Grid unlocked: a smart, digital electric power system could bring vast energy-efficiency gains and a new wave of entrepreneurship--if Washington gets the regulations right.

• Author: Blake, Mariah
• Position: SPECIAL REPORT ON ENTREPRENEURSHIP

In the fall of 2002, Peter L. Corsell, a twenty-four-year-old former CIA analyst, decided to try his hand at the energy business. At the time, he knew nothing about the industry, apart from a few stories he had read in the Wall Street Journal. But he had a vague sense that renewable energy was going to be the next big thing. So he buried himself in research, reading books (he says he began with "the equivalent of Electricity for Dummies") and tracking down old acquaintances who he thought might know something--anything--about the business.

Ten months later, Corsell surfaced with an idea. Typically, putting up rooftop solar panels also means installing a tangle of wires, inverters, batteries, and other gadgets. Instead, Corsell envisioned a "plug and play" system that would combine these elements into a single unit that was quick and easy to install. With this in mind, he took out a second mortgage on his Northwest D.C. condo, and began pressing friends and family to invest in his venture. "Pretty much everyone who ever had the misfortune of knowing me, I hit up for money," Corsell recalls. Eventually, he cobbled together $1.6 million, and launched the company under the bland moniker Equinox Energy Solutions.

Early on, the venture ran into some stumbling blocks: the initial prototype, which was the size of a large refrigerator and cost $30,000 to build, had to be scrapped after tests revealed users were at risk of electrocution. (It has since come to be known as "Frankenbox.") But Corsell pushed on. In September 2004, a friend suggested he talk to Karl Lewis, a fortysomething veteran of the information technology business. The two men met at a grungy Dupont Circle sandwich shop, where they spent four hours hashing out technical plans on paper placemats. As they did, a vision began to take shape.

After the meeting, the men teamed up and began hiring engineers and software programmers; twenty of them worked elbow to elbow in a single, un-air-conditioned office. Part of the crew eventually spilled into Lewis's garage to hammer out a second prototype, which resembled a clunky black filing cabinet. Unlike the device Corsell originally envisioned, it had the brain of a computer, which meant it could juggle weather forecasts and electricity rates and decide automatically whether to store excess power from the solar panels in the batteries or sell it back to the grid.

The product finally hit the market in the spring of 2005. Only a few hundred were sold, but General Electric found the technology so promising that it offered to buy Equinox Energy for an undisclosed sum. Corsell declined, partly because it was beginning to dawn on him and Lewis that their creation had applications far beyond integrating solar panels. "We began asking ourselves, what would happen if we linked thousands of these things together," says Lewis, who is now the company's chief strategy officer. "What if, instead of firing up a new power plant every time energy demand surged, we could tap into an intelligent network, and hundreds of solar panels would automatically start feeding energy into the grid, or thousands of thermostats turned themselves down by a couple degrees?" With this in mind, he and Corsell rechristened the company GridPoint, and in the summer of 2006 began working on a trio of software applications to connect every piece of the electrical system, from the power plants and transmission lines to hot-water heaters and clothes dryers, into a vibrant energy ecosystem. They soon realized they were part of a burgeoning movement to build what is known as the smart grid.

These days GridPoint is thriving. Last September, as Wall Street was crumbling, the company managed to bring in $120 million in capital, more than it had raised in the previous six years combined. Among its funders are Goldman Sachs and former presidential hopeful Bill Bradley. The atmosphere at the company's Arlington, Virginia, headquarters is weirdly reminiscent of Silicon Valley in the 1990s. When I visited the gold-brick compound on a recent afternoon, a twentysomething blond woman in low-slung trousers and flip-flops trundled through the reception area with a wagon full of microbrew. "It's Thirsty Thursday!" she exclaimed.

Meanwhile, GridPoint's work is on prominent display in Boulder, Colorado, where the power company Xcel Energy is building the nation's first fully integrated smart grid. Using GridPoint's "Energy Dashboard," an Internet portal similar to an online banking site, Boulder residents can get a minute-by-minute snapshot of their energy use or program their appliances to behave in ways that save them money and benefit the environment. Dishwashers can be set to run only when windmills are turning. Thermostats can be programmed to automatically adjust their settings based on factors like the time of day and the price of electricity. This system is expected to drive down energy use, cut greenhouse gas emissions, and save Boulder residents millions of dollars.

GridPoint is just one of hundreds of new entrepreneurial ventures that are developing software and gadgets that marry electricity and digital intelligence. Along with giants like Google and IBM, these firms are forging the nuts and bolts of the smart grid, which will bring digital intelligence to one of the last vestiges of our analog economy: our electrical system. In doing so, they could revolutionize the way we use energy. Imagine a world where every dryer, dishwasher, hot-water heater, and car was part of a smart network...