to test and certify systems such as smart electrical meters.

Abrams seized on the following excerpt on the serious security threats smart grid systems may be open to as reported in a June news article in The Register.

“They [smart grid systems] turn the power grid into a real-time computerized network, which has the ability to make automated decisions in real time based on data collected from millions of sensors. That would eliminate the need for meter readers to visit each customer to know how much electricity has been consumed, for instance.”

The implications of these smart meters have not been fully thought out, Abrams asserts to his blog followers.

“This means that if hacked into, a criminal could probably make a fairly reliable guess as to whether or not you are a home. A criminal could potentially disrupt power to an entire neighborhood. The fact that homes become attack drones is only one potential scenario. The bi-directional nature of these devices, if not properly implemented, could potentially mean a greater ability to hack into the actual control systems at the electric company as well.

“If history is a teacher, then there will be significant problems before legislation is eventually introduced to regulate security compliance standards for these devices. The existing electrical grid has been found to be vulnerable to viruses and hacking, a ‘smart grid’ means an even greater attack surface if not implemented properly.”

Abrams goes on to recommend the establishment of a “Hacker’s Labs” certification system for smart grid systems. “[This] could stem the need for governmental involvement and result in far more secure systems. Security problems will not stop smart meters from being deployed, so since we’ll have to live with them we may as well set up the means to make them as secure as possible,” he contends.

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