According to Raj Prabhu of Mercom Capital Group, smart meter investing is down and the solar industry is up.

What is probably the telltale sign of the shift from the distribution are consolidation changes taking place in the market. While the meter companies are getting smaller investors in their deals, the concept of growth is missing in the market. Therefore, the meter market is now focused on efficiency, which is why mergers are on the rise.

“Funding activity so far this year in the smart grid sector has continued to be weak,” said Raj Prabhu, managing partner, Mercom Capital Group. “Current economic conditions and uncertainty along with a lack of clear direction in this sector is plainly evident based on the depressed funding activity so far.”

The initial momentum of government stimulus has met the realities of a market that is not ready for prime time. The infrastructure needs are great for the operators to gain efficiency, and the ROI for meters needs the supply side to be involved in order for the next wave of value to be found. 

Two of the major smart grid ventures are focused on the cost of efficiently running data centers -- the supply side. Strangely, many of our friends in cloud computing think they are over this hurdle since the virtualization of machines has added load sharing. The other three major investments in metering are focused on utility needs.

As discussed in previous articles, the next wave of metering for general deployment will have to integrate the adoption of electric vehicles. Electric cars will put the consumer on the grid as a supplier, as well.  

Of the 753 million reportedly investing during the third quarter, almost half are doing so in solar. The reason is the opportunities in solar are on increasing the performance and represent a lot of strong patentable science as opposed to operational efficiency. PhotoVoltaic cells may be likened to the ARM (News - Alert) markets in terms of development requirements. Mercom Capital also reports that large-scale project funding increased to $2.4 billion during the third quarter of 2011, its highest level in more than six quarters. Twenty-three of the 26 projects funded were solar photovoltaic (PV) projects. This could also explain why the U.S. competes with investors in China and South Korea in this space.

"VC funding so far this year is on pace with 2010 and M&A activity is picking up," commented Prabhu. "The number of M&A transactions in 2011 has already surpassed 2010 numbers, signaling that the move towards industry consolidation may have begun." The M&A activity for the quarter was $563 million showing how capital-intensive solar is becoming.

Wind does not have the same amount of science opportunities; therefore, the investment is based on sheer volume with most of the monies being pushed into wind farms. However, this is a capital-intensive business like most power-generation strategies.