[BETA] Fortnightly

I've been learning about venture capital funds for electric utilities. The lesson has run the gamut: from competition to cannibalization; from portfolios to the laws of thermodynamics; from the next new thing to the renaissance of a 19th-century technology.

Some might ask: Isn't venture capital just like gambling? Not so, say execs from two utilities now getting their feet wet in a venture fund. All the same, this story will take us to Atlantic City casinos before it's done.

The Romans Did It

In 1877, in Lockport, New York, Birdsill Holly set up the first commercial system in the U.S. for district heating (em a central plant providing thermal energy to multiple buildings in the form of steam or hot water. The idea wasn't new. The Romans in Pompeii had circulated warm water through open trenches to heat buildings and baths. Later, by the turn of the century, most electricity in North America was generated downtown, close to load. Like the Romans, utilities in New York, Denver, Boston, Seattle, Philadelphia and Kansas City were routing waste heat from generating plants through steam systems to serve local needs. (See, "The Renaissance of District Energy," by John L. Fiegel, president, International District Energy Association.)

District heating had declined by mid-century, driven out of fashion by rising economies of scale, which convinced utilities to build large central stations far from urban centers and closer to primary energy sources. But lately the pendulum has swung again. Natural gas combustion turbines promise cheap power in small bites. Attention has turned to distributed generation. Fuel-cell technology spun off from NASA's space program suggests that, before long, Americans will want their own PGs (em personal generators (em to run their PCs.

If that's true, however, then why do we now see a "renaissance" in district heating and cooling (em a technology that would appear to give individual users less control over their energy services? In fact, as confirmed by IDEA's John Fiegel, new projects in district heating and cooling are under way across the country, including in casinos in Atlantic City. "We're seeing something we've never seen before," he adds. "Competition from more than one district energy system in one city, such as in Baltimore, Boston and Chicago. That never happened in the past."

Power as a Byproduct

Nth Power Technologies Fund I, L.P., a venture capital fund for electric utilities formed in 1996, is investing in a range of energy ideas: 1) fuel cells; 2) distributed generation; 3) power quality; 4) transmission and distribution automation; 5) next-generation lighting; 6) "smart-home" products; and 7) communications, control and information. It's looking for a competitive edge for its limited-partner clients.

Nth Power operates like traditional venture funds in other industries. It bets on small-sized start-up companies looking to develop commercially viable products. The payoff comes when a portfolio company goes public or attracts a merger partner or takeover. Nth Power has attracted $50 million in capital from seven limited partners, including Cinergy Corp., PacifiCorp, KN Services, Inc., Sierra Pacific Resources, and Electricitè de France.

"Venture capital is about investing your time,"