Navigant Research Blog

Smart Grid Vendors Pile On Distribution Automation Bandwagon

Bob Lockhart — December 13, 2013

Possibly the biggest trend we see in our smart grid research is distribution automation (DA).  Unlike fads, this trend has some meat on it.  In Navigant Research’s report Distribution Automation, we stated two quarters ago that DA will be a strong driver of smart grid revenues.  And, we will update the story with soon-to-be-released reports on specific DA technologies, such as conservation voltage reduction (CVR), volt/var, and fault location, isolation, and service restoration (FLISR).

The move to DA is logical.  Utilities see large, potential benefits from more efficient distribution grids, and they don’t have to bother with engaging all those pesky customers.  Cynics have told me that the real reason that the American Recovery and Reinvestment Act (ARRA) funded smart meter deployments was to put in place a network suitable for DA.


While it’s a logical move, it’s also a risky one.  What’s going to happen when 10-15 vendors target the same market?  Supply and demand suggests that prices will commoditize in a hurry, long before anyone has had a chance to extract meaningful profits.  Electricity demand may be nearly inelastic, but the demand for grid software is anything but.  Meanwhile, there are heavyweight incumbents already in the DA space, including GE, ABB/Ventyx, and Schneider Electric.  Given that DA sales pitches will be made to operating managers, meter vendors will have their work cut out for them to dislodge those incumbents.

In 9 straight hours of briefings at European Utility Week 2013, I heard vendor after vendor tell me that their next move will be to support DA.  Nearly all the smart meter vendors point to DA as the next big market.

The elephant in the parlor is the end of ARRA funds.  However you feel about the politics, the Act stimulated an awful lot more smart meter shipments than otherwise would have happened.  Unfortunately, the coming and going of ARRA is starting to bear an uncanny resemblance to the late 1990s dot-com boom.  Balancing exponential growth in the short-term – which ARRA provided – with a long-term dominated by typical utility investment cycles would challenge the best corporate executives in the world.  Unlike the dot-com bust, the end of smart meter sales as an industry driver does not appear to have taken anyone by surprise.  There are still healthy smart meter deployments, as our recent report, Smart Meters, demonstrates.  And to their credit, AMI vendors are looking for the next move.

Annus Horribilus?

The problem is: they seem to have all come up with the same next move.  And that territory is already occupied by behemoths that will not easily surrender their markets.  The competition almost looks like David and Goliath, except David can’t find a rock for his sling.

One of the less optimistic briefings I received at EUW began with, “2013 was a bad year but 2014 is going to be a horrible year.”  And this is from a company that appears reasonably well situated to weather a storm.

Is there a shakeout coming in smart grid vendors?  Possibly.  Who will survive?  If I knew that, I wouldn’t be writing blogs.  But things look likely to change.  We are likely to see a new normal, shaped largely by smart grid vendors’ execution and their survival instincts.

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