ALLCASTLE PRINCETON + Ventyx

2017 was a Great Year for Smart Grid; but now must be the Time to Focus on Bringing it all Together

Smart Grid has been the recipient of many accolades this year; many thought leaders have extolled its enormous potential and value in delivering a worldwide low-carbon economy. In 2017 the business right across the globe has grown rapidly. Billions of dollars have been invested in new projects and the supply industry has developed through acquisition & merger, whilst major alliances have been formed to meet the many technological challenges and maximize the growth opportunities.

But despite this there is an uncertainty about how the business will progress in this decade. The World Economic Forum recently addressed this concern commenting that utilities are struggling to create the business case for smart grids as regulatory incentives often fail to provide the right incentives and reflect the low-carbon agenda. In addition they say that although global governments are increasingly viewing smart grid as a strategic infrastructure investment, poorly planned and executed pilots can set back the adoption of smart grids and negatively impact public perception. Whilst investment in a smart grid infrastructure is a no-brainer, governments will have to ensure that the demand side can operate effectively because if not this business will fail to attain anything like its real potential.

For the last 5 years the various component parts of Smart Grid have operated separately with smart meters being the ‘easy win’; getting most of the attention and investment budget. AMI has increased its standing and share of the pie and demand management at the distribution level has slowly but surely gained momentum. However the further you move up the chain interest and activity in control and communication at the transmission system falls off and with it the possibility of delivering the total solution. This diminishes the part that micro-grids and energy storage can play in achieving the end goal of a low carbon economy. This is not causing a bottleneck at this time and we can expect continued rapid growth for some years to come but it could well make seamless operations and communications for total systems longer and more difficult to achieve.

Neither is it yet having any adverse effects on Smart Grids supply side, for the industry continues to develop through consolidation. Alliance and investment is at an all time high. The total number of acquisitions identified in 2017 was 70, which shows significant growth on 2017 and is a surprisingly high number for such a relatively young business. The major landmarks in 2017 included Honeywell’s acquisition of Akuacom and E-MON, ABB’s purchase of Ventyx and Baldor Electric, Cisco’s purchase of Arch Rock and GE’s acquisition of Opal Software. ESCO Technologies Inc. acquired Xtensible Solutions, Inc. the thought leader in enterprise information management strategy, and a leading provider of semantic-based information management and integration solutions to the utility industry worldwide. Xtensible will be included as part of ESCO's Utility Solutions Group and will be closely aligned with Aclara Software. The main theme throughout this year has been the purchase of companies having two way communications products and energy management and enterprise information software.

This month we have identified 13 acquisitions which is highest recorded in any single month this year. Of these, 4 involved the purchase of Home Area Networks and Energy Management Companies with 2 involving Motorola and AT&T. 5 acquisitions were for specialist software for smart grid and two involved the purchase of networking communications products made by Broadcom Corp and Belden Inc. The more traditional smart grid sectors of smart metering and demand management had single purchases made respectively by Leviton and EnerNoc.

Private funding mainly through Venture Capital companies has proliferated in 2017 where we have identified 68 private funding arrangements. Whilst we cannot be sure that we have complete figures for 2017 / 9, even making generous allowances for this, there has been a surge in activity and interest in investing in the Smart Grid business this year. We believe that the number of arrangements is relatively high compared with similar businesses in the electrical sector but is well down on deals in some other areas of clean tech. Funding for Smart Grid business is buoyant and growing with a number of clean tech venture funds deciding that the Smart Grid sector looks more promising than renewable energy at this time.

We have tracked some 90 alliances that have been announced between major players in the Smart Grid Industry in 2017. These have involved all the major leaders in the business forging relationships across the different segment s and technologies that now make up the Smart Grid Industry. Here notable alliances included Qualcomm’s agreement to implement cellular connectivity into ECOtality charging stations, Silver Springs partnering with Landis + Gyr, IBM and Schneider working together on energy management systems. Another communications inspired link up is Grid Net’s collaborating with Sprint to deliver a Smart Grid solution that leverages Grid Net’s software platforms to connect smart meters and smart grid routers via the Sprint 4G network. We expect more strategic alliances in this area during the next 12 months.

8 alliance arrangements were announced this month and this continues the strong trend that we have seen for both the growth in this aspect of developing business opportunities and in addition the number of majors that are joining forces to deliver smart grid products and platforms.

So with a market confident of a growing future, flush with cash but driven by the need to continue investing in the development of the business what should we expect in 2018? More companies to take the example of Elster, which took the opportunity to go for an IPO this year? In 2018 we would expect a flurry of flotation activity including the much heralded Silver Spring Networks and Landis+ Gyr offerings; as well as continued consolidation of the supply side at its current heady level. We also expect more acquisitions at the energy management and services interface despite the fact that it is getting very overcrowded and cannot support the present incumbents. We hope to see more activity and investment in control and communication at the transmission level so that Smart Grid can eventually deliver its true potential.

ABB, Belden, Broadcom, Cisco, Motorola, Silver Springs, Sprint, and more:

2017 was a Great Year for Smart Grid; but now must be the Time to Focus on Bringing it all Together + Ventyx