Navigant Research Blog

First Signs of the 2G Smart Meter Movement

— December 5, 2016

ControlsSince the initial installation of smart meters in Italy began in 2001, the adoption of these smart devices has grown rapidly among industrialized nations throughout the world. Traditional electromechanical meters, along with automatic read meters, are now quickly being phased out in lieu of this newer technology. Italy, through its monopoly utility Enel, helped pioneer this movement through the deployment of 32 million smart meters across the country. Now, 10 years after the initial project completion, Enel is set to roll out a fleet of second-generation smart meters that will help kick-start the nascent upgrade and replacement market.

First Generation

Enel began its foray into smart meters back in 2001 with the commencement of its Telegestore project. Completed in 2006 at a cost of $2.87 billion, this project saw the installation of approximately 30 million smart meters for Italian households and businesses. Additional deployments have brought this total to approximately 32 million today. The success of the project contributed to the advancement of the smart meter movement, as it provided a valuable template for other utilities looking to get their feet wet. During implementation, Enel reported that 80 utilities had visited the company to gain insights into the Telegestore project. Ultimately, this project helped demonstrate the feasibility and financial and operational benefits that smart meters can provide to the utility industry.

Second Generation

In the fall of 2017, Enel will begin the process of replacing its fleet of 32 million smart meters with its new Enel Open Meter. This decision is being driven by increased smart meter performance and functionality, as well as dramatically lower costs since Enel’s initial go-around. This new technology will offer faster changes of supply, the elimination of fixed time bands, and the availability of data on electricity use. Also under the umbrella of this project is Enel’s fiber-to-the-home initiative, which will see 224 towns across Italy connected to ultrafast broadband at a cost of over $2.8 billion. The utility is beginning to invest in this innovative communications solution due to the vast reduction in fiber thickness realized over the past decade, meaning Enel will mostly be able to avoid digging up streets for installation.

Looking Forward

The smart meter market is still primarily driven by first-generation installations. Global penetration of smart meters is expected to hover around 30% by the end of 2016, leaving over 1 billion traditional devices still in the field. That said, the combination of shorter smart meter lifecycles and rapidly growing penetration will help advance the update and replacement market in the coming years. Some activity is already being seen with utilities like Arizona Public Service and Salt River Project, but until large volumes of smart meters near the end of their lifecycles, the market will remain limited. Italy, through this large-scale upgrade project, should provide a valuable case study for other utilities to examine the costs and benefits of a relatively early replacement project.

 

Unraveling Germany’s Smart Meter Strategy

— November 4, 2016

Power Line Test EquipmentWith smart meters quickly becoming the norm for grid operators and utilities, Germany presents an interesting case study given the country’s hesitance to adopt this smart grid technology. Western Europe has distinguished itself as one of the global leaders in smart meter deployments. Buoyed by nationwide deployments from countries like France, Italy, Sweden, Spain, and the United Kingdom, the region is quickly advancing the business case for smart meter technologies. While many of the most affluent nations within Western Europe have initiated large volume deployments already, Germany has been largely hesitant to jump on the bandwagon.

This changed in July 2016, as legislation was passed that will kick-start smart meter activity within the country, though careful attention must be paid to the details, as this rollout deviates significantly from traditional deployment strategies seen elsewhere in the region. According to the recently enacted Digitisation of the Energy Turnaround Act, Germany’s smart meter rollout is finally set to commence. Years in the making, the country’s approach is unique given its selective deployment and tiered installation schedule.

Starting in 2017, large consumers with average annual consumption in excess of 10,000 kWh will be required to install smart meters. This threshold will be lowered to 6,000 in kWh in 2020, which applies to approximately 15% of electricity consumers. The majority of German households will remain unaffected given that average consumption hovers around 3,500 kWh. For households where smart meters are not required, utilities will still maintain the option to supply this technology to its customers, though the meters are subject to a cost price cap of 40 euros per year. While the overall program is set to last until 2032, some types of consumers and operators will be required to have rollouts finished before the end of 2024.

A Considered Approach

This resolution is long-awaited as Germany has struggled to justify the need for smart meters. In the summer of 2013, Germany’s Federal Ministry for Economics and Technology contracted with Ernst & Young to perform a cost-benefit analysis relating to a nationwide deployment of smart meters by 2020, in line with European Commission target deadlines. The study concluded that such a mandate was not economically beneficial and instead recommended a selective rollout similar to the country’s aforementioned strategy. While industry advocates may view Germany as dragging its feet on the issue, the country is taking its time to carefully study the implications of installing smart meters in a country with over 50 million households and businesses.

One of the benefits to this approach is the availability of more technologically advanced smart meters on the market today relative to the more primitive smart meters installed in Italy and some of the Nordic countries during earlier rollouts. Given the typically shorter lifespan of smart meters relative to traditional electromechanical meters, some of these European countries are already expected to be looking at upgrades or replacement units in the coming decade. While many in the industry have long touted the benefits of smart meters, Germany is taking a responsible approach in studying the overall implications and has a clear and rational basis for delaying nationwide implementation.

 

Smart Meters Industry Consolidation Continues with Xylem’s Sensus Acquisition

— August 25, 2016

MeterOn August 15, Xylem, a global water technology company, announced that it had acquired Sensus in an all-cash transaction worth $1.7 billion. Sensus is a global provider of smart meters (with 80 million metering devices in the field), network technologies, and advanced data analytics, with a focus in North America. The company’s roots lie in the smart water metering business, though it maintains a significant installed base in electric and gas utilities. Some of Sensus’ notable electric advanced metering infrastructure (AMI) deployments include Southern Company, NV Energy, Portland General Electric, Alliant Energy, and Cleco Power LLC.

Industry Consolidation

As markets have matured and smart grid technologies have evolved, new industry motivations such as interoperability and deep integration among technologies have emerged, as evidenced by a string of recent industry consolidation transactions. Aclara made headlines in December 2015 with its acquisition of hardware provider GE Meters. This was quickly followed by another acquisition of Tollgrade communications earlier this month. Additionally, Honeywell completed its acquisition of Elster’s metering business in January of this year. The Xylem/Sensus transaction is just the latest example of industry consolidation, and it sets the company up to be a major player in the smart water market.

Smart Water Market

While smart electric meters have traditionally maintained the lion’s share of smart meter coverage, higher penetration rates and increasing concerns over water security offer growth potential for smart water meters and associated technologies going forward. With the low cost of water that many of us experience today, it’s easy to take this increasingly scarce resource for granted. Yet, the United Nations is expecting a 40% shortfall in water supply by 2030. This alarming prediction is the product of a variety of factors—growth in energy and food consumption, wasteful irrigation practices, inefficient pricing, industrial growth in emerging economies, and pollution and water quality issues, among others. All of this is suffice it to say that responsible water management through the use of smart meters and advanced data analytics among other technologies is going to play an increasingly vital role in global security—an opportunity that Xylem is now primed to take advantage of.

Sensus has traditionally been focused on North America with limited international deployments; nearly 70% of the company’s 2016 revenue was generated in the United States. This may be set to change as Xylem has highlighted its expansive customer relations and ability to extend the reach of Sensus’ technologies to new global markets. Combining the capabilities and scope of these two companies sets Xylem up for strong growth potential and the opportunity to be a global leader in smart water technologies moving forward.

 

Middle East Set to Embrace the Smart Meter Revolution

— August 5, 2016

ControlsThe smart electric meter market has largely been centered in North America, Europe, and isolated pockets of Asia Pacific since the technology’s inception. As more countries within these regions reach high smart meter penetration rates, the focus will soon turn to areas with less established markets such as Latin America, wider areas of Asia Pacific, and the Middle East & Africa.

The Middle East in particular is forecast to see a significant increase in smart meter installations over the next several years. With a population base of over 315 million, the region presents a lucrative market opportunity for smart meter vendors, meter data management software providers, and system integrators, among others. While this market currently remains in its infancy, an array of projects and initiatives across the Middle East are quickly addressing this untapped potential.

Projects Across the Region

One of the larger projects in the Middle East comes from Lebanon and its state-owned utility, Electricité Du Liban (EDL). EDL has announced plans to covert 1.2 million electric meters to smart meters as part of a $200 million modernization and expansion plan. Iran is expanding upon a limited smart meter trial with an additional 360,000 smart meters. Announced in April of this year, this project will provide smart meters to high demand customers and will contribute to the country’s ultimate goal of installing 33 million smart meters. It’s also worth noting that the region’s neighboring country of Egypt has announced plans to convert up to 4 million electric meters per year to smart meters until 2024. This nationwide transition plan will see an estimated 30 million smart meters installed over a 10-year period. Other Middle Eastern countries with smart meter projects or plans include Pakistan, Kuwait, Saudi Arabia, and Iraq.

It’s clear that the smart meter market is set to grow significantly across the Middle East in the near term. There are a variety of market drivers behind this, such as theft and revenue protection, rising urbanization rates, improved operations and reliability, among others. While the rise in smart meter installations is valuable in its own right, this activity also lays the foundation for additional smart grid and distribution automation technologies. While the majority of the Middle East still relies on traditional grid technologies, the region has now reached a point where a smarter and more reliable grid is both feasible and within its grasp.

 

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