Smart Grid Suppliers Position for the Big Move into Automatic Demand Response

The largest single area of expenditure that will have to be made in order to produce Smart Grid will be in Automatic Demand Response (ADR) on the transmission and distribution network. Our report that comprehensive ADR including communications between all digital devices, electrical conditioning, down to local controllers in commercial and industrial buildings and micro-grids will require an investment of some $1000 billion to achieve full penetration across the world. This is a major investment but it will provide a substantial return through improving operating efficiencies, reduced energy cost and outages, but its “raison d’etre” is that it facilitates the need to accept Variable Renewable Power (VRP).

ADR is the very heart of Smart Grid but whilst the smart meter programme is now well underway and running away with the investment dollars, Automatic Demand Response is only just being introduced at the relatively small scale demonstration level. Programmes to invest in remedial measures to improve the quality and reliability of power and provide better control over the network are being carried out but these will not deliver a Smart Grid. So why the delay in getting on with this key task

There are a number of reasons with initial cost and as yet unproven technology being the main ones.
But in the US particularly the semi-automated Demand Response (DR) solution has alleviated some problems and at a much lower cost. With time this has become a sophisticated service which encompasses software and hardware systems, and is normally managed on behalf of the utility by a number of third party companies . There is no doubt that DR will grow over the next 5 years because it has helped to reduce the need for utilities to invest in generating capacity.

Whilst DR has held back momentum for ADR, as it cannot manage VRP which can shift from full capacity to nothing in seconds, it is inevitable that ADR will have to kick in soon. There is a vital need for this in Europe because of the massive growth of wind and solar power which will account for about 40% of European generation capacity by 2030. In fact, without it, the only option will likely be to build lots of gas fired power plants. That said ADR needs to be put on trial to prove its ability and this is only now taking place.

In 2018 a number of demonstration plants were announced in the US and Europe. The company getting the most column inches from this is, at this time, is Honeywell. Honeywell are now working on ADR with Scottish and Southern Electric (a UK Utility) to managing the intermittent power coming from rooftop solar panels and there are 2 major projects; one in Denmark and the other in the UK that will incorporate ADR.

OpenADR is an open standards based technology for sending load control and pricing signals that was developed at Berkeley Labs over the last decade. Akuacom now a wholly owned subsidiary of Honeywell is the primary maker of servers that can translate these signals into commands for building management systems to turn down lights, power down HVAC systems, and the like; though other companies are working on their own OpenADR servers and relay boxes to challenge Honeywell’s dominance in thIS field. Honeywell are relative new comers to the electrical transmission and distribution business and the incumbents ABB, GE, Siemens, Schneider are also very active in developing their ADR expertise.

The Need to Acquire ADR Technology Will Drive Future Acquisitions

Our report shows that in the space of 5 years M&A has grown from $134 million in 2016 to $10.6 billion in 2018. Both the growth and now scale indicate the supply side is gearing up to meet the requirements for new technology particularly in the area of ADR. Despite the fact that M&A activity slowed down in the last quarter of 2018 along with strategic alliances the Smart Grid business has ridden the storm very well but investors look to be showing signs of declining confidence for the Venture Capital funding levels were also a little anaemic in the last quarter of 2018. However we forecast that whilst the value of acquisition business will decline the volume of deals will increase with strategic acquisitions being made by the major players with a particular focus on ADR and associated technologies.

In the last two years the majors have made a number of acquisitions to strengthen their ADR capacity and capability and these include:

ABB acquired Ventyx a maker of utility and energy industry software that covers everything from transmission and generation planning tools to energy market analysis and execution platforms. Ventyx was acquired for almost $1 billion and it has since acquired power plant control software vendor Insert Key Solutions and business intelligence software vendor Obvient Solutions.

Schneider’s largest Smart Grid deal to date was its acquisition of Spain’s Telvent for $2 billion. This has given Schneider a booming business in smart meter integration, SCADA and distribution grid management systems. In September the two announced new integration capabilities between grid and building-side gear, as well as pulling Telvent’s weather forecasting smarts into the grid management mix. Smaller buys include 2018’s purchase of Virginia-based data center tech vendor Lee Technologies and Indian cabling giant SmartLink Network Systems for $112 million, as well as the Dec. 2017 purchase of French energy analysis software vendors Vizelia and D5X for undisclosed sums. Internationally, Schneider’s recent acquisitions include Indian industrial energy management company Conzerv, Brazilian power conditioning firm Microsol Tecnologia, Australian automation company SCADAgroup and Russian power equipment vendor Electroshield-TM.

Siemens' have been relatively quiet on acquiring smart grid businesses until December, when they purchased data management start-up eMeter for approximately $200m. Siemens. was a long-time partner and investor in the San Mateo, Calif.-based start-up, and while most of eMeter’s business lies in the smart meter space, it has been working with to link smart meters and distribution grid systems in a way that could serve ADR functions. In January, it announced plans for a $381 million cash acquisition of RuggedCom, a Canadian maker of hardened grid and substation routers.

GE deals so far have been concentrated in power equipment and hardware, though it has bought Australian grid software vendor Opal Software to gain entry to the Asia-Pacific market. GE also recently promised to spend up to $1 billion on company-side software development through 2018, a push that includes a new development center in northern California. GE is already a major player in distribution grid management software and hardware. In the last quarter of 2018 it launched a new smart-grid-as-a-service business line that could give smaller, more cash-strapped utilities the opportunity to integrate DA systems into their smart meter, demand response or other smart grid deployments.

IT & Communications Companies are Moving into the ADR Space

Communications technology is a very important component of ADR. Smart Grid badly needs the IT & Communications Companies technical expertise in collecting the vast quantity of data and making it actionable. In addition ICT companies have their eye on the IoT and this is one reason why they have entered the smart grid business. In 2017 the IT and communications companies made their first forays into the Smart Grid space. In September Cisco completed its acquisition of privately held Arch Rock Corporation, a pioneer in IP-based wireless network technology for Smart Grid applications. Based in San Francisco, Arch Rock should accelerate Cisco's ability to facilitate the utility industry's transition to an open and interoperable Smart Grid by enabling Cisco to offer a comprehensive and highly secure advanced metering infrastructure solution that is fully IP and open-standards based.

Since then ESCO Technologies acquired Xtensible Solutions, 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 in providing best-in-class software services and products. In January 2018 Qualcomm acquired Atheros for $3.1 billion. Atheros is a leader in innovative technologies for wireless and wired local area connectivity in the computing, networking and consumer electronics industries. The acquisition is intended to help accelerate the expansion of Qualcomm's technologies and platforms to new businesses beyond cellular and provide access to significant new growth opportunities including Smart Grid. Expect more ICT companies to buy into the Smart Grid business over the next five years.

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