Navigant Research Blog

Innovation Is Booming in the Water Industry

— April 9, 2014

As part of the events to mark World Water Day, the United Nations (UN) has launched a new report highlighting the challenges of ensuring an adequate global water supply over the coming decade.  In particular, the World Water Development Report focuses on the growing interdependency of water and energy.  The report looks at the water industry’s energy requirements for production, distribution, and treatment, as well as at the growing demand for water resources from the energy industry.

We have written about the impact of the growing global demand for water before, but the World Water Development Report yet again highlights the challenges ahead.  According to the report, water demand will increase by 55% by 2050, with the biggest impact coming from the growing demand from manufacturing (400%), thermal electricity generation (140%), and domestic use (130%).  More than 40% of the global population is projected to be living in areas of severe water stress through 2050.

Countries, cities, and communities need to improve their ability to assess and plan for future water needs.  However, developing new water supplies, storage facilities, or treatment plants will remain a hugely expensive endeavor, and so the industry must look to technologies that can mitigate the need for capital investment by improving the efficiency of existing systems and maximizing the benefits of new investments.  For this reason, we are seeing a host of innovative technologies and solutions targeted at the water industry.  Entrepreneurs and developers from the IT, telecom, and smart grid sectors are now looking to water as the next industry where they can make a major impact on the way the business operates.  This opportunity is attracting a wide range of technology and service suppliers, including established water metering vendors, water network engineering companies, water service companies, infrastructure providers, IT software and service companies, and a variety of startups and innovators.

The recent World Water-Tech Investment Summit in London gave me a good opportunity to survey a range of companies.  Among a host of other innovators at the show were companies we looked at in our Smart Water Networks report, including TaKaDu, which has been pioneering the use of cloud-based analytics for leak detection.  Also present was i2O, which is providing water utilities with an intelligent pressure management solution that also uses cloud-based advanced analytics, but integrates them directly into the pressure management system.  Other companies new to me included Acoustic Sensing, a U.K. startup that has developed a new acoustic sensing solution to allow the rapid identification of structural defects and blockages in sewerage systems; Syrinix, another U.K. company that provides intelligent pipe monitoring systems for burst detection and pressure monitoring, among other applications; IOSight, an Israeli-based company providing advanced business intelligence and data management for the water industry; and Optiqua, which provides sensor networks for real-time water quality monitoring.

Keeping Afloat

While there is no shortage of innovation in the industry, it is still a challenge to find ways of investing in new technologies in a heavily regulated industry.  With no stimulus funding or mandated smart meter rollouts to boost the market, the industry needs to find other ways to finance innovation.  One option is the use of a software-as-a-service (SaaS) model to defer capital expenditures and reduce resource needs.  For example, both TaKaDu and i20 provide their software as a cloud-based service.  Innovative approaches to regulatory and investment programs will also be important.  In the United Kingdom, OFWAT is currently working with the country’s water utilities on the next regulatory pricing period, to run from 2015 to 2020.  The aim is to increase the ability of utilities to invest in water metering and other networks’ management technologies.

The smart water market is attracting a wide range of new players and presenting established players with the opportunity to expand their business into new areas.  Both sets of players face challenges in an industry that is hungry for change but also conservative in its operations and restricted in its financial options.  As stated in our Smart Water Networks report, while there are strong drivers for growth, the challenges of transforming a conservative industry faced with a physically and technically challenging deployment environment mean that the growth in this market will always be steady rather than explosive.  However, the direction of travel is clear.


U.K. Takes the Lead on Smart City Standards

— March 5, 2014

One of the important goals for smart cities in 2014 is the identification and development of appropriate standards to help drive innovation and cross-sector cooperation.  I’ve written previously about the City Protocol as a groundbreaking effort in this area.  Now the United Kingdom has launched its own smart cities framework.  Developed under the aegis of the British Standards Institution (BSI) and with the support of the Department for Business, Innovation & Skills (BIS), the standards have been developed by a group of stakeholders from U.K. cities, government, and suppliers.

Smart City Framework – Guide to Establishing Strategies for Smart Cities and Communities has been developed as a guide for city leaders developing a smart city strategy, with an emphasis on practical steps and a conceptual framework that will help them measure progress.  It draws on a series of workshops and stakeholder engagements over the last year, as well as best practices drawn from other international projects.  Significantly, it’s also based on the 29 submissions made by British cities for the £24 million ($38 million) Future City Demonstrator project, which was awarded to Glasgow in 2013.

I gave a presentation on the smart city market at one of the inaugural workshops for the new standard last spring.  At the time, I was impressed by the enthusiasm shown by both cities and suppliers, but I was also concerned that discussions seemed to be taking the initiative down well-trodden paths around local government processes and IT initiatives.  Important as these issues are, in isolation they do not capture the much broader opportunities or the challenges that the smart city concept presents.

Off the Trodden Path

Fortunately, the framework as presented goes a long way toward addressing those concerns.   It was even more reassuring to hear how the cities involved in early testing of the framework have been using it.  At the launch event in London at the end of February, smart city project leaders from Birmingham, Glasgow, Leeds, and Peterborough talked about how they have been employing the framework to build collaboration not only across city departments but also with a wide range of external stakeholders, including energy companies, water companies, and transport providers.  It has also helped boost their work on developing open data platforms and building developer communities to use that data to develop innovative applications for the city.

The framework is the latest in a number of programs to encourage smart city development in the United Kingdom.  In addition to the Future City Demonstrator program, the government has established the Future Cities Catapult, “a global centre of excellence on urban innovation” in London, and has launched an initiative to help U.K. businesses target a £40 billion ($64 billion) global smart city market opportunity.

Over the last 2 years, the United Kingdom has gone from being a laggard to a pacesetter in smart cities.  While other national governments are realizing the need to support urban initiatives, the United Kingdom is now helping to lead the way.  This is a significant step forward that should be of interest to all cities beginning their smart city journey.


Dynamic Pricing Moves From Theory to Practice

— December 10, 2013

Dynamic pricing is one of the key elements of the smart grid proposition.  Efficient market signals provided through dynamic pricing allow consumers to adapt their behavior to grid conditions and utilities to balance the grid while integrating a growing amount intermittent renewable energy.  Consumers are also promised lower electricity costs as they optimize their usage, and energy companies avoid having to pass on the costs of new infrastructure investments.  Completing this virtuous circle, dynamic rates incentivize consumers to adopt sophisticated energy management systems and smart appliances that can automatically control household loads in response to energy prices and grid conditions.

Dynamic rates can be seen as part of a continuum of rate structures that have time-based components.  These include time-of-use (TOU) rates, demand response (DR) programs, and other event-based incentive structures.  However, true dynamic rates that vary according to grid or market conditions introduce another level of flexibility in terms of matching energy supply to demand.

Slow Ahead

Thus it’s important to assess the progress being made toward the provision and adoption of dynamic tariffs for electricity.  While the theoretical arguments for dynamic pricing may be strong, their actual implementation is progressing slowly.  According to Navigant Research’s Dynamic Pricing report, despite considerable pilot activity, less than 1% of U.S. consumers currently have access to dynamic rates.  Moreover, that number is not expected to rise significantly over next 2 or 3 years.  According to the report, without a change in approach, less than 1% of U.S. consumers are likely to be on dynamic pricing programs by 2020.

Progress in this market is impeded by strong counter-forces, including consumer advocacy groups concerned about the impact of lower-income customers, utilities worried about disruption to existing business models, and regulators wary of taking a lead on the introduction of new rates.

This caution has wider implications. Many of the DR programs currently being trialed in Europe, for example, depend on sophisticated dynamic pricing models that can help balance an energy supply heavily dependent on distributed renewable energy.  Regulatory drivers in Europe may be different, but there is still uncertainty about consumer response and the ability to deliver programs that meet the needs of all stakeholders.

Dynamic pricing’s role in energy demand management is also mirrored in other parts of the cleantech market.  One of the principal motivations for many cleantech innovations is to account for the true cost of the resources we use and to design pricing models appropriately.  The transport sector, for example, is seeing a growing interest in pay-as-you-go models for road use charging as well as more flexible tariffs for parking.  The lesson from the energy market is that dynamic pricing may be theoretically attractive, but it is also highly disruptive of established businesses models and consumption patterns: moving from interesting pilots to large-scale availability will not be automatic.


As Momentum Slows, Europe Seeks New Smart Grid Boost

— November 8, 2013

Europe continues to be home to some of most innovative and ambitious smart grid pilots in the world, but the dangers of ‘pilot-itis’ are looming large.  Evidence of real-world, large-scale distribution automation upgrades or other smart grid innovations are hard to find, and it’s likely we won’t see any breakthroughs until the economic recovery is assured across much of Europe.  Waiting for an economic upturn is not enough if Europe is to meet its targets for 2020 and to provide a boost to its energy and engineering industries.  The European Union, national governments, and regulators need to take a fresh look at progress on smart grid modernization and be more active to ensure the momentum is restored.  Innovative regulatory regimes like the RIIO model in the United Kingdom are vital – but they’re just a start. Innovative projects need to evolve into concrete strategies for grid modernization.

The need to inject greater urgency into Europe’s smart grid programs was a common theme at the European Utility Week conference in Amsterdam.  The annual gathering of utilities and supplies is always a good opportunity to assess the current state of Europe’s smart meter and smart grid market.  Last year,  in the middle of the eurozone crisis, there was a palpable sense of relief that the crisis seemed to be having a limited impact on smart meter and smart grid programs across Europe, even if there was clearly a slowing down.  This year there was a more evident sense of frustration that progress had continued to slow.

The United Kingdom and Beyond

Suppliers with a foothold in the U.K. market were the most positive.  The announcement of the contracts for the GB Smart Metering program has been a significant boost to the industry – and winning suppliers like CGI and Sensus could rightly celebrate their success.  Meter suppliers like Landis+Gyr, with its strong relationship with British Gas, can also take encouragement from the United Kingdom’s progress, even if the end date has now been pushed back to 2020.

The French program, on the other hand, is still some way off, despite continued reassurance that it will go ahead.  The suppliers I spoke to were also taking a more negative view than I did in my recent blog on the German government’s decision not to mandate a roll out of smart meters.

It would be wrong to paint too gloomy a picture. In addition to the GB program, the Nordic countries are also progressing.  The roll out of smart meters is almost complete across the region, with Norway and Denmark now filling out the map.  This of course makes it of less interest to smart meter vendors, but it does mean the region is becoming an important test bed for the real benefits of smart meters and for next steps in terms of grid optimization.  We are starting to see interesting projects emerge for home energy management, advanced demand response, and distribution optimization.

Vienna Enters the Real World

The intersection of smart grid and smart cities also continues to be a focus for new projects.  A good example is the new smart city/smart grid project launched by Siemens and the Austrian utility Wiener Stadtwerke.  Details of the €40 million ($55 million) project were presented during the Smart City session that I chaired at the conference.  Based in a new development outside Vienna, the Aspern Smart City Research Program will be more expansive than most European smart grid and smart city pilots.  The development will eventually support a community of up to 20,000 people by 2030, including living and working environments.  It will involve a host of smart grid, smart city, and smart building technologies alongside an integrated approach to spatial design, energy strategy, and mobility planning.  The project team is particularly intent on testing these technologies against the real living experience of people at work and home.

Aspern could offer a roadmap for how Europe can move from small-scale pilots to real-world integration of smart grid and smart city technologies.  As I wrote in a blog last year, Europe has the opportunity to be a leader in many areas of the smart grid, but all parties need to ensure there is real substance behind the ambitious visions.


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