ALLCASTLE PRINCETON + Tendril

Is the Long Honeymoon Over for Smart Grid?

For the last few years the media have been positively ecstatic about the glittering future of Smart Grid but the last two months have seen doubters pontificating about the problems ahead and in particular the real danger of a serious hold up in the US market.

The problems hinge around the political and commercial aspects, not technology and security concerns which observers believe will be overcome. It seems that everybody loves clean energy but no one wants to pay for it and now questions are being asked “do we need more electrical power” citing that through energy conservation and microgid production we could achieve a more cost effective solution to the CO2 problem.

Some of the arguments supporting the doubter’s claims have credibility but sadly they don’t provide long term solutions. We appear to be entering an impasse where consumers are not prepared to pay more for their electricity. This seems to be supported by the regulators, but the utility companies cannot make the vast investments necessary to install Smart Grid unless they raise their charges. There looks to be a real danger in the US that utility companies may sit on their hands, because you cannot expect them to get excited about clean energy when they are the ones who will have to pay for it. Why should they lay out capital aimed at new forms of renewable energy generation and their transmission, when consumption is hardly expected to rise? Infrastructure change will cost billions of dollars and whilst the stimulus funding has got the demonstration projects off the ground it was only intended as a pump priming operation.

At the same time other road blocks are appearing. The U.S. has over 10 million residential smart meters installed as part of the Advanced Metering Infrastructure (AMI) that supports local Smart Grid but now there’s a growing outcry against utilities installing smart grid wireless network devices on customer property, particularly residences, because there is concern over potential health risks caused by the electromagnetic radiation. US electricity consumers have little love for smart meters it seems.

In some countries in Europe similar arguments are being raised but energy sustainability is high on the agenda of priorities and despite the fact that average energy prices are double those in the US the consumer is still resigned to paying a little more to have security of supply and a cleaner environment. In the developed economies of the world cleantech investments have declined from their peak in 2017 but the value of private equity and venture capital investment in the cleantech sector soared in September this year to a 12-month high of $1.345bn from just $56m in August 2017. It was boosted by a joint venture backed by Quantum Energy Partners worth $1bn. This result was 71% higher than the $787m recorded in September 2017, according to data compiled by Zephyr and Bureau van Dijkl. The volume of private equity activity in September was up 50% month-on-month at 18 deals from 12 transactions in August but was down 40% year-on-year from 30 in September 2017.

Our Executive Brief this month confirms the continuing trend for all aspects of business development through merger and acquisition, alliance and private funding to be buoyant in the Smart Grid industry. This month we have identified 8 acquisitions by companies involved in the smart grid business. This equals the number recorded in June which is so far the largest number recorded in any single month since we started reporting 9 months ago. Strategic buys provided the main driver this month.

We identified 9 compelling alliances, most involving major players in the business including Itron, Landis + Gyr, Schneider, Siemens and Tendril and this aspect of developing the Smart Grid business is growing. But what are more encouraging this month are the third quarter results reported by some of the major players. Itron reported record quarterly and nine month revenues of $576 million and $1.6 billion and record 9 month cash flow from operations and free cash flow of $167.1 million and $121.6 million together with record quarterly and nine month adjusted EBITDA of $89 million and $239 million. Eaton revenues grew 38% and net income was $268 million compared to $193 million in 2017, an increase of 39 percent. Tollgrade reported the highest quarterly profit in nearly a decade whilst Schneider Electric Q3 2017 organic sales were up 12%. Elster and GE also reported improved trading conditions with higher revenues.

So for now in the immortal words of Mark Twain “the reports of my death are greatly exaggerated” aptly sum up the situation. Let us not assume that Smart Grid cannot be delayed by political ineptitude, but one disruptive technology that could transform the whole cleantech industry is utility scale storage; any bets on how long away that is?

Itron, Landis Gyr, Siemens, Smart Grid, Smart Meters, and more:

Is the Long Honeymoon Over for Smart Grid? + Tendril