ALLCASTLE PRINCETON + Smart Grid

Smart Grid: The Renaissance of the World’s Electrical Transmission & Distribution Industry

At the start of the last decade throughout the world’s developed countries, the electrical transmission and distribution network was pretty much moribund. A static market serviced by a few great names from its illustrious past consolidated to a rigid core; a cash cow that would nevertheless survive for a long time yet. But in the background companies involved in controlling and distributing electricity in the industrial sector had started to overlay intelligent controls to balance supply and demand and reduce consumption through more efficient control. This was the start of smart grid technology. In the meantime the world has confirmed the need to drastically reduce CO2 emissions and thus the need for a “Smart Grid” was born.

Memoori has been watching the Smart Grid business for the last 6 months and started to analyse and report on it in January. Since then we have produced three monthly Executive Briefs with this March issue being the first published edition. We are confident that Smart Grid is a real and fast growth business with an exciting future and we want to meet the challenge of becoming a respected authority on delivering insightful information and comment on the subject.

The monthly reports will be focused on identifying Business Opportunities, and in Section 1 we report on current acquisition and alliance activity. In Section 2 we review the announcements of funding made to smart grid companies to finance development and growth as well as stimulus funding made by governmental organisations to get new smart grid projects off the ground. Section 3 we table details of the important manufacturers and suppliers of smart grid products and systems and their detailed merger and acquisition activity. We have gone back to 2016 to record the major deals that have had a significant impact on starting the consolidation process that will have a major influence in shaping this business over the next ten years. Finally in Section 4 in a ‘marketing and technology digest ‘ we incorporate financial results of leading players, articles on research and market intelligence reports, marketing shaping and industry trend news and regulations reported that month.

So why has Smart Grid got such a Great Future?
There is just one major driver that will assure the future growth in this business and that is the need to reduce CO2 emissions within the existing electricity production and supply grid and the point of usage. This can only be achieved if the grid can incorporate renewable electricity production from a multitude of distributed sources and that it is capable of matching the supply of electricity with demand at the point of usage. A smart grid is the only way of achieving this. For those involved in producing and distributing electricity the prize is a dramatic reduction in wasted power and longer term increase in ROI, whilst consumers will reduce their energy bill. Legislation to reduce CO2 emissions from the production of electricity and its usage in buildings and factories around the world is now being enacted. There is no turning back.

Can Current Technology Deliver a Smart Grid?
The technology to create a smart grid has been available for some years and in fact on a micro level has been operating in industrial premises and very large commercial buildings for at least ten years. The need now is to scale this up to regional and national grid levels and this is not a simple matter. Demonstration projects carried out on the electricity grid have proven that information can be managed and transferred from both the supply and the demand sides but these have been restricted to thousands of usage points. However they have proven that current technology can deliver. In addition the major IT Companies that have entered the business such as Cisco, IBM, Oracle and SAP, to name just a few, are confident that the information flows can be handled. No doubt there are still some major hurdles to cross but everything tells us these are not insurmountable.

Vast Sums of Money will need to be Invested – Will it be Available?
A quick look at Section 2 of this month’s report shows that very large sums of money are being invested in smart grid suppliers by both banks and venture capital companies. Smart Grid is part of what is called the “Clean Tech” business and although it has so far only received a relatively small sum compared with the largess heaped on renewable energy businesses, it is much larger than what is being currently invested in successful businesses such as the electronic security industry (which we also track). So far under government programs in the USA alone some $3.5 billion has been awarded for investment in Smart Grid projects in the electrical utilities. Utility companies are not the most profitable operations and they are going to need help with financing the development of the Smart Grid. In most countries the electricity grid needs refurbishing in any case, so this expenditure will have to be found, or the first requirement of electricity supply, reliability, will not be satisfied - let alone the pressing need to reduce CO2 levels. However we believe that this is the weakest link in the chain and could cause a slowing down in growth. It will nevertheless be well into double figures and unprecedented in this industry for the last 50 years in most countries.

The case for the development of a Smart Grid throughout all the developed and emerging countries in the world is preeminent and its progress will be limited only by the political willingness of governments to deliver on their commitment to the reduction of CO2 emissions.

This month’s edition of our report shows that acquisition activity is moving ahead at a significant pace and alliance, often a forerunner of M&A, was also very strong. The consolidation process is moving ahead at a healthy pace which it needs to do because in some areas of the business are rather fragmented. Funds for the development of supply side businesses were encouraging in March and a number of major projects were awarded government funds. We have yet to establish the size of this business but we would be surprised if this month has not achieved significant growth on the same period last year. Sizing this business is going to be difficult because there is a dearth of good quality statistics and a lack of consistent standard definitions for equipment.

Currently the structure of the business is divided between a few major international companies that make up the basic core of the electrical transmission and distribution equipment business including some international metering companies and a new elite of pure smart grid suppliers with digital controls and management software. On top of this are IT companies with their data transmission networks and skills to manipulate the colossal amounts of information in order to balance and control the Smart Grid. It is a dichotomy of the old and the new and major differences in their culture will need to be bridged. The new boys on the block are making most of the running at the moment with their advanced metering and communications products, which are currently receiving the major share of the smart grid stimulus awards in the USA. These projects are particularly attractive to utility companies because they can learn much about consumption patterns and they provide the ability to control consumption to some degree. The “old boys” certainly have a major although not dominant role, in pure smart grid and this will be strengthened with time. They have long standing relationships with the buyers and their full respect. We shall be watching and reporting on how these developments progress.

Finally we shall keep a watching brief on security and communication standards because they together with wireless communications will have a major impact on the shaping of this new business.

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Smart Grid: The Renaissance of the World’s Electrical Transmission & Distribution Industry + Smart Grid