It isn’t gold.
Weakening venture capital funding for one of the globe’s fastest-growing sectors isn’t a mystery for sector watchers, but with increasing adoption of disruptive monitoring technology, the market opportunity isn’t a matter of if, but when.
Despite weakening venture capital funding for smart grid, the sector still represented a “trillion dollar market” as improved data processing helps transition utility companies from energy deliverers to service providers, said leading industry analysts this week.
Howard Scott, managing director of utility industry consultants Cognyst, told the Greentech Media Soft Grid conference in San Francisco: “It’s clear that after the initial first run in the US there was this run up of deployments of smart meters. It was inevitable it was going to drop and the economy, coupled with the fact that the stimulus money [has gone and] we’re hitting some high penetration numbers, those things are flattening out.”
Scott has estimated that of the 145 million electric meters in the US, 62 million of them will be smart by the end of this year.
Itron, Sensus and Silver Spring Networks are the market leaders in North America with 74% of the total North American Advanced Metering Infrastructure (AMI) market for electric utilities.
Scott’s report for GTM Research recently estimated the number of AMI units deployed in North America in 2012 at 3.2 million, compared with 15.7 million in 2010.
“For the rest of the year, it will continue to dip and then start picking up,” he said. “We have this US focus. But the real interest in this industry is a worldwide interest. We’re going to see a lot of international activity in the 2013 range.”
Scott said that there had been announcements from countries such as France with the deployment 35 million “end points” and Brazil, where the electricity regulator has mandated the installation of 65 million smart meters by 2020.
Meanwhile, China has established a special smart grid task force.
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“We’re going to see this massive growth that starts occurring internationally – that’s just metering end points,” said Scott. “What you go to from there is adding in sensors and smart things that could be integrated and that sets the stage for smart grid.
“The real money is in the smart grid. When you start looking at networks worldwide, that need to be spent over the next two decades will be measured in many trillions of dollars. This is a massive industry and we’re at the very early stage.”
Smart Grid VC funding peaked in 2010 and has weakened since to $66 million in Q2 2012, according to Mercom Capital Group.
However, M&A activity has remained strong among large industrials such as ABB, Siemens and GE.
Last year, Siemens acquired another smart grid software startup called eMeter, Landis+Gyr was sold to Toshiba for $2.3 billion and more recently Melrose, a British manufacturing sector private equity firm, made a £1.27 billion play for German smart meter manufacturer, Elster.
The challenge posed by the explosive growth in data from two-way communications in electric power grid would present the utility industry with transformational challenges.
Patricia Florissi, Americas and emerging markets vice president at EMC, a cloud computing and big data specialist, said although the utility industry did not have to manage the same amount of data as Google, Facebook and Twitter, the sector would have to process data from meter readings in ever greater volumes.
“We want to avoid blackouts but in a much more efficient and intelligent way, because it’s going to be done based on measurements that are done daily or hourly. That allows us to be a lot more efficient from an economic perspective.
“Big data in our utilities transforms our every day lives. Think about electric vehicles. Yes you have the smart grid, which is providing energy to the car, to the support system, to the battery. But if you did not have big data analytics that mediates the electrical grid to the consumption patterns of the car, the frequency outages are going to be much more.
“IT is no longer information technology. It’s an industry in transition. Disruptive technology creates lasting change,” Florissi
Open source data management software that provides inexpensive analytics and distributed storage for large amounts of data has generated excitement in the energy industry recently. Hortonworks builds data platforms powered by Apache Hadoop, which was created by former Yahoo employees looking to develop the next generation search engine.
Jim Walker, director of product marketing at Hortonworks, said that previously limitations of processing power no longer apply with Hadoop.
“If we can get as close as we possibly can to the meter or the light switch it would be fantastic information,” he said. “We didn’t previously even have the cognitive ability.”
Samuel Scupham, officer manager for renewables and energy efficiency at consultants Black & Veatch, said that his company was helping utilities find out the value of energy storage applications in regulation, community energy storage, transmission and distribution and renewable integration.
“As we look at data analytics and smart grid and renewables integration, the area I’m most interested in is helping utilities value how energy storage can be part of the switching set.
“The point we’re at with energy storage is that if you don’t have data analytics it’s an expensive iterative cycle to see how the tech develops and fits into the fleet as a whole.”