Foundation Capital is a relative old hand in the burgeoning clean-tech industry, having invested $150 million in green companies since 2003 and proven its interest in the sector before it became de rigueur for venture capitalists. Most recently, the Menlo Park, California, firm was selected to be an inaugural partner in the U.S. Department of Energy’s Entrepreneur in Residence program, which aims to develop new clean-energy technologies.

The firm has been particularly aggressive—some might say visionary—in investing in energy efficiency and intelligence. Of Foundation Capital’s six current clean-tech portfolio companies, three are in the space: San Mateo, California-based eMeter; Enernoc of Boston, Massachusetts; and Redwood City, California’s Silver Spring Networks.

Red Herring clean-tech reporter Justin Moresco recently spoke with Steve Vassallo, a principal at Foundation Capital who focuses on new opportunities in clean tech. They discussed the emerging, so-called ‘smart grid.’

This next-generation electricity grid is envisioned by many to be more like the Internet, with more flexibility, security, and redundancy and with the ability for two-way communication.

Q: How do you envision the smart grid?

A: It is an overlay of information-oriented software and services on top of the existing infrastructure. It is a move away from the centralized control and proprietary protocol we now have. We think it is an open, IT-based network. We think of distributed generation and distributed control, and the consumer plays a much more active part.

Q: What drew Foundation Capital to invest in companies that are helping to deploy smart grids?

A: These are more capital efficient businesses; they don’t require $100 million to start production. They really are IT companies focused on the energy industry. Also, they are economic out of the gate. Many clean-tech investments require subsidies to make sense. Smart grid companies don’t require them to be attractive. Finally, the technology can be deployed today. We’re not waiting on materials or processing. We are looking for solutions and backing entrepreneurs that have focal lengths to make an impact quickly.

Q: Where are the big opportunities today for smart grid-focused companies?

A: We’re looking at the power of the network and thinking about applications that can be layered on top of the networking platform. Some examples include demand response and energy portals for end users that would let them see the energy they are using real time.

The great gap now is lack of information. You learn how much electricity you used 30 days after you used it. There is little visibility. Contrast that with the cost of gasoline—you see it immediately. So information services around customer energy usage are an interesting opportunity.

Q: What are the main obstacles to deploying a smart grid today?

A: In the early days, many of the technologies didn’t work. The great news is they work today largely because of the leveraging that has come out of the IT and telecommunications industries. So deployment is happening exceptionally fast, faster than anyone expected.

But I would say the regulatory landscape in some parts of the country does not reward efficiency. In California, we have ‘decoupled’ utilities, and they do not make more money when they sell us more energy. Where this is not the case, there is less incentive to install more efficient infrastructure. The main obstacle is getting the right regulatory environment that drives deployment.