Smart Cities

Smart Grid – Report on Size, Structure & Growth

Any reader looking through the media content on smart grid for the first time could be forgiven for assuming that smart meters and the smart grid are one and the same thing. Numerous market studies have provided detailed information on the size of the smart meter market for the last 5 years. However data on the comprehensive smart grid is scarce and difficult to find. When you think you have found it, it is often full of anomalies primarily because it lacks definition. In the last two months a number of market research reports have been published and here is some of their market sizing details; ABI says that while $41 billion will be invested into adding digital intelligence to utilities’ transmission and distribution networks between now and 2015, only $4.8 billion (around 10%) will be spent on smart meters over that time period. ABI’s overall smart grid market prediction looks low when compared with […]

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Any reader looking through the media content on smart grid for the first time could be forgiven for assuming that smart meters and the smart grid are one and the same thing. Numerous market studies have provided detailed information on the size of the smart meter market for the last 5 years. However data on the comprehensive smart grid is scarce and difficult to find. When you think you have found it, it is often full of anomalies primarily because it lacks definition. In the last two months a number of market research reports have been published and here is some of their market sizing details;

ABI says that while $41 billion will be invested into adding digital intelligence to utilities’ transmission and distribution networks between now and 2015, only $4.8 billion (around 10%) will be spent on smart meters over that time period. ABI’s overall smart grid market prediction looks low when compared with the forecasts from Pike Research at an estimated $200 billion in cumulative investment between 2010 and 2015. Both figures could be correct depending on the definitions used for smart grid, whether it is for equipment only or at installed prices.

Both figures are confirmed as world market estimates. Research reports put world current demand for electrical transmission and distribution equipment at around $100 billion including smart grid’s contribution with marginally less than 50% being purchased by the electrical utility market. So, on the basis of this can we settle for a market size of around $50 billion for all smart grid systems installed in the world in 2009?

Whilst this is a big number, for smart grid systems to be fully integrated and operational Cisco estimated that the market for smart grid communications will grow into a $20 billion a year opportunity as the infrastructure is built out over the next 5 years, and a new report from researchers at Specialists in Business Information (SBI) forecasts the market will grow to $17 billion per year by 2014 from today’s $6 billion.

That is a compound annual growth rate (CAGR) of almost 21% through to 2014 for technology that will provide better sensing and control systems and help integrate more renewable energy into the U.S. power supply. Globally, SBI expects the market for smart grid technologies to grow to about $171 billion by 2014 (with a CAGR of nearly 20%), up from approximately $70 billion in 2009. Similar figures have been reported by other research organisations but these forecasts must be made on the very best case scenario where there are no obstacles to growth and that the utilities can raise the finance and guarantee an adequate return.

Strong Market Growth & Funding Proliferates
Company financial reports confirm that the smart grid market has strong profitable growth in particular segments with smart meters and demand management leading the field and that the major suppliers are forecasting solid growth into 2011.

The Memoori Smart Grid Executive Brief has identified 50 private funding arrangements in the first 8 months of this year. The pace of activity, measured by both volume and value has accelerated over the last three months and shows little sign of slacking off despite the intervention of the holiday season. In July Trilliant received one of the largest single investment received by any smart grid company with $106m of funding.

Although the level of funding is relatively high compared with similar businesses in the electronic sector it is well down on activity in some other areas of clean tech, however it is buoyant and growing. In addition both Silver Spring Networks and Landis + Gyr are expected to go for an IPO within the next 12 months.

Structural Change is being Addressed
One of the strong features of the smart grid supply business is the level of activity in forming alliances. Some notable alliances announced during this year include Landis + Gyr with Current Group, Spectrum Bridge with GE, and GridNet with Oracle, Echelon with Convergys and Schneider and PowerSecure. This is yet another sign that this business is laying strong foundations for the future.

We have during the last eight months compiled a database of smart grid suppliers which now contains some 226 companies based in 21 countries. This sample is not likely to represent more than 25% of the total population. However it does contain most of the world’s major players. We have this month added another 24 companies and we expect this to continue to rapidly grow despite a strong pull to consolidate what appears to be a rather fragmented structure.

In July / August we have identified 6 acquisitions by companies actively involved in the smart grid business. This is down on the 8 recorded in June but that was so far the largest number recorded in any single month since we started reporting 8 months ago. The total number of acquisitions recorded in the first eight months of this year is 39 and apart from August there is a notable trend for the pace of consolidation to increase with time. Acquisition must play an important role in strengthening the structure of the industry if the supply side is not to become the limiting factor of maximising growth opportunities.

Innovation is the key to Smart Grid Company Growth
Whilst the smart grid business would not at this time be regarded as an innovator of leading edge technology it does apply advanced electronics for the control and monitoring of the grid and will need to deploy the highest levels of communications technology in a very secure and rugged environment. Much of this will be imported through IT and Communications companies, but it will need to be supplemented with expertise in dealing with electrical transmission and distribution with high safety and security requirements.

This has been the preserve of the world’s major electrical equipment manufacturers such as Siemens, Schneider, GE and for metering Itron, Landis + Gyr and Elster. However relative new starts like EnerNOC and Echelon now hold significant shares in the pure smart grid market and there are many others that are developing fast. The Inc 2010 5000 survey of US Fast Growing Companies measured over the last three years identified 5 smart grid suppliers within the top 2000. At the top of the list at position 634 came Bridge Energy Group with 480% growth at position 682 was Recurve with 453% growth. CPower, Ember and, Enernex followed respectively at rankings of 692,1702 and 1819. There must be many more smart grid players that would appear in this list if they were to supply data. Successful innovative companies with revenues under $10m should be growing at well over 30% per annum whilst major suppliers are forecasting more modest targets around 10%.

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