Navigant Research Blog

C3 Wins Big with Italy’s Enel

— October 14, 2014

While the details are slim, C3 Energy has revealed that it has been selected for a $64.4 million deal to provide professional support services and software as a service (SaaS) solutions to Italy’s largest electric utility, Enel.  Of that sum, $18.3 million will be subcontracted, leaving about $46 million in deal value for C3.  The news was published in the EU’s Tenders Electronic Daily (TED).

C3 is a Redwood City, California-based utility analytics solutions provider started by Tom Siebel, founder of Siebel Systems.  Enel has some 32 million meters, implying a deal value of around $2 per endpoint, assuming the company’s entire grid is included.

The news follows on C3’s May win with Baltimore Gas and Electric, which is deploying the company’s revenue protection and advanced metering infrastructure (AMI) operations analytics solutions across its 2 million meters.  In June, Northeast Utilities contracted with C3 to deploy its Energy Customer Analytics platform.  The customer engagement platform will inform customers about the specifics of their energy use and provide custom recommendations for energy conservation.  Northeast Utilities has 3.6 million customers across Connecticut, Massachusetts, and New Hampshire.

Second Act

The Enel deal, however, dwarfs these stateside contracts, and should go a long way toward establishing C3 in the European utility market.  Enel’s was the first major nationwide AMI program worldwide; the rollout began in 2001 and deployment was completed in 2011.  This new contract provides further validation of the C3 solution, which was only launched in 2009.

C3’s solution is notable for its SaaS model, which hasn’t been fully embraced by utilities.  Over the past year or so, however, the model has been adopted by a number of big utility vendors, such as Itron, with its Itron TOTAL solution.  AT&T is also promoting a managed service offering for AMI.  C3 says that utility silos are breaking down and that its solution’s machine-to-machine learning capabilities are ideal for applications like predictive maintenance.  The company also offers analytics solutions for asset management, cyber security, and demand response, among others.

Perhaps the larger lesson from the Enel news is that Tom Siebel – who became a billionaire after selling his Siebel Systems to Oracle – is no one-hit wonder.  Anyone who can survive being stomped and gored by an elephant is not to be taken lightly.

 

Ericsson Resurges in Smart Grid Market

— October 7, 2014

Swedish telecom giant Ericsson was fairly active in the smart grid communications market a number of years ago; in particular, the company was involved in a number of WiMAX- and LTE-based smart meter deployments in Australia.  More recently, Ericsson has been notably absent from the space, especially in North America.  It looks like that hiatus may be ending.

On October 1, Ericsson closed on its buy of Newton, Massachusetts-based Ambient Corp. for $7.5 million.  Ambient will be integrated into Ericsson’s Global Services division.

Ericsson has reportedly also hired a former DNV EMA utility expert and acquired a grid management company in recent months; competitors say they are starting to see more of Ericsson in the North American market.  The company is a major supplier of LTE infrastructure to the wireless industry; it appears likely that the Ambient buy will support additional efforts to promote the use of the 4G wireless technology for smart grid networks.

Lost Luster

Ambient made a splash in the smart grid comms arena a few years back when it was awarded a product award at the Utilities Telecom Council (UTC) 2011 Telecom Forum. The UTC Product Awards is an annual competition highlighting the best in critical infrastructure industry technology.

Ambient’s smart grid communications solution combines multiple communications technologies – including RF mesh, cellular, power line communications (PLC), and Wi-Fi – into a single node, providing flexibility to utilities needing a variety of solutions due to topology or coverage issues.  In 2013, Ambient announced its nodes had been certified for the Verizon LTE network, and by the middle of that year Duke Energy had deployed nearly 200,000 of those nodes.  In mid-2013, Ambient also announced a contract with Con Ed for commercial and industrial (C&I) metering.

Ambient proved unable, however, to leverage the early hype around its solution and its Duke relationship for sales growth.  The company, which was publicly traded prior to its July bankruptcy filing, reported less than $600,000 in revenue in the March 2014 quarter, down from nearly $5 million in the prior year period.  The company lost nearly $18 million in 2013 on sales of $11 million.

Future-Proof?

Ericsson’s interest in promoting LTE’s place in the smart grid communications market isn’t surprising.  While LTE is generally considered an expensive solution for smart grid applications, utilities are increasingly worried about the longevity and flexibility of their communications networks – and LTE provides low latency, security, and signal prioritization features that should ensure its ability to handle just about any smart grid application that’s deployed in the next 20 years.

Both AT&T Wireless and Verizon Wireless are aggressively courting the utility vertical with their cellular solutions, including LTE, and one meter vendor representative recently told me that it sees LTE as the future of smart grid communications.  If that’s the case, it seems Ericsson will be joining the competitive fray.  And with the backing of Ericsson, Ambient could be able to get some much needed traction in the marketplace as well.

 

In Slowing Market, Echelon Exits Smart Grids

— September 16, 2014

The market for smart grid technology is still growing — in fact, Navigant Research expects it to grow from $44 billion this year to more than $70 billion in 2023 — but that doesn’t mean it offers easy money for vendors.  In fact, among smart meter vendors in particular, the recent slowdown in demand following the boom years under American Recovery and Reinvestment Act (ARRA) stimulus funding in the United States and several large European deployments is prompting consolidation along with speculation that there is more to come.

San Jose, California-based Echelon announced on August 21 that it is exiting the smart grid market to focus on its Industrial Internet of Things (IIoT) division.  Linz, Austria-based S&T AG will acquire Echelon’s smart grid division for modest consideration — according to SEC filings from Echelon, it will receive in the neighborhood of $5 million before expenses related to the deal; debts associated with the division will also be assumed by S&T.

From S&T’s point of view, the deal is attractive in both financial and strategic terms.  S&T will form a new company, along with unnamed financial investors, and spend approximately $3.3 million (€2.5 million) for 40% of the company, implying an enterprise value of just more than $8 million, or about 0.3 times run-rate revenue for the division.  That low multiple reflects the 52.7% decline in smart grid revenue that Echelon suffered in 2013 versus 2012 and its reliance upon a small number of customers.

In contrast, publicly traded Itron, which has also been the subject of recent deal speculation, is valued by the market at 1 times run-rate revenue.  Considering typical acquisition premiums for technology businesses (typically 25%-50%), one could argue that Itron’s value in a sale would be north of $2.5 billion, or between 1.3 and 1.5 times run-rate revenue.

Head East  

A large IT solutions and services company, S&T has recently expanded its offerings in the smart grid space.  It has a solid presence in Central and Eastern European markets where Echelon’s power line carrier technology is likely to be dominant for smart meter deployments.  Whereas many Western European meter projects are well into the deployment process (or at least in the request for proposal stage), several Central and Eastern European governments have committed to Europe’s 20-20-20 initiative and smart meter deployments, but major utilities have not yet made significant commitments to vendors.

At least one Wall Street analyst expects additional consolidation among smart grid technology vendors.  Louis Basenese of Wall Street Daily reported on August 18 that more than $30 billion in smart grid deals have occurred over the past 2 years.  Of course, GE’s $17 billion buy of Alstom Grid will add substantially to that sum, but Basenese believes both Itron and Silver Spring Networks are presently attractive, largely because of their patent portfolios.

Unfortunately, Echelon appears to have been forced to sell at what may be a nadir in the market for smart meter business — but considering the growth ahead for smart grid technology deployments, I would agree with Basenese that more deals are likely to emerge.

 

Utilities Warm to Cloud-Based Smart Grid Analytics

— August 5, 2014

Managed services for smart grid applications — also known as smart grid as a service (SGaaS) — haven’t exactly lit a fire under utility executives.  Despite the numerous advantages to outsourcing non-core activities like communications, software applications, monitoring, etc., many large utilities, citing security, control, and economics, prefer to keep these functions in-house.

But as smart grid deployments extend beyond the largest utilities, it seems likely that organizations constrained by finances or personnel will be obliged to consider the SGaaS model if they want to take full advantage of smart grid technology.

Vendors are repackaging their solutions in a spectrum of managed offerings, from hosted to managed to full business process outsourcing.  And cloud service providers, including Amazon, Microsoft, and Google, are actively courting utilities’ business.

On July 14, Itron announced that it has selected Microsoft’s Azure cloud platform for its managed Itron Analytics solution.  Microsoft Azure will maintain the infrastructure, allowing Itron and its customers to focus on the analytics.  Itron says its analytics solutions can be installed locally, run by the utility in the cloud, or operated and managed as part of Itron’s Total Services.

The Whole Enchilada

Itron’s Total Services boxes up the metering, communications, and meter data management, along with analytics, in a fully managed offering.  In other words, Itron will not only turn the knobs, but will also respond to the information coming in.  Texas New Mexico Power (TNMP) in Lewisville, Texas engaged Itron to provide meter data analytics for its 230,000 meters earlier this year.

TNMP told me that “a smart meter can trigger hundreds of alarms; our staff may not have the expertise to best respond, whereas Itron’s analysts do have that proficiency.”  TNMP is also working with ABB’s Ventyx unit for an outage management system (OMS) that will be hosted and administered by Ventyx.

Hefty Growth Ahead

Navigant Research’s report, Smart Grid as a Service, forecasts that the SGaaS market will grow strongly over the next decade.  Our forecast includes a host of managed services for utilities, including home energy management, advanced metering infrastructure (AMI), distribution and substation automation communications, asset management and condition monitoring, demand response, and software solutions and analytics.  We expect to see a $1.7 billion market in 2014 growing to more than $11 billion in 2023.  Software solutions and analytics sold under a software as a service (SaaS) model are the largest category of SGaaS spending today, followed by AMI managed services.

Annual SGaaS Revenue by Category, World Markets: 2014-2023

 

(Source: Navigant Research)

Challenges to the model do remain, however.  Most notably, the rate of return model that most investor-owned utilities work under encourages them to make their own capital and personnel investments.  But for smaller utilities (e.g., cooperatives and municipals here in the United States), the speed with which solutions can be deployed, and the absence of large upfront investment, will be attractive.

 

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