Investments in 'grid-edge' companies climb to $1.3 billion in 2014

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The dynamic "grid-edge" sector proved an attractive target for investors last year as the transition from a centralized to a distributed electricity system intensified.

Companies directly involved in the technological transformation raised $1.3 billion from private equity firms and venture capitalists in 2014, surpassing the previous two years but down from the $1.4 billion that flowed into the sector in 2011, according to GTM Research’s latest report, The Grid Edge 100: M&A and VC at the Grid Edge.

Investments in energy storage at all-time high

While investments became more diversified as a record 83 grid-edge vendors active in a wide range of fields (surpassing the previous record of 70 vendors), energy storage led the pack with more deals and funding than both of the runner-up segments of demand-side management and data analytics.

The study also examined investment in such fields as advanced metering infrastructure (AMI), grid support, distribution automation, communications and network operations.

"While generally keeping pace with the overall market between 2010 and 2013, year-over-year deal-count growth for grid-edge investments outperformed overall U.S. venture capital growth in 2014," the report says.

Investments in Boston-Power, Bloom Energy and Stem led financing in 2014, with a reported $250 million investment, $130 million investment and $100 million in project financing, respectively. The report also cites a number of notable exits last year, including major acquisitions such as Schneider Electric’s $5.2 billion purchase of Invensys and Google’s $3.2 billion takeover of Nest. In April 2014, Opower’s initial public offering (IPO) became the largest in the grid-edge market since 2010.

"More vendors received funding in 2014 than in any of the previous four years, creating the largest opportunity yet to demonstrate the value of investment in grid-edge solutions," writes Andrew Mulherkar, who penned the report.

The anlayst also found that mergers and aquisitions activity increased gradually from 2010 to 2012 as consolidation occurred among vendors in more mature markets like AMI, demand response and distribution automation. In the demand-side management segment, home automation has seen a number of major funding rounds recently, including those for Alarm.com, Nest, iControl, and Control4. Power electronics firms have made several strong exits through acquisitions and IPOs, including Converteam, Power-One, Luminous, Enphase, and Ideal Power.