Navigant Research Blog

Smart Grid Vendors Pile On Distribution Automation Bandwagon

— 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.

Post-ARRA

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.

 

Utilities Aim for Brilliant Grids

— August 14, 2013

There are generally two types of smart grid deployments:  those with smart meters only, and those that also implement distribution automation (DA).  The first has an automated metering infrastructure (AMI), a grid populated with intelligent endpoints that transform the utility’s  data collection.  The second transforms the way a utility tackles outages (and improves grid efficiency) by automating the entire distribution infrastructure – from the substation down to the new endpoints.  DA is the brains and backbone that enables and controls a neural network of power distribution.

The U.S. Department of Energy’s Smart Grid Investment Grant (SGIG) program has transformed around 10,000 distribution circuits to date.  As the SGIG program nears completion, vendors and utilities are taking aim at hundreds of thousands of aging, poor-performing circuits across the world.  And distribution automation will play a crucial role in upgrading these antiquated systems.

The Navigant Research report Distribution Automation analyzes and forecasts the global DA market, covering switchgear, intelligent electronic devices, communications, and popular systems such as integrated Volt/VAR (IVVC/CVR), fault detection/isolation, and feeder protection/control (FLISR).  Navigant Research forecasts that global DA revenue will grow from $6.3 billion in 2013 to $11.3 billion in 2020.  Reliability, a theme throughout the report, is more relevant than ever as utilities and regulators try to strike a meaningful balance between cost and benefits for smart grids.

Upping the Value

In a recent blog, I wrote about the outages during the tornados in Oklahoma.  A regulatory filing from OG&E shows a guaranteed utility savings of over $10 million in 2013.  (Not bad, since utility benefit estimates tend to be conservative.)  DA deployments will also reduce outage times –saving OG&E customers many times that amount every year.  Reduced outage time is a real benefit, but because the benefit of avoided outages does not affect rates directly, they cannot be included in the formal cost/benefit business case.  The Oklahoma Corporation Commission tracks outage durations in Oklahoma, and will find some great benchmarking tools in the SGIG reports to estimate customer benefits.

Lessons learned from smart grid deployments, backed by billions in Department of Energy (DOE) grants and company matching, are being tallied and molded into available best practices.  At the 2013 Smart Grid Distribution Automation Conference chaired by Navigant Research, the DOE presented initial findings on reliability improvements.  Data from four projects showed that the average outage duration dropped 18%.  The DOE findings suggest how utilities and regulators could consider the value of reduced outages.  More specifically, the DOE suggests using a value of service (VOS) coefficient of $373 per hour (technically per kilowatt-hour) for customers in the commercial customer class (that’s up from $250 in my previous blog).  The VOS coefficient is a metric used to describe the estimated average customer interruption cost.  An 18% improvement in VOS – reducing the annual outage duration from 100 minutes to 82 minutes – results in a combined annual total VOS improvement of $45 million for 20,000 commercial customers with an average load of 20 kW.

VOS improvements justify significant investments in DA.  Such proven reliability improvements are likely to result in favorable rate case rulings for more utilities as regulators are directed by their bosses – the customers – to modernize an aging infrastructure and allow utility investments in grids that are brilliant throughout.

 

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