Smart Grids Opportunities for Transmission and Distribution Equipment Suppliers

March 3rd, 2010

Smart Grid Analysis believes Smart Grids, as they evolve, will require a new breed of transmission and distribution equipment with entirely new capabilities. As a result the situation that T&D equipment makers find themselves in could be game changing. Smart Grid requirements for T&D equipment are such that they could reshape the T&D equipment industry in profound ways. When the telecommunications “revolution” in the U.S. began in the 1980s, there were three dominant suppliers of equipment to the telephone utilities; AT&T Network Systems, GTE and Northern Telecom. The first of these is now essentially part of the French company Alcatel; the two other firms are out of business. No one at the time would have guessed at such dramatic changes. Could the advent of the Smart Grid bring such changes to the T&D equipment firms?

“Green tech,” Smart Grids and equipment: In the so-called Smart Grid, Smart Grid Analysis believes that a number of factors have come together to create important new opportunities for the established Transmission and Distribution (T&D) equipment industry and even to open up to the market for new entrants. The most visible of these opportunities stems from the idea that the deployment of Smart Grids can improve the environment. This will have important positive revenue implications for T&D equipment makers who will increase their business in Smart Grids that include (1) high-performance grid overlays and interconnects to bring renewable power to population centers and (2) equipment that supports the variable nature of renewables when they are connected to the grid; the latter has been a major problem in the wind power industry, for example. The Smart Grid is also often presented as a way of reducing carbon emissions. The T&D equipment company ABB has, for example, made much of its involvement in the Smart Grid being deployed in Stockholm Sweden, which is largely being presented as a salve for carbon emissions.

Automation and Smart Grid equipment: However, the opportunity for T&D equipment makers in Smart Grids is actually much bigger than Smart Grid’s image as part of “green tech” might suggest. Quite apart from environmentalist concerns there are important reasons to build better reliability, efficiency and security into the grid. The big drivers here, of course, are the growing number of outages, the post-9/11 fear of terrorist attacks and today’s high cost of energy, which promotes the need for efficiency.

The opportunity here is for T&D equipment makers to incorporate the latest IT, control and automation into the Smart Grid and the opportunity here is made that much larger because, by common consent, the state of communications and IT in power grids as they now stand is quite primitive. The goal for Smart Grids, however, is that they will eventually deploy a comprehensive Internet Protocol (IP) based communications suite that will facilitate substation automation, distribution automation, energy management systems, congestion and grid stability, monitoring equipment health, energy theft prevention, and control strategies support. (This is not intended as a complete list). Advanced communications in the grid is also obviously important to enable the consumer energy monitoring that is at the heart of many utilities’ Smart Grid strategies.

While T&D equipment manufacturers must obviously take into consideration the growing “smarts” in the Smart Grid, no traditional T&D company is likely to want to enter the communications equipment or sensibly could. The converse is also true. Many of the big companies that are entering the Smart Grid business today have communications as their core business – Cisco and Verizon, for example – but these companies clearly have no intention of getting into the T&D equipment business as such. Nonetheless, T&D equipment sold in the future will increasingly need to embody the interfaces and control subsystems that make Smart Grid functionality possible. This is potentially a market differentiating feature for them.

Smart Grids, equipment and open markets: Deregulation and privatization are seldom associated with Smart Grid developments. However, in practice many of the functions – such as enhanced reliability and sophisticated monitoring capabilities – that will be expected from T&D equipment in the future as the result of Smart Grid developments will enable utilities to compete more effectively. In addition, more sophisticated energy markets will require very high capacity transmission “highways” across which this trading will take place. These “highways” are also part of the Smart Grid concept and would presumably be constructed using HVAC and HVDC transmission equipment.

We think then that the Smart Grid story can easily be transformed by T&D equipment manufacturers into a story about how by buying certain kinds of equipment, the utilities will be able to improve their bottom lines. In fact, we believe that many projects that are clothed in a Smart Grid image are more precisely characterized as a grid upgrade required by highly competitive conditions.

A new breed of T&D equipment: The bottom line is that the much touted “Smart Grid” will have a profound impact on T&D equipment firms that manufacture the equipment used in the transmission and distribution (T&D) infrastructure. Conductors, transformers, circuit breakers, switches, substation equipment and other grid equipment will all have to take on new kinds of functionality. In fact Smart Grid Analysis believes that a new breed of T&D equipment is likely to emerge as the result of Smart Grid deployments. This “new breed” of equipment will be distinguished in the marketplace from older T&D equipment by offering one or more of the following (somewhat interrelated) capabilities:

• Real-time monitoring and diagnosis capabilities

• Automated responses to grid failures

• Equipment automation and remote control

• Plug-and-play interconnection of new generating facilities

• Integration of wind and solar generation into the grid

• Enhanced consumer energy management and demand/response models

• Enhanced security requirements

• Advanced communications/software interfaces

Technologies for T&D equipment in the Smart Grid: It is important to realize that these kinds of features will make the T&D equipment of the future very different from that being sold today. For this to happen T&D equipment makers will have to integrate entirely new technologies in to their equipment.

Some of these are new materials technologies. Of especial importance in this regard are HTS superconductor materials and composites that are proving in as ways to boost the capacity of the transmission systems. Superconductors, in particular, have already shown that they can be used to create very high capacity transmission lines, fault current limiters (FCLs), transformers and other T&D systems of strategic importance. To make superconducting systems make economic sense for utilities at the present time, some kind of government subsidy is usually required, but our sense of the market is that superconducting technology is not that many years from holding its own at least in certain strategically important niches.

Of even more importance is the new generation of equipment that is being built around the latest power electronics. This equipment includes both FACTS and HVDC systems. In both cases, some of this equipment has been out in the market for a while, but we expect the next generation of these systems to be significantly more sophisticated and to sell in greater numbers.

Finally, the Smart Grid concept strongly implies that the Grid will adopt a much more sophisticated level of IT deployment than it ever has before. This is not something that T&D equipment makers are likely to become directly involved in. However, they will have to accommodate this development, both in terms of providing the sensors that serve as the senses of the new types of Smart Grid equipment and in supporting the emerging software interfaces and standards (including security standards) that are just beginning to emerge.

Sources of Revenues for T&D Equipment Industry

Smart Grid Analysis believes that the trends outlined above will create important new revenue opportunities for equipment firms that understand what the Smart Grid will require of them and their products. Indeed, the changes in the grid are expected to be revolutionary enough to produce major shifts in market shares among existing suppliers and to enable new firms to enter the T&D equipment sector. Essentially, we expect the revenues that will pay for new equipment to put in place from Smart Grids to come from three sources:

• Utilities seeking to upgrade existing grids. It can be expected that utilities will exploit the current fervor over Smart Grids to tap shareholder, bondholder and government sources to carry out much-needed grid development, whether or not such improvements really fit the usual definitions of Smart Grids. Obviously, as utilities pursue this upgrading strategy, they will have to increase capital expenditures on new T&D equipment.

• Utilities seeking to add-value to traditional electricity grids. The Smart Grid concept enables power companies (at least potentially) to grow their revenues through services that they have never offered before. The most obvious example here is smart metering, but one could also imagine them becoming involved with installing home area networks (HANs) or offering communications services over the power lines. Additional equipment would need to be added to grow the businesses of power companies in this way, but only some of this would be T&D equipment. In addition, while this expansion of the markets available to the traditional power company fits quite well with the Smart Grid as currently conceived, it is by no means certain that power companies will do well selling these services. A cautionary tale can be seen in the telephone companies’ hopes that the development of broadband networks would let them into the content development business.

• Governments who see Smart Grids as a way of pursuing certain policy goals. Governments – especially in the U.S. have variously seen the Smart Grid as a platform for job creation and improved national security, as well as a way to stimulate business and engineering innovation and increase the percentage of energy that is supplied by renewable energy. There is now doubt that some of the more innovative Smart Grid projects would not exist if it was not for government subsidies. Thus the installation of T&D equipment that uses high-temperature superconductors – for better or worse — would probably not be happening now if it weren’t for government subsidies.

However, while government funds are certainly an enabling factor in the deployment of Smart Grid, they must also be measured against shifting political realities. For example, in some part of the world (notably Germany) subsidies for renewables are being phased out and this could impact the need to integrate renewables as a justification for Smart Grid. In addition, some of the more extravagant claims currently being made for Smart Grids – that they spur innovation and job growth, for instance.

As all of the above suggests, we believe that there is a high potential for T&D equipment firms to reap a significant windfall from all of the current fuss about Smart Grids. At the same time, we also believe that it would be all too easy for T&D equipment firms to become the victims of hype. If (probably when) they do, it will be easy for equipment firms to overshoot what the market really demands.

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The Green Jobs Myth Exposed

February 26th, 2010

Nice piece today in the Washington Post about the false assumptions people are making about the impact that “green” tech will have on job creation. In fact, as the author so clearly shows, Smart Grids will likely eliminate jobs that are not quite so productive in favor of something else.

What might those jobs be and what skills will be called for in the future?

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A New Image for the Smart Grid: Not So Green Any More?

February 23rd, 2010

An article in the Wall Street Journal a couple of days back points out that it’s going to be a long time before renewable energy sources are going to make a dent in our demand for energy. Meanwhile, the global warming establishment has an intellectual meltdown and cash-strained governments begin to rethink their subsidy strategies for solar and wind power.

Is “green tech” passé? If so, maybe it’s time to stop selling the Smart Grid as “green” and pursue a different image. Here is a suggestion then. Let’s move from green tech to high tech. For example, we could emphasize what – given time – solar power could become. Not timid little environmentally friendly condos with limited government subsidized power, but, instead, majestic solar thermal towers and nano-engineered PV panels offering 30-40 percent conversion efficiencies.

The Smart Grid’s role in all of this would be as a reliable super transmission highway, based on EHV DC lines, perhaps using superconductors or perhaps even nanotube wires. This highway would carry power from where it is most optimally generated to where it is most needed. This might mean transmission across the country or across the globe.

This is all hype of course (or at least most of it is), but so is all the stuff about green tech. Hype is not always good; it creates bubbles. Still, a budding industry needs a bit of hype to sustain it, doesn’t it? To win converts and convince investors.

I submit that creating an upbeat high-tech image for the Smart Grid – one that sounds more like the image that created huge entrepreneurial opportunity that was the Internet – may now be better way to go than an image which constantly emphasizes how we live in a world of limitations.

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Watch it Get Nasty: The Coming Battle for the Soul of the Smart Grid

February 8th, 2010

As someone who began his career as a communications network watcher I have been pleased to see an end to that old war; the one between the “netheads” and telephone company traditionalists. Netheads love all things Internet, Ethernet and (above all) distributed. The telephone companies in their old guise, anyway, liked all the power to be centralized in their hands.

The netheads won, of course. It is probably too early to be sure quite why; there was certainly plenty of money on both sides. (And plenty of casualties too.) One factor that surely gave the netheads an advantage was their nimbleness. The netheads ran rings around the telephone companies; for example coming up with networking standards that suited their interests in months while the telco-centric International Telecommunications Union deliberated over standards for years.

Nimbleness may have also contributed to the fact that the netheads were the first to catch on to and exploit the fact that much of the real value in the new networking technologies lay in their inherent distributed intelligence. The business opportunities were much closer to the customer than they had ever been and they were virgin territory for the netheads to explore. The centralizers in the telephone companies were – by the very nature of their ideology – either prevented from seeing this or (when they did see it) prevented from using it for their shareholders’ gain.

It seems to me that we are about to see history repeat itself. As the battle between centralizers and distributors in the telecom network retreats into industry mythology, a very similar conflict is looming in the Smart Grid. The decentralizing nature of the Smart Grid is, I believe, beyond question. It is intended to put more power (both electrical and personal) in the hands of the customer and to enable and incorporate a much more geographically and technologically diverse set of generation options. From a business perspective, the Smart Grid, if it evolves successfully, will create markets for sophisticated power management and generation equipment much closer to the customer; markets that have never existed before.

This is not a shift that will be welcomed by the power industry. At the recent NIST Smart Grid conference that I attended a power company executive made the point that he thought that the world would be a better place if we didn’t get too carried away with ourselves and that we should let the power companies take care of what they knew best. He said things would be better if control in the Smart Grid remain centralized. He said that three times. You could tell he was worried.

So here is the problem in a nutshell. A business analysis of the Smart Grid concept suggests that the value to be extracted by entrepreneurs lies in the Smart Grid’s propensity for a distributed architecture. At the same time, the power companies are going to hang onto their power with all their might. That is, after all, what powerful interests do. This exactly what happened in the telecom industry and the weapons of the battle that is brewing in the power industry may be very similar to those in that older telecom battle. Safety and the need for reliable standards will be emphasized by the powers that be. Meeting the needs of customers and the need to deploy new technologies will be stressed by the powers that wannabe.

Don’t expect this to be a gentlemanly disagreement. It certainly wasn’t in telecom; the battle was hard fought in courts, in the legislature and in regulatory bodies. Often it got quite nasty. In the U.S. it resulted in the complete overturning of the law governing telecommunications. Perhaps something similar will happen in Smart Grid too.

And don’t expect this to be a short fight. Whatever the proximate technological and economic reasons for the victory of the netheads in the telecom arena, a generational change was also part of the story. The managers running the telephone companies “surrendered” to the netheads because they too were netheads. If the same scenario pans out in the Smart Grid, think 20 years before the issues that I have just discussed are resolved.

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Jevons and Smart Metering

February 2nd, 2010

A nice piece at http://www.triplepundit.com/2010/02/will-consumers-get-smart-with-smart-meters/ reminds me how little we know about how consumers will actually behave when they get smart meters installed. One particularly interesting possibility, not mentioned in that article, is that smart metering will come under the spell of Jevons’ Paradox.

Jevons was one of the founders of mathematical economics and also a co-inventor of the concept of marginal utility. Jevons’ Paradox is one of his lesser known contribution and says that “greater efficiency in utilizing energy usually leads to greater consumption.”

This sounds paradoxical. But what Jevons based his observations on was consumer response to increased steam energy efficiency. The original Newcomen steam engine was just 0.75 percent efficient, but with James Watt’s improvements this leaped to 4 percent. Coal consumption then fell, but just for a short time. Engineers and entrepreneurs soon found new things that they could do with the more efficient steam engine. Newcomen’s engine was used primarily for pumping water out of mines. Watt’s engines were used in to drive machines in factories, run steamships and (most famously) drive railroad trains.

This is not an isolated example. Another that is especially relevant to our current circumstances is the “Energy Star” program started back during the Carter Administration, again an era when people worried a lot about cutting down on energy consumption. Judged by the goal of increasing the energy efficiency of household appliances, Energy Star has been an outstanding success; refrigerators are more than twice as efficient as they were back in the Carter era, for example.

But the point of the Energy Star was not increasing energy efficiency per se, rather reducing energy consumption by households. And in that, Energy Star, has not been a success. Rather than cut down on the energy they consume, consumers have used the savings from appliance efficiency increase to finance more appliance purchases. The market penetration of air conditioning has doubled since 1980. Microwaves are in 90 percent of homes, compared with about 15 percent of homes in 1980.

As maddening as it will be to crazier kind of environmentalist, people like to have stuff, lots of stuff. Gee! Who knew? And this should tell us something about what is going to happen if smart metering ever succeeds.

Here then are two predictions for a world in which smart metering has proved effective. Following the parallel of the two examples mentioned above, expect consumers to find new uses for the energy “saved.” Good news for the appliance industry. Second, if consumers see their increased purchasing power as coming from intelligent metering, they might want to distribute this advantage throughout their homes and offices; good news for the (currently tiny) Home Area Network (HAN) market.

But don’t rush out and buy appliances or networking stocks just yet. It is far from proven that metering will lead to increased energy efficiency. In California consumers have complained that it actually increases their bills.

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Superconductors Play Vital Role in the Smart Grid

February 2nd, 2010

Superconductors and their Role in the Smart Grid

High-temperature superconductor (HTS) cables can carry an order of magnitude greater power than traditional cabling and conduct electricity at near zero resistance. Smart Grid Analysis believes there is considerable potential for this new type of cabling to be deployed in the power grid to increase grid capacity, integrate renewable energy, and enhance reliability and security, all key requirements of the Smart Grid vision.

Despite this potential, the future of superconductors in the grid is uncertain and will depend on several factors, most importantly the continuation of subsidies and technical improvements in the superconductors themselves.

more

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China is Different

January 29th, 2010

A recent announcement that the Chinese government will spend $7.3 billion on Smart Grid technology in 2010 (http://www.smartmeters.com/the-news/791-china-tops-smart-grid-stimulus-funding-in-2010.html) has attracted attention, if only because this is slightly bigger than the comparable figure for the U.S. Department of Energy suggesting somehow that the Chinese government are the biggest investors in the Smart Grid.

Our take on this, however, is that rather than look at just the numbers, it is important to understand that the business opportunities in the two countries are rather different. In the U.S., at the NIST conference last week, for example, much was said about advanced metering and grid communications, while China (understandably) has more basic things in mind; often just installing the monitoring and security that are already common on grids elsewhere. In addition, most of the equipment the Chinese will be using in the early phase of their Smart Grid deployment, including phasors and substation automation devices, will be produced locally.

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Grid Standards Development May Not Be So Smart

January 28th, 2010

In response to Salon’s piece:

Report: Government Smart Grid Standards Process Slowing Down the Market

NIST did not produce a “final version” of Smart Grid standards this month. It produced a Smart Grid standards roadmap; vital to the standardization effort but much easier to do than producing actual standards. When I was at the NIST Smart Grid conference last week, no one – no one at all — suggested that we were anywhere near having standards. Interoperability and security standards, in particular, have a long way to go.

This in no way reflects on NIST. Standards are hard things to produce and there are obviously a lot of highly competent people at NIST. But this does not prove that going through NIST is the obvious way to speed up standards development.

Where on earth did you come up with the idea that developing technology standards take longer to “form naturally in private markets.” The past 25 years of standardization in the telecommunications industry has been one in which the process has been speeded up significantly by the active leadership of professional societies, or informal groups of companies.

I think the above would now be regarded as a relatively uncontroversial statement in the telecom community and I would have thought that Smart Grid advocates would have wanted to emulate what has happened in telecom, because of telecom’s huge success. In any case, as we point out in our report, giving NIST primacy in this area is a new development. Historically, standards for most new electrical technologies in the U.S. have been produced by members of the National Electric Manufacturers Association (NEMA), not NIST. And NEMA has typically produced workable standards in the span of under a year.

None of this is meant to suggest that government shouldn’t be involved in Smart Grid standards setting. In fact there are legitimate national security issues with which it must be concerned. And whether one likes it or not government funding of Smart Grid projects does give government a strong moral argument for a seat at the table. But making everything happen through NIST – a bureaucratic government agency – makes us feel that Smart Grid standards making is not going to hit the ground running.

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Writers Needed

January 28th, 2010

We are looking to develop relationships with freelancers to produce articles and white papers.  If you are interested or know of someone with superior writing and analytical skills please be in touch:

http://smartgridanalysis.com/contact.php

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New Report from Smart Grid Analysis Sees Slower Market Development in Smart Grids due to Government Policies and Regulations

January 27th, 2010

January 27, 2010

Glen Allen, Virginia: Smart Grid Analysis (SGA), NanoMarkets’ group dedicated to analyzing emerging market and technology opportunities within Smart Grids, has just issued a new report that analyzes the impact that government policies and regulations are likely to have on Smart Grids in the coming years.  The report notes that while government agencies are providing the funding for Smart Grids, it is also government agency involvement in standards setting and interoperability is likely to slow the markets’ development leading to calls for deregulation and open competition within the next few years.  Additional details about the report are available at

www.smartgridanalysis.com

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