“So far information technology has had a fairly small impact on the energy infrastructure,” says Pacific Northwest National Laboratory scientist Rob Pratt. “That’s about to change.” (P Mazza – Climate Solutions, 2002 – gridwise.pnl.gov)
This is a presentation I made for a competitive intelligence course at the UT School of Information based on research into the smart grid industry. This was a great project and If I had spent another 30 or 40 hours this information would be excellent but for now it is at least worth a read. The bulk of the data gathered for this project is contained in this spreadsheet. Some of the information is very much an estimation either because Hoover’s data can be sketchy or the larger institutions are opaque concerning revenue or the employee count for particular divisions. Where available the data was pulled from CapIQ’s excellent business data service, the Book of Lists data products or from the websites of the companies themselves. I tried to make notes where applicable regarding the info in the spreadsheet. Enjoy and feel free to reuse any of this data for your own purposes. ~sb
Smart Grid Market in early 2009
Our existing legacy power grids are straightforward power creation and distribution systems composed of electricity generators and electricity consumers connected by technology fundamentally unchanged since the early 20th century. As a consumer draws electricity from the grid the generators must respond to meet the load in real time. The generators send power to substations and route it to homes and businesses. There is a startling lack of information, control or buffering available in this process. Grid operators have no information beyond the substations and power company employees still physically travel to consumer endpoints and record energy consumption from meters. The only usage information made available to consumers is in their bill each month. The power grid as it exists is inefficient and it is not ready to integrate the wealth of renewable energy resources and distributed generation patterns that will define the energy landscape in coming years.
The term “Smart Grid“ has become a catchall term used to describe a confluence of products and services designed to add intelligence to the legacy grid described above. It is all about adding sensing, communication, analysis, feedback and control to our existing systems to improve efficiencies and environmental impacts.
Aside from environmental arguments the economics for rolling out these systems are extremely compelling. Studies show that a concerted effort to deploy smart grid components may save $46 billion-$117 billion in new traditional peaking infrastructure by 2030 in the US.
Market Size and Forecasts
The market size is tough to determine because the term ‘Smart Grid’ has some ambiguity when referring to the overall grid market.
The US Department of energy states that in the US the current annual spend on the grid is $18 billion. To fully implement a ‘modern grid’ would cost $165 billion over 20 years for an additional $8.3 billion per year spent on modernizing distribution and transmission.
Patrick Mazza calculates that the global spend on US “smart energy enterprises” in 2005 to be a $15 billion per year market. A recent document released by Deloitte technology places this figure at $25b in 2009 after seeing 50% growth in the industry in 2008. None of these numbers take into account the Obama administration’s recent stimulus bill allocating $4.6 billion for Smart Grid investment in the US. Figures released by the Center for Smart Energy estimates this to be a $45 billion global market in 2005, of which the US market was approximately $2 billion with growth forecasts higher than the worldwide average (5%).
According to Key Energy Stats the US consumption of worldwide power is 22.6% of the global market. If the energy grids in other countries are modernizing at a slightly slower but similar pace we can assume that the global market for smart grid technology will be roughly 4 times that of the US.
With limited data I need to make assumptions. For the purpose of this analysis I am using a synthesis of the above numbers to predict that the 2009 US spend on smart grid technology will be $11 billion. This sets the worldwide number at $44 billion which jives well with the $45 billion number given by the Center for Smart Energy.
Furthermore, if we take Mazza’s modest figure of 5% average annual growth in the smart grid market we can project that the US market will be $19 billion by 2020 and the worldwide market will exceed $75 billion.
Market Models
I’ve broken down the Smart Grid industry into 4 major categories: Advanced Meter Infrastructure, Consumer Energy Management Systems, Demand Response and Grid. There are inevitable overlaps between these components but this is a good framework to analyze the products. These segments primarily take the form of physical products which are purchased and installed but there is also a software and consulting ecosystem that surrounds these goods.
Segmentation:
Advanced Meter Infrastructure (AMI)
Connecting endpoints in the grid is essential and economically sensible. The need for realtime information downstream from substations can be considered a foundation of the smart grid upon which other layers can be built.
The simplest form of AMI is Automatic Meter Reading (AMR) which utilizes various communication techniques including cell phone communications, mesh wifi, wimax, and even power over broadband. The meters communicate directly with the utility and remove the need for humans to interact with the meters. The financial arguments here are persuasive: eliminate the need for employees to travel to endpoints and read meters, connect service and disconnect service.
What replaces the existing mechanical meter will serve as the basic external interface for all consumers to the power company. Realtime usage information at a granular level creates valuable data that can be used for instantly detecting faults, predicting individual usage, and leveraging this communication for 2 way messaging with consumer management systems. E.g. pricing information and demand / response commands.
US Utilities are currently rolling out these smart meter systems on a massive scale and this trend is accelerating with a compounded annual growth rate of 20.6% over the next 5 years : from $1.8 billion in 2008 to $4.6 billion in 2013 .
Also grouped into the AMI segment are the various software suites used to interact with the meters and analytical packages needed to parse and manage a wealth of information that previously did not exist.
Within the AMI category I lump the following product descriptions:
Automatic Meter Reading (AMR)
Metering/Analysis Software
Metering software
Meter Hardware
Meter Data Management
Analytics
Consumer Energy Management systems
This category of products encompasses devices and networks on the consumer side of the meter. Systems that manage local and distributed generation, local capacitance, home power networks and management software – all systems under the control of the consumer.
There is a lot of innovation in this segment and the products that define it are still emerging. It is best separated into Residential and Commercial sub-segments.
The Commercial Energy Management (CEM) segment is fairly mature, particularly in large organizations where the small efficiencies add up to large savings. These focus on distributed generation and efficiency products. Efficiency systems dovetail into implementation of Demand Response functions.
The Residential Energy Management (REM) segment is showing innovation in several forms. High-end products for integrating local energy production (solar) into homes; Zigbee networks to turn all outlets into programmable nodes in a power network; and efforts to get devices into homes which help make homeowners’ energy usage more apparent and hopefully affect how they use energy. The coming wave of plugin hybrids should drive adoption of CEMS by more consumers.
Within this category I lump the following product descriptions:
Residential Energy Management Systems (REMS)
Automotive Plugin Hybrid controllers
Commercial Energy Management Systems (CEMS)
Distributed Generation
Efficiency – devices designed to create efficiencies among existing power consuming devices
Demand/Response –
Methods of managing energy consuming devices either directly or by supplying information for consuming systems to act upon according to pricing pressure.
A prime consideration for smart grid technology is the fact that consumers and producers are directly connected. The configuration of the grid must be built to supply all electricity needed at ultimate peak demand, typically a few summer days that tax the infrastructure to the limits and drive planning and spending on production capacity. If the grid can reach out and modify the behavior of power consumers at critical peak times either directly or via pricing incentive models or use local energy storage to create buffers against peak demand we can slow the spend on generation infrastructure.
Within this category I lump the following product descriptions:
Demand side management (DSM)
Demand Response Software
Cost Response – More fine grained demand response that factors in pricing
Capacitance- Methods of storing energy during off peak hours (inexpensive) to be release during peak consumption.
Grid –
The Grid category encompasses the traditional grid infrastructure on the generation side of the meter. This segment is focused on the interaction of the macro components of the grid. As the grid ecosystem becomes radically more sophisticated new systems are needed to manage it.
Intelligent integration of all other smart grid products happens on this level.
Renewable power sources are a key component of our future energy strategy but they also represent a management challenge. Solar and Wind are inconsistent generators and adding them to our very linear grid metaphors on a large scale creates management problems. In order to grow their representation in the generation ecosystem we need to either add capacitance for buffering their oscillation and/or create very sophisticated switching and information exchange to allow traditional generators to respond.
This segment is defined by analytical software and network management frameworks designed to squeeze life and efficiency out of existing grid infrastructure and interact with other components of the Smart Grid.
The following terms describe products in this segment
Distribution automation
Analysis software
General Equipment
SmartGrid Management, Hardware
Communications
Grid network software
Large scale Capacitance
Market Dynamics
The market environment for Smart Grid technology is ideal, often compared to the dynamics of the internet before 1995. Energy is arguably the most important economic, environmental and political issue of our time. The existing grid contains gross inefficiencies that may be mitigated by IT and reduce demand for energy production.
For startup companies and venture capital firms the environment is fertile for business. Tax incentives, politically mandated energy projects, consumer awareness and demand will drive this industry further at a growth rate which I believe will far exceed the current 5% global average.
The inclusion of funding in a recent US Stimulus package for $4.5 billion for smart grid projects may serve as a public sector catalyst for more basic research and widespread adoption of AMI and demand response technology from traditional energy companies.
PlugIn Hybrids, which are on the verge of becoming a mainstream transportation alternative, could propel a major push for consumer-side smart grid enabled systems. It is my opinion that a more complex pricing structure will emerge from the utilities as people begin to demand more energy from the grid. The utilities will do everything possible to push that demand into off-peak hours using pricing incentives. People pay a lot of attention to the price of fuel and this economy will drive awareness of energy consumption at the consumer level.
Further consumer involvement will come as energy providers interact with demand response programs targeting HVAC, pool pumps and other energy sinks in homes. New information interfaces designed to pique consumer awareness of their individual consumption habits may become more commonplace.
Inhibitors? Questions about the security of network enabled smart grid have arisen recently and brought to light the concept of a hackable energy supply. The large up-front investments needed to convert existing infrastructure to smartgrid technology may be unattainable in soft economy regardless of eventual savings.
Magic Quadrant
MAGIC QUADRANT METHODOLOGY
Y: ABILITY TO EXECUTE = PATENT_INDEX + YIB_INDEX + EMPLOYEE_INDEX + REV_INDEX
PATENT_INDEX: n = 0, n > 0 = 1, n > 10 = 2, n > 50 = 3, n > 500 = 4, n > 5000 = 5
YIB INDEX: n < 5 = 1, n < 10 =2, n < 20 = 3, n < 45 = 4, else n = 5
EMPLOYEE INDEX: n < 10 = 1, n < 100 =2, n < 500 = 3, n < 5000 = 4, else n = 5
REVENUE_NDEX: < 10mm = 1, < 50 = 2, < 150 = 3, < 500 = 4, < 1000 = 5, < 50000 = 6, < 10000 = 7, else 8
The ability to execute is an index created by combining an indexed measure of revenues, number of patents, employee count, and years in business. The calculated values of this index ranged between 20 and 4.
X: VISION INDEX= SEGMENT_COUNT_INDEX, IS_VENTURE_FUNDED, PRODUCT_SERVICES_INDEX, JOB_OPENINGS_INDEX
SEGMENT_COUNT_INDEX = count(number of segments)
IS_VENTURE FUNDED = +1
PRODUCT_SERVICES_INDEX = +1 if product, +1 if service, +2 if both
JOB_OPENING_INDEX = +1 if more than 5, +1 if skews Product oriented
The vision index is derived from how many segments they participate in, whether they are venture funded, whether they are in products, services or both, and how many job openings they have and of what type.
In my Magic Quadrant the clear leaders are the major US technology companies, GE, IBM and Honeywell. They are large scale integrators and innovators who are currently leading the installation of smart grid technologies around the world. Right behind them are the traditional meter companies who are making the transition to smart grid technologies. Outliers in the vision department are people who are pushing ahead with vision to redefine the energy industry. Silver Spring Networks is the most innovative company with their open design for grid networks that could make them the Cisco of the power grid. Gridpoint pioneered home grid integration with solar and distributed generation and they are now turning their gaze onto the grid itself, designing software and equipment to manage new infrastructure.
A lot of the companies in the lower center are new and still carving out their markets. Some of them are old suppliers for the industry which are trying to retool for new opportunity.
Future Activity
I think the major meter companies will be in acquisition mode for companies good at embedded tech and high tech approaches to communications. The meter companies traditionally created dumb mechanical devices to meter power and now they are in the business of creating highly connected network nodes.
I see a lot of the software focused companies, particularly those in AMI, consolidating or failing as de facto standards emerge. There are also opportunities in abstracting standards.
Silver Spring just got $70mm in funding from Kleiner Perkins Caufield & Byers and are signing lots of contracts and getting lots of buzz. I see them holding their own and becoming a major player in the next few years. Their approach to designing an open set of specs and communication standards and doing the legwork to get others to use them was very smart in a market that has not been open. They are applying metaphors and business models that have been proven on the internet to the legacy grid market. This is my favorite company of the batch, the Google of the bunch.
Gridpoint may see some huge success when the plugin hybrids show up en masse. They have high end consumer gear and software to take advantage of this market along with a lot of the consumer facing efficiency and home power networking. A lot of people will show up in this space but I think Gridpoint can establish a boutique, high margin brand . I see them holding their own and becoming the Apple of consumer power products.
The scale of AMI and grid projects is of such a magnitude that I think only giants like GE Energy, Honeywell and IBM have the resources and process to undertake them. I see these giants holding their place as the large scale integrator for these projects, acquiring hardware and software as they go.
Software companies who specialize in dealing with massive amounts of data also stand to see serious growth. Storage and analysis of data from consumer smart meters will require massive efforts and specialized software suites. Oracle is now in the game with the acquisition of Lodestar corp. Enterprise data giants will inevitably enter this space.
I think some exciting things may come from the open source community as consumers begin to experiment with new information about their own power consumption and price response / home automation scenarios. There will be very few bootstrapped garage startups in the smart grid industry but if they happen they will likely happen at this level.
In the end this is a massive growing market and there is plenty to go around. The US SmartGrid market is currently twice as big as the existing market for Solar power.