The recent power disruptions in the wake of Hurricane Sandy have renewed discussions about the future of smart grid transitions and infrastructure development in the US. These are not insignificant issues, weighing heavily on both energy efficiency, climate change, and economic opportunities from job creation to sector growth. But these conversations are not new, and the growth wave for smart energy solutions is still in its early growth stages globally.
We are about a year into iSuppli's five-year growth forecast for smart meter adoption which would support a doubling, from US $505.6 million in 2011 to $1.1 billion in 2016, in the semiconductor market due to the component content of the devices. The impetus behind this growth is rooted in very real demand and support from governments and utilities alike on a global scale, according to the same iSuppli report:
The original motivation for replacing conventional meters with smart meters was energy savings. However, a more compelling incentive is the instrumentation of the grid. With the use of smart meters, utilities finally will have a well-mapped grid that will enable them to plan electrical generation and manage their resources more efficiently.
The rollout of smart meters is being propelled by government support and regulations. For example, in the United States, stimulus money from the Smart Grid Investment Grant (SGIG) program is spurring the replacement of conventional meters with new smart models. Meanwhile, the European Union is targeting an 80 percent conversion to smart meters by 2020, representing shipments of 180 million units.
Moving towards smart
With the US presidential race over and Obama reelected for a second term, the likelihood is quite strong for the continued government and private sector investment and support of smart grid implementation along with renewable energy harvesting and supplemental funding of smart meters. This is good news for semi on multiple fronts.
Primarily, as presented above in last year's iSuppli report, the smart grid and smart meter sector is an important growth driver for the semiconductor and electronics industry for the present five-year period. The antiquated US electrical grid is woefully outdated, highly inefficient (loosing significant amounts of electricity in transmission alone), very susceptible to outages from physical hazards and difficult to maintain, as we have been reminded by Hurricane Sandy recently.
So, how do we eat this rather unruly, old elephant? Indeed, one bite at a time. What that means is that the transition from the present grid system in the US and Europe is going to be a slow and steady, meter-by-meter, relay station-by-relay station project. That is not a bad prospect for any of the involved industries as it allows for careful implementation, continual upgrades and improvements in situ to ensure that what is learned from one installation is improved and transferred to the next and/or parallel installations. Meanwhile, it allows for a steady growth in the industry for product manufacturers and for the component manufacturers and suppliers. All quite healthy and positive on a global scale, with 2Q12 having picked up momentum, as reported by Pike Research:
Smart meter shipments in the second quarter of 2012 picked up steam from a soft Q1. The total volume reached more than 17.9 million units, up nearly 19% sequentially. The big driver came from China, where the pace of shipments accelerated despite a slowing overall economy. The European market also expanded, as smart meter rollouts started to gain momentum in some countries, such as Spain and the United Kingdom.
Meter shipments in North America grew from the previous quarter as utilities continued to deploy devices for projects funded by the American Recovery and Reinvestment Act (ARRA), which need to reach completion by early next year.
The global nature of smart meter installations is important to appreciate because this ongoing growth opportunity is not restricted to the US, nor even to Europe, which is in the midst of greater forward momentum than the US, as Berg Insight underscores:
The installed base of smart electricity meters is forecasted to grow at a compound annual growth rate of 20.5 percent between 2011 and 2017 to reach 154.7 million units at the end of the period. The high growth rate will be sustained until the end of the decade as nationwide rollouts are completed in France, the UK and several other countries. A decision by Germany to introduce smart metering would extend the strong momentum for smart meters in Europe into the 2020s. At the end of Q3-2012, eleven European countries had developed regulatory roadmaps for the full-scale introduction of smart meters.
The emerging markets, and especially China among them, are similarly on a strong adoption track for smart meter installations despite economic slowdowns, according to Pike Research:
China accounted for the vast majority of global shipments [of smart meters], with 73% of the market. Chinese planners have apparently decided to forge ahead with major deployments despite a slowing economy, as a robust electric grid remains a key component of the country’s sustained growth.
What about the grid though?
To be sure, these exciting data points all center around smart meters, not the actual grid itself in any country or region. The grid question is a bit more tricky than standalone meters, but the meters are an important gateway to the transition to a smart grid network. Here, in looking at the myriad of smart grid evolutions, we open Pandora's Box and realize that while there is an equally rich opportunity in smart grid deployments, the number of microgrid and distributed generation solutions is likely also a dampening event. According to a separate research report from Pike Research:
Microgrids are beginning to move more into the mainstream of the power generation and distribution industry, with greenfield projects that include necessary (and quite substantial) investments in distributed generation (DG). Going forward, new microgrids will increasingly rely not only upon new DG installations, but also on other microgrid enabling technologies, including smart islanding inverters, advanced energy storage, internal forms of automated demand response (ADR), and other technologies. Pike Research views the microgrid as a building block of the ultimate smart grid designed to serve the needs of energy producers, consumers, and distribution utilities. As such, these enabling technologies will be critical to the success of smart grid projects in both mature markets and developing economies.
So, while in the US the smart metering projects are slowing, but may see renewed support with Obama's second term and renewed focus on energy efficiency, and other global regions continue their smart meter installations, the question of transitions to smart grids are really only about to dawn. There is certainly significant need for unified approaches and serious conversations leading to decisions by utilities in the respective countries, but those conversations will happen because the loss of over 20% in transmission alone is going to become far too costly to simply dissipate into thin air as it does today.
With these opportunities and challenges come significant gains for semiconductor and electronics companies because of the centrality of our components and products for realizing a smarter electrical and energy future globally.