As Hackers Begin to Target the Power Grid, Startups Are Helping to Keep the Lights On

March 25 (Bloomberg) -- In today’s “Global Outlook,” Daniel Jammer, founder & president at Nation-E, talks with Elliott Gotkine about his company’s focus on keeping customers’ lights on in case of an attack on Bloomberg Television’s “The Pulse.”

On March 8, a blackout in Wolfsburg, Germany, paralyzed a Volkswagen plant, leading to the loss of production of more than 100 cars.

Several startups are trying to develop ways for companies to prevent these sorts of mishaps, which are expected to increase as cyber-attacks target electric companies. One such Israeli startup, called Nation-E, makes a system designed to detect instabilities in the power grid, send an alert when generators fail and recommend a response, such as shifting to alternative power sources.

"The world is suffering from massive power outages," Daniel Jammer, the president and founder of Nation-E, said in an interview. "If the CEOs of the Fortune 500 companies don't use their budget to mitigate this problem, in the future they won't be Fortune 500."

The global market for energy security is forecast to grow 6.5 percent between 2013 and 2018 as the industry further adopts smart-grid technology, according to technology research firm TechNavio. The move to more connected systems makes utilities vulnerable to hacking, the firm said in a January report.

"Within critical infrastructure, there is business continuity and disaster recovery that the world isn't ready to deal with at all," said Rami Efrati, former head of the civilian division of Israel's National Cyber Bureau. "Now, along comes an Israeli company with a solution that works, and I think it changes the rules of the game."

Photographer: Gilad Kavalerchik via Bloomberg

Nation-E’s President and Founder, Mr. Daniel Jammer’s presentation during the Cybertech 2014 event in Tel-Aviv, Israel. Close

Nation-E’s President and Founder, Mr. Daniel Jammer’s presentation during the Cybertech... Read More

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Photographer: Gilad Kavalerchik via Bloomberg

Nation-E’s President and Founder, Mr. Daniel Jammer’s presentation during the Cybertech 2014 event in Tel-Aviv, Israel.

Since Nation-E was founded in 2010, the Tel Aviv-based company has built up a unique cyber-defense and energy management system that’s drawing daily inquiries from governments, critical-infrastructure providers and financial companies. Nation-E declined to name its clients or how many it has, citing the sensitivity of the company's work. An investment last year valued Nation-E at about $120 million, and the company plans to go public on the Nasdaq sometime next year.

However, Nation-E may not be a panacea.

The complex nature of critical infrastructure means cyber-defense must be multi-pronged, said Gadi Tirosh, a general partner at Jerusalem Venture Partners. Companies are likely to need specialized cyber-security services from different providers, he said. For example, JVP has invested in startups such as ThetaRay, which analyzes data from turbines, and TitaniumCore, which shields older equipment at power utilities from cyber-attack.

"In power plants, nuclear plants, it isn’t only the network and Internet traffic that needs to be monitored, but data needs to be analyzed from all kinds of physical devices like turbines and switches," Tirosh said. "Protection against cyber-attack won’t come from a single vendor providing a single tool."

Photographer: Patrik Stollarz/AFP via Getty Images

Powerlines near the western German city of Dortmund on Aug. 9, 2010. Close

Powerlines near the western German city of Dortmund on Aug. 9, 2010.

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Photographer: Patrik Stollarz/AFP via Getty Images

Powerlines near the western German city of Dortmund on Aug. 9, 2010.

The U.S. Federal Energy Regulatory Committee found that coordinated attacks could bring down the nation's entire power network, the Wall Street Journal reported this month citing unnamed sources. Israel Electric, the country’s main power company that sees about 12,000 suspicious cyber-events a year, relies on its own around-the-clock cyber-operations room to fend off hackers.

Whether the cause of hacking or something else, power outages can be very costly for businesses. About $160 billion was lost last year due to power failures worldwide, according to Jammer. He estimated that Volkswagen lost about $40,000 a minute in this month's outage.

Claus-Peter Tiemann, a spokesman for Volkswagen, said the outage was caused by a short on the public grid outside the plant and declined to comment on the financial costs. If the automaker had installed Nation-E's service, it could have detected unusual activity in the grid and switched to another power source to keep the plant operating even while the rest of the city went dark, said Haggai Anson, the marketing communications manager at Nation-E.

Nation-E is working on ways to make it easier to integrate its service into more corporate networks. ABB, Honeywell International and Siemens make some of the most popular energy management software, according to TechNavio. Nation-E is in talks to team up with all three, as well as General Electric, Jammer said.

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