Cisco is expanding its smart-grid offerings with the purchase of Arch Rock, a startup developing wireless smart-grid technology.Cisco Systems (CSCO) is expanding its foray into smart-grid technology, which helps utilities and consumers manage their electricity supply and consumption by providing realtime information about power usage, generation, and pricing. The company Thursday said it plans to buy a startup, San Francisco-based Arch Rock, which is developing wireless-networking equipment based on Internet Protocol for the electrical grid.

Cisco has built its business around making equipment that uses the same standard. The San Jose, Calif.-based company sells wireless routers, data storage devices and other equipment that makes it possible to make phone calls and browse the Internet. The network-equipment giant has long expressed an interest in entering the smart grid, but has mostly kept mum about its plans while many startups and some tech giants, such as General Electric, launched products and announced sales.

That's changed in recent months, as Cisco began discussing its smart-grid products. The company in June introduced a device to allow consumers to view and manage their electricity use. Cisco also made a big splash yesterday when it announced a technology development plan with Itron (ITRI), a long-time meter maker based in Liberty Lake, Wash. The pact brought together two big players in their respective fields and set them up to compete with the likes of GE (GE) and Silver Spring Networks, a private company in Silicon Valley that is reportedly working on an initial public offering.

Acquisition Strategy

In a very young market, it may not be surprising that Cisco would choose to gain a foothold on the market through acquisition. A growing number of utilities across the country are announcing investments and plans to smarten up the grid, from replacing old meters with more technically advanced ones to building a new communication network to collect and manage the data collected from those new meters.

The new meters, which are often called the smart meters, can constantly collect and transmit data about the electrical use -- and costs -- of a home or a business, and in some cases also enable consumers to access that information via the Web. Utilities are warming up to the idea of build a smart grid because the energy consumption data would supply them with important information, such as how much electricity they need, and help them to make more informed decisions about the electricity business. These technologies could also help encourage energy consumers to conserve energy or at least to use less electricity during times of highest demand.

But plans to roll out smart meters and other smart-grid technologies have hit some snags. For example, Baltimore Gas and Electric recently had to substantially change its plans for recouping an expected $835 million in costs to install smart meters in Maryland in order to win regulatory approval for the 15-year project. The Maryland Public Service Commission rejected the utility's initial plan, citing concerns not only about fees, but also about the utility's choice of technology and readiness to educate consumers about the project's impact.

Public utility commissions in other states, such as Michigan and Hawaii, also have expressed similar misgivings and have been unwilling to approve the amounts utilities need to roll out a smart grid. Meanwhile, consumers in California and Texas have sued utilities over smart meters, contending that their meters have incorrectly jacked up their electricity bills.

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