Navigant Research Blog

Honeywell Steps into Smart Grid Fray with Elster Acquisition

— July 29, 2015

Honeywell’s purchase of smart meter maker Elster is a sign that the smart metering business still has some attractive runway for companies willing to endure the somewhat lengthy procurement process of utilities. The $5.1 billion deal gives Honeywell a solid global competitor for the next wave of smart grid investments.

The Deal

Honeywell is purchasing Elster from its current owner, Melrose Industries, a British investment firm that specializes in buying manufacturing businesses, turning them around, and selling them for a profit. In this case, Melrose did that after paying approximately $2.3 billion for Elster in 2012, suggesting a profit of nearly $3 billion. Melrose said it generated a 33% internal rate of return in the 3 years since acquiring Elster.

Here is what Honeywell is getting by purchasing Elster: a global manufacturer of gas, electricity, and water meters; communications equipment; and software solutions, including data analytics. It is also taking on about 6,800 employees of Elster, which is based in Mainz-Kastel, Germany. The company has operations in 39 countries, including the United States, the United Kingdom, and Slovakia. Honeywell is also taking on about $1.4 billion in pension liabilities.

Fits with Plans

While this move raises some eyebrows for its premium price, the acquisition fits with Honeywell’s stated plans last year that it would target some $10 billion to buy companies over the next 5 years. And while the smart meter business has slowed, particularly in the United States since federal stimulus money dried up, Elster has been active, picking up business in France as part of ERDF’s deployment of 35 million meters, and scoring a deal with CFE in Mexico earlier this year for about 300,000 meters. In addition, earlier this year, Elster launched an enhanced gird software platform called Connexo that integrates utility workflows, business processes, and grid data from multiple devices and vendors into a unified solution. According to Honeywell, Elster is attractive for several reasons: its high- and low-temperature burner products and residential heating components complement Honeywell’s existing business within its Environmental Combustion and Controls group; Elster’s presence in high-growth regions aligns with Honeywell’s strategy; and the existing Elster customer base presents an opportunity to cross-sell legacy products.

For Elster and its employees, the deal makes sense. Honeywell already has some synergies in the gas sector, and is no stranger to the way the utility industry operates. Elster’s electricity and water businesses give Honeywell a broader set of technologies it can leverage as those sectors grow in ways different from gas. Nonetheless, Honeywell will be facing some experienced meter manufacturers. Companies like Landis+Gyr, Itron, and General Electric are formidable global players, not to mention lesser known Chinese manufacturers, such as Holley Metering, that want to move beyond their domestic markets.  By acquiring Elster, Honeywell has the vehicle to be competitive now, and with skill can stay among the leaders as the market evolves.

 

British Gas-AlertMe Deal Signals More Home Energy Consolidation

— March 11, 2015

British Gas’ recent acquisition of AlertMe, a London-based provider of energy and home automation services, signals that home energy management and connected home technologies continue to attract significant investments. Utilities and others are seeking to provide consumers with new tools to more efficiently control energy usage and automate their homes.

The deal brings AlertMe fully under the control of British Gas, a subsidiary of Centrica, the leading energy service company in the United Kingdom. Prior to the acquisition, valued at about $68 million, British Gas was already using AlertMe’s platform. It had also been a strategic investor in AlertMe since 2010, owning about 20% of the company. British Gas leverages AlertMe’s technology for Hive, a service that enables the utility’s customers to control their home’s heating and hot water systems remotely using a smartphone, tablet, or web browser.

AlertMe was attractive to British Gas because its products and data services are used in 500,000 homes. What’s more, the platform is interoperable, able to connect disparate devices like thermostats or door locks made by different manufacturers. And AlertMe supports a range of networking protocols, including Z-Wave, ZigBee, Wi-Fi, and cellular, giving it flexibility.

Still a Crowd

The acquisition has implications in the U.S. market, as well. Home improvement retailer Lowe’s has used AlertMe technology as the underlying software platform for its Iris connected home service since 2012. AlertMe will continue to support Lowe’s and its Iris customers. Also, since British Gas’ parent Centrica owns Direct Energy, one of the largest residential energy retailers in North America, British Gas expects to offer the AlertMe technology and service to those customers as well.

In a wider context, this acquisition by British Gas underscores the increasing importance companies are placing on home energy management and the connected home. France-based utility GDF Suez recently invested $7.2 million in Tendril, a Colorado-based company specializing in cloud-based technology for personalized energy services. GDF Suez intends to use the Tendril technology for customers in Europe. In addition, solar panel manufacturer SunPower has invested in Tendril, committing $20 million to the company and agreeing to license Tendril’s technology. Similarly, Sunnyvale, California startup Bidgely, a firm specializing in energy customer engagement and analytics, has gained traction, winning new deals for its cloud-based technology with Texas-based utility TXU and Illinois-based ComEd.

Nonetheless, the energy management-connected home space is still quite crowded, with big non-utility players such as Google (Nest), AT&T (Digital Life), and Samsung (SmartThings) making plays and a number of smaller energy tech firms, such as EcoFactor, Ceiva, ecobee, and Tado, trying to compete as well. Consolidation is at hand, and we can expect to see similar deals as the market matures.

 

Busy Start to 2015 for Smart Grid Companies

— January 22, 2015

Smart grid companies must have gotten their wishes granted during the holidays, because they are in a sharing mood to kick off the new year.  A burst of merger and acquisition and partnership activity shows that the ecosystem is growing and there’s enough room for everyone to get a piece of the bigger pie.

Trilliant and Innovari announced the completion of interoperability testing of the Innovari Interactive Energy Platform (IEP) and the Trilliant Smart Grid Communications Platform (SCP).  This combination enables utilities to improve operations and benefit customers with a shared communications infrastructure for smart grids.  The Innovari IEP provides automated demand response (DR) for commercial and industrial customers.  The Trilliant SCP complements the IEP with a two-way communications network to deliver grid situational awareness that enables real-time demand side management and the integration of distributed renewable energy resources.

Analytics and Engagement

Silver Spring Networks acquired longtime partner Detectent, which provides software to improve advanced metering infrastructure and utility grid operations, ensure revenue protection, and deliver enhanced customer engagement programs.  Detectent’s utility analytics solutions will be offered both as a standalone solution or powered by Silver Spring’s smart grid big data platform, the SilverLink Sensor Network.

Schneider Electric, meanwhile, announced two recent partnerships.  The first is a partnership with PlanetEcosystems to provide utility service providers with Efficiency Advisor, an integrated suite of software-as-a-service customer management offerings.  Combining Schneider’s Wiser Home Management system with PlanetEcosystems’ P-ECOSYS customer engagement platform, Efficiency Advisor will offer features like behavioral usage efficiency, home usage reporting, personalized recommendations, and an energy marketplace for customers to find contractors and financing options for energy efficiency programs.

Schneider’s second announcement involves a partnership between its European DR division, Energy Pool, and Hyosung, a South Korean industrial conglomerate, to offer DR in the newly opened South Korean marketplace.  Energy Pool will provide its DR expertise and manage operations, while Hyosung will tap into its network of industrial partners and provide IT support.

Just Couldn’t Wait

Often, companies will wait for the DistribuTECH conference to make big announcements about partnerships and new technologies, but these deals apparently couldn’t wait.  They’ll be discussed at this year’s DistribuTECH in San Diego, running February 3 to 5.  Last year, the theme at the conference seemed to be data analytics, as vendors showed how they can extract usable information from the plethora of data now available from meters and devices.  Based on these early announcements, it appears that the one-word summary for this year’s conference will be “interoperability.”

Now that the analytics are available, vendors are realizing that they likely can’t offer all possible analytical tools for utilities on their own, so collaboration will be necessary.  Whether that is through mergers and acquisitions or partnerships, I expect this trend to continue and am sure there will be more announcements at DistribuTECH from those who held back their surprises.

 

CPower Reemerges as a Demand Response Player

— December 15, 2014

In October, I wrote about the announcement that Comverge and Constellation would combine their commercial and industrial demand response (DR) businesses into a standalone entity.  The questions were: What would the new company be called?  Would they take one of the existing names?  Combine the two names?  Come up with something new?  Instead, they brought back a familiar brand: CPower, the name of the DR provider that Constellation bought 4 years ago.

But this is not your mother’s CPower, according to Chris Cantone,  the company’s senior vice president of sales and marketing.  The C in CPower carries multiple meanings aside from the lingering brand recognition: the combination of Comverge and Constellation, customer engagement, and curtailment services.  “The market has been excited about the announcement, and our channel partners have been waiting for an independent DR provider,” Cantone told me in a phone interview.  The company is still in a little bit of stealth mode as the behind-the-scenes business combination unfurls, but expect a media splash in the near future.

Divide and Succeed

What value does this new structure bring to the parties involved? Cantone says that the future of DR will entail greater technical requirements, which were hard to fulfill under a larger organization like Constellation.  CPower can be more strategic and proactive on its own, while maintaining a preferred provider relationship with Constellation for its customers.  From Comverge’s perspective, there was a lack of synergy between its utility-focused residential business and its market-focused commercial and industrial business, so it made sense to split them up and allow them to build to their own strengths.

So was Constellation’s purchase of the original CPower 4 years ago a mistake?  No, asserts Cantone.  It was an invaluable experience for the old CPower DR experts to get immersed in the energy markets and learn how DR fits into the bigger picture on the wholesale side with generation and the retail side with customers’ energy procurement strategies.   Additionally, the 2011 deal was the move that set in motion the trend of larger energy entities investing in the DR realm, as Johnson Controls bought Energy Connect, Siemens bought Site Controls, Schneider bought Energy Pool (in Europe), and NRG bought Energy Curtailment Specialists.  Will those combinations survive?  Cantone thinks they will have to deal with the same issues that Constellation did, and we will have to see who can find internal solutions and who sets DR free.

The Real Threat

Regarding business strategy, the initial intent is to focus on the existing markets in the United States, like PJM, ERCOT, NYISO, ISO-NE, and California.  An expansion into utility programs could be the next growth step, followed by selective entry into the burgeoning international arena.

I contacted executives at EnerNOC to get their take on what looks to be their strongest competition, but they declined to comment .  In the meantime, EnerNOC and CPower may find common ground to combat the potential disruption from the court drama over FERC 745 to remove DR from the wholesale markets, which could affect them more than any amount of friendly competition could.

 

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