Navigant Research Blog

Smart Meter Projects Crank Up for 2016 and Beyond

— February 26, 2016

Control panelThe smart meter market is picking up new momentum as 2016 unfolds. Announcements for a number of significant projects and partnerships signify an expanding market, which bodes well after a somewhat sluggish past few years.

In the United States, New York utility Con Edison has chosen Aclara to provide nearly 5 million electric and gas meters as part of its advanced metering infrastructure (AMI) deployment. Con Ed will utilize Silver Spring Networks‘ technology for its communications network, and IBM was selected as the IT system integrator. The Con Ed approach is unique for its view of what a modern utility could look like, and the utility is driving this initiative at a time when New York is rethinking its energy future under a plan known as the Reforming the Energy Vision, or REV. Con Ed’s plan includes the capability for easier integration of renewable energy sources, gaining real-time grid insights, and reducing and repairing outages more quickly, according to Eric Dresselhuys, Silver Spring’s executive vice president of global development. The Con Ed project still awaits final regulatory approval, but it does have the green light to begin backend IT work in anticipation of installing meters starting in early 2017.

Another smart meter project of note is the one announced recently by Memphis Light, Gas and Water (MLGW). The largest U.S. three-service public utility, MLGW selected Honeywell (which acquired Elster in December 2015) as the provider of one million electric, gas, and water meters to be deployed over the next 5 years. The utility will install the meters using Honeywell’s Elster EnergyAxis smart meter technology in a deal valued at $200 million.

Projects Worldwide

Outside the United States, Mexico’s state-owned utility Comision Federal de Electricidad (CFE) has awarded Landis+Gyr a new contract to supply an AMI system in the states of Campeche and Quintana Roo in CFE’s Peninsular Division. The deal calls for Landis+Gyr to supply its Gridstream AMI solution, including a radio frequency (RF) mesh network and nearly 96,000 advanced meters. The main objectives of the system upgrade are to reduce non-technical line losses, improve efficiency, and enhance service delivery to high-use customers. The project is part of CFE’s long-term plan to install a total of 30.2 million smart meters by 2025.

In South Asia, two major Pakistani utilities have finished the rollout of 50,000 smart meters, according to MicroTech Industries (MTI), a Lahore-based technology vendor. In addition to supplying the three-phase meters, MTI also handled installation, implementation, communications, and hosting services for the projects at the Peshawar Electric Supply Company (PESCO) and the Multan Electric Power Company (MEPCO).

In Europe, utility E.ON and technology provider Siemens have announced a partnership to develop and deploy smart metering technology solutions for the German market. The country is in the midst of preparations to install smart metering beginning this year as part of a new overall energy mix plan. The two companies plan to offer their expertise, with Siemens’ EnergyIP application platform serving as the technical component for their joint offering.

There is still plenty of runway left for the deployment of smart metering technology, and projects continue to unfold across the globe. These advanced metering solutions form the backbone of grid modernization, which leads to greater efficiencies and help underpin Navigant’s Energy Cloud vision of a decentralized grid. Expect many more similar smart meter projects to be announced over the remainder of this decade and beyond, as noted in Navigant Research’s Smart Meters report.


Cities Seek a Bigger Say in the Energy Market

— February 26, 2016

Bangkok SkylineNavigant Research estimates that the market for smart energy technology for smart cities will be worth almost $21 billion by 2024. Early smart city and smart grid projects focused on the city as a site for technology and market pilots, with utilities taking the lead role. As documented in the Smart Energy for Smart Cities report, cities are now taking a more proactive role in the evolution of local energy provision. Cities are becoming active players in their energy markets, collaborating with their existing utilities where it makes sense but also becoming increasingly willing to challenge and even compete with those traditional providers. This is becoming particularly evident in the United Kingdom.

In February, Bristol became the latest U.K. city to launch its own community energy company. Bristol Energy is owned by the city council and run for the benefit of the whole community. As well as offering competitive energy deals, the company’s objective is to reinvest any profits to fight fuel poverty and support locally generated renewables. It also aims to increase low-carbon energy generation in the city and to eventually manage a new district energy network for the city.

Increasing Initiatives

Bristol is part of a wave of initiatives to form new city-owned energy companies in the country. In September 2015, the Nottingham City Council established Robin Hood Energy, the first non-profit city-owned energy company in the United Kingdom since the nationalization of the industry in 1948. The country nationalized and centralized its energy grid and market after World War II and since then has had no equivalent to the myriad of municipally owned utilities found, for example, in the United States or Germany. The process of deregulation and privatization in the 1980s created a clear split between the transmission, distribution, and retail markets, with the retail market led by the Big 6 energy suppliers. The new city energy companies have been established within this market structure and in response to some of its perceived weaknesses, not least of all a lack of local influence on the market.

Other major cities in the United Kingdom are considering setting up their own energy company alongside other initiatives such as the establishment of new energy service companies and increased investment in district energy networks. The Greater London Authority, for example, is in the process of establishing itself as a junior energy supplier, which will enable the city to support renewable energy generation and provide energy to local public bodies at an attractive rate. Some advocates are calling for London to go even further and follow the same path as Bristol and Nottingham.

A Worldwide Trend

Beyond the United Kingdom, this trend echoes broader moves by cities worldwide to be more active players in defining their energy future. In some cases, this is leading to a move toward remunicipalization (as in Hamburg, Germany), but this is not the only path for cities looking to accelerate their energy transition. Many are working in close partnership with their local utilities to drive the adoption of renewables and to introduce energy efficiency schemes.

Utilities cannot be complacent. The continued interest in smart city ideas reflects a new confidence and impatience among city leaders as to the pace of improvement on a range of issues including energy policy. If existing energy markets and utility models are not helping them achieve those goals, then we can expect to see more cities challenging the status quo.


Untapped PEV Potential in Germany

— February 26, 2016

EV RefuelingAll things equal, Germany’s market for plug-in electric vehicles (PEVs) should be struggling a lot more than it currently is. Unlike other large automotive markets in Europe and across the globe, Germany provides no purchase subsidies for PEVs, and the incentives it does offer are relatively benign. However, despite the government’s lack of interest, Germany’s PEV market share in 2015 edged out the U.S. PEV penetration rate of just less than 0.7%.

To be fair, Germany does provide some special incentives for PEV owners that include special parking, bus lane access, and an exemption from the annual motor vehicle tax (or circulation tax) for 10 years. The tax is based on engine displacement, fuel type, and emissions characteristics, so the total tax liability will vary as shown in a 2012 study on European vehicle taxes.

The study compared six internal combustion engine (ICE)-powered vehicles across European Union member states; in Germany, the annual circulation tax per vehicle ranged from €17.5 (~$19) to just under €468 (~$515). PEVs are most commonly found in small vehicle classes and compete against the most fuel efficient ICE-powered vehicles, which means this exemption would likely equate to savings near the €17.5 figure, which represented the tax liability estimate for a Fiat 500.

The value of the exemption is irrelevant when compared against the premium for PEV technology and the thousands of dollars in tax credits doled out by the U.S. federal and state governments, tax exemptions in Norway, or other grants, rebates, and credits in the United Kingdom, France, China, and so on. Yet somehow, in 2015, Germany’s PEV market share beat the United States, Japan, and most other developed and developing countries.

A Western European Trend

Much of Germany’s 2015 PEV success can be attributed to the fact that it is a Western European country—2015 PEV sales in Western Europe more than doubled 2014 figures. PEV availability throughout the region expanded considerably, and the consistently low oil prices that have been said to be pushing some consumers away from hybrids and PEVs in the United States have had only a marginal impact on actual retail fuel prices in Europe.

However, if the German government has actual interest in meeting its 1 million electric vehicles by 2020 goal, it cannot solely rely on its current package of incentives and indirect market forces. So far, only about 50,000 PEVs have been sold in Germany since 2010 (when the goal was announced); to get to 1 million in 2020, the market has to grow by more than 80% annually for the next 5 years.

Hitting 80% growth annually would put the German PEV market at 450,000 sales in 2020, which is over 14% of the country’s vehicle market in 2015. A large jump no doubt, but it’s not all that unbelievable in Europe, where most national markets more than doubled in 2015 and PEV market share just missed 20% in Norway and 10% in the Netherlands. Of note though, these figures don’t happen in isolation; PEV incentives in Norway and Netherlands are some of the best in the world.

Germany appears to be registering this and is reportedly mulling PEV incentives of over €2 billion (~$2.2 billion) in the form of a €5,500 (~$6065) purchase incentive. If Germany adopts an incentive and its market is as sensitive to these incentives as its neighbors are, the €2 billion could go fast.


Gamesa Acquisition Could Stir Up Wind Turbine Vendor Dynamics

— February 24, 2016

Der Rotor wird angesetztSince early February, Siemens, Gamesa, and other stakeholders have been in talks exploring the potential for Siemens to acquire the Spanish turbine vendor. Should this come to pass, it would be a huge change to the top global wind turbine vendor dynamics. Vestas’ position as the number one turbine vendor would surely be challenged and more likely surpassed by a larger Siemens. 2015 project installation numbers are still being compiled, but Vestas led annual installations in 2014 with 12.3%, followed by Siemens with 9.9% and Gamesa with 4.7%.

The strongest reason for this acquisition is that Siemens’ wind business is weakest in the areas where Gamesa is strongest, such as India, Mexico, and Brazil. These are the key countries that Gamesa pivoted to when its home market in Spain collapsed in 2012 and 2013 due to austerity measures and energy policy reforms that terminated wind price supports.

In 2014 yearly installation figures, Gamesa had 21.5% market share in Brazil, just behind General Electric’s (GE’s) 22.2%, while Siemens was in fourth place with 15.7%. In Mexico, Gamesa was the market leader with 72.6% market share, followed next in line by Vestas, while Siemens had no installations. In India, Gamesa led market share installation in 2014 with 32%, outperforming India-based Suzlon at 28%—and again, no Siemens installations.

Smoothing the Bumps

These three countries are important growth markets for turbine vendors, and diversification across geographies helps vendors smooth out booms and busts driven by changes in country energy policies. Market diversification is precisely why Nordex of Germany is in the process of acquiring Spain-based Acciona’s wind turbine business, which not coincidentally is also strong in the Latin American markets. A Siemens acquisition of Gamesa could even be viewed as a strategic counterweight against the Nordex acquisition of Acciona. This is a similar example of a turbine OEM with concentrated strength in Northern Europe acquiring another vendor in order to diversify business and cushion overreliance on limited European markets.

Gamesa and Acciona are also, arguably, homeless. While both companies have always had strong export strategies, they have not had the benefit of the strong home markets enjoyed by most of their competitors. Preliminary Navigant Research data shows zero new installed wind capacity in Spain in 2015.

Gamesa has enjoyed success in the U.S. market, but it has lagged behind the big three of GE, Vestas, and Siemens. Again looking at 2014 installation metrics, Gamesa had only 4% of U.S. market share compared to Siemens at 20.7%  (although it should be noted that Gamesa inked 518 MW of orders for the U.S. market in the second half of 2015 and continues to secure healthy sales). However, the company has sharply reduced its manufacturing and supply chain presence in the United States and now relies on exports of nacelles from Spain and outsources blades and towers. There is not much supply chain overlap with Siemens in the United States, which has substantially more manufacturing presence in the country.

Offshore is probably the most fascinating and problematic area of overlap. Gamesa is in a 50/50 joint venture (JV) called Adwen with French company Areva. Adwen’s technology is based on Areva’s geared medium speed technology (formerly Multibrid). This is a proven and competitive drivetrain with 600 MW installed in 2015, and there is over 1 GW of orders booked for projects outside of France. It would be difficult to imagine the JV continuing as-is if Gamesa was acquired by Siemens, which is already the world leader in offshore wind. Adwen could continue solely as an Areva company, but this would be challenging, and a replacement partner could be a wise choice.


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