Smart Grid Sector Consolidation Drives R&D for Integrated Solutions

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The consolidation phase is underway in the fragmented smart grid sector. Smart meter deployment is capturing most of the attention but it masks the scramble underway to bring together the technology, expertise and scale needed to make smart grid profitable and make those meters ‘used and useful’ enough to warrant the cost.  Tension between customer benefits and smart grid costs is a healthy contest for the next stage after the smart meter first wave passes.

Smart grid business fragmentation is typical of early stage tech evolution.  It has been driven by the lure of Federal stimulus money but that is changing. The focus of larger, deeper pockets smart grid players is now shifting to scalable solutions realizing the promise of smart grid for both business and end-user customers requires scale.

The result is a quickening consolidation in the smart grid space with market leaders snapping up products and technologies to offer more complete solutions to customers—and beat competitors to the best new technology.  This too is a very healthy place for smart grid to be since it substitutes rational business investment for growth and profits for the Federal subsidy and grant driver that has so far been the focus of smart grid.

Strategies for Smart Grid Consolidation

The strategies being used by these large scale smart grid players include:

  1. Accelerate R&D to leverage government money and university participation to speed new technology development and access to the expertise to deliver it;
  2. M&A deals to buy up the best in class products and assemble more complete solutions;
  3. Build market share and market diversity positioning for scalable growth.

MIT weighed in recently calling a solid state transformer for smart grid optimization one of the ten most important new technologies of 2010. That transformer is one of the projects from the North Carolina State University FREEDM Systems Center.  FREEDM stands for Future Renewable Electric Energy Delivery and Management, a research collaboration formed in 2008 with an $18.5 million grant from the National Science Foundation and now supported in part by smart grid giants ABB, GE and Duke Energy.

It makes perfect sense.  ABB’s North American headquarters is in North Carolina.  While I was a division president at the Ventyx predecessor company Global Energy Decisions we bought the wholesale energy software business line from ABB and turned it into our operations suite.  After Ventyx was formed and bulked up with additional acquisitions, ABB bought Ventyx and is using it as the platform to consolidate all its software and data driven solutions across that company.  Why? Because allowing each engineering group in ABB to develop its own silo software products guarantees the same fragmentation inside the company that it face across the energy industry.  Smart grid requires massive scale, interoperability of software and technology solutions, and a big picture view of the energy industry transformation underway.

That same acquisition strategy is being played by GE and Duke Energy in their own plans to position their companies for scalable growth.  It makes sense for these giants to collaborate on new technology that serves each of them using FREEDM Systems Center as the common R&D platform for that collaboration especially if the Government is willing to kick in R&D money for FREEDM.

FREEDM is just one of the growing consortia of industry, government, and university players lining up to reap the benefits and the profits from scalable growth of the smart grid future. But the fragmentation in the sector hinders growth and prevents assembling the components of smart grid into more complete end-to-end solutions.  Government programs have focused primarily on smart meter deployment. But the looming market saturation of smart meters is now enabling industry players to get in the game to consolidate the sector and position their solutions for market leadership.  That consolidation process underway is expected to accelerate market growth.

Here in California, the California Smart Grid Center is another example of a collaborative effort underway to accelerate the pace of smart grid implementation.  The CSGC housed at California State University at Sacramento (Sac State) focused on smart meter testing with research grants from the California Energy Commission and other sources.  Since 2007 Sacramento State has also been a center for energy security research.  Today its horizons are broadening with a wider focus on the applications from deployment of smart meters and the data they produce to enable the clean, distributed energy future that California policy makers envision.

The state’s ambitious 33% renewable energy portfolio standard, AB32 greenhouse gas emissions goals, growth in microgrid development and its cleantech investment capacity in Silicon Valley are being used by industry leaders to leverage their own investment in R&D to scale their growth for the future.   The California Smart Grid Center recently signed a memorandum of understanding with the Sacramento Municipal Utility District to collaborate on smart grid related research in support of SMUD’s ambitious renewable energy and microgrid project goals.  This alliance makes Northern California an ideal laboratory for testing a wide range of smart grid technology, products and services because of the integrated policy, market support and technical capabilities with applicability around the world.

A research report by TechNavio entitled, Smart Grid Data Management Solutions for North America 2010-2014, surveyed industry experts, vendors and end-users looking for the key drivers of this next stage of smart grid evolution. The study forecast smart grid solution growth in North America at a 22.9% compounded average growth rate from 2010-2014.

Pike Research market analysis confirms the same expectation for significant growth in the market for meter data management (MDM) applications and services in order to deliver the customer benefits that smart grid promises. Pike Research forecasts that worldwide MDM market revenue will increase from $52 million annually in 2011 to $490 million by 2018 and MDM software will represent 65% of the total, with the remaining35% in professional services to put it to work.  Yet this is only a part of the global scalable growth potential for the entire smart grid value chain.

Millions of  smart meters have been installed with 90 percent of them installed in just eight states: Florida, Texas, California, Idaho, Arizona, Oklahoma, Michigan, and Nevada leading the first wave.   Over the next few years that first wave of smart meter deployment will sweep over other states and around the world reaching a saturation point with enough installations to enable a vast array of new products and technologies to improve the efficient and cost effective use of energy. That expanding market potential is what the giants of the industry lust after and are positioning to capture.

New technology always brings new entrants and the more disruptive the technology the more opportunity as well as risk is available for those ready to use it.  And consumers will need these new entrants to make use of the tsunami of data from smart meters.  That is why Toshiba made a huge bet entering the smart grid space with its recent acquisition of Landis+Gyr.  There will be more, many more before the consolidation stage matures.

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