In this week's excerpt from our recent report, Grid Edge: Utility Modernization in the Age of Distributed Generation, we look at the AMI market and its future on the grid edge.
Framing the Topic
If grid edge were a building, AMI would be the key to its front door. It is the chief tool in opening up the world of grid-edge intelligence, as it measures and collects valuable data points such as instantaneous voltage and current, frequency, phase displacement, and power factor. Compared to earlier generations of meters, the “advanced” feature of AMI is its ability to enable two-way communication between the utility and the customer.
Advanced metering infrastructure encompasses two types of technology:
- The digital endpoint metering device that measures time-based consumption and power quality at the customer site and sends and receives measurements, control signals and alerts
- The communication infrastructure where information travels between consumer and utility control networks, via either a wireless communication network or powerline carrier communications (PLC) network, among other less frequently used physical mediums.
FIGURE 1: Typical Parameters Recorded by Smart Meters
Deployment and Growth Projections
The federal-government-funded Smart Grid Investment Grant (SGIG) has added 15.5 million smart metering devices to the stock of installed smart meters in the U.S., putting the total number of smart meters at over 50 million by the end of 2013. This may sound like an impressive number, but it represents only approximately one-third of the addressable market, as the U.S. has 144.51 million electricity end consumers.
At the end of 2012, FERC estimated a U.S.-wide smart meter penetration level of only 22.9 percent. As opposed to China and Europe, post-stimulus growth in the U.S. is waning, as North American AMI shipments peaked in 2011. Figure 2 illustrates these differences in terms of cumulative shipments. If the market stays on this trajectory, GTM Research expects that it will take until the end of 2014 for average penetration in the U.S. to reach 40%. However, several major deployment projects are underway (including large rollouts being overseen by Ameren Illinois and ComEd), and records documenting the benefits of AMI will be gathered in regions of high penetration. California and Washington, D.C. exceeded the 70% penetration mark in 2012, with several utilities having deployed smart meters to more than 90% of their customer base (e.g., Pacific Gas and Electric, Puget Sound Energy).
FIGURE 2: Global AMI Forecast, 2013-2020E
FIGURE 3: U.S. Smart Meter Penetration
With 26 states still below the 10 percent penetration level, the market is there, but it needs to be accessed. In low-penetration locales where electricity is cheap, such as Louisiana, Washington, and Kentucky, the business case for additional installations will hinge on the success of AMI analytics in expanding the value streams that AMI can provide.
Investor-owned utilities, which are under more pressure to demonstrate strong returns, will continue to drive AMI analytics adoption. Another motivator for AMI installations, even in low-priced electricity markets, is improving the disaster resiliency of the grid. Recognizing and locating power outages is a decisive factor in determining the speed of power restoration, and AMI systems that are tightly integrated with operations units can provide the most rapid identification of outages. Potomac Electric Power Company (PEPCO) in Washington, D.C., for instance, reported that during Hurricane Sandy, outage notifications received from 425,000 homes with smart meters helped the utility speed up the process of fault location. After restoring power, the meters’ signals allowed the utility to verify service restoration without sending out crews.
Trends, Thought Leaders, Vendors, Ideas
Sustained growth in the post-ARRA era will require innovative approaches. The AMI market is in a turbulent intermediate phase somewhere between hardware and software orientation. On the hardware side, there are many empty spaces yet to explore on the map of AMI penetration. States with AMI penetrations below 5 percent, such as Illinois, Utah or New Mexico, have the potential to become sizable new markets, but they also carry the risk of long timelines for AMI adoption.
Wherever meters are deployed, the focus shifts to leveraging their benefits. Simultaneously introducing smart meters and DR programs with dynamic pricing is an ideal approach, and it has the added benefit of creating opportunities for both device and software vendors.
With North America representing only 24 percent of the global smart grid market opportunity through 2020, vendors should have an eye on emerging markets in Europe, South America and Asia. This includes keeping up with the different communication technologies deployed in these areas. While most U.S. utilities use wireless networks to transfer information from meters to the utility, powerline carrier communication (PLC) or cellular networks are preferred in many European countries, which have largely selected domestic vendors, as the U.K.’s recent choice of Telefonica U.K. demonstrates.
On the other hand, U.S. meter maker Itron was able to land a major contract for France’s forthcoming AMI rollout, underscoring the fact that pilot projects are frequently an expansion point upon which large-scale deployments build. Firms involved at that early stage, as Itron was both in France and Hong Kong, will likely have an inside track for winning contracts for wider deployments.
Landis+Gyr serves as another interesting example. While the firm had an involvement in France’s AMI rollout along with Itron, Toshiba’s recent acquisition of Landis+Gyr raises prospects for the nascent Japanese AMI market, as Japan’s rollout plans continue to mature in the post-Fukushima era. If the Japanese market moves beyond the pilot phase, there is a strong chance that it will help the global AMI market to pick up in 2014. Tokyo Electric Power Co.’s (TEPCO) major contract with Landis+Gyr is a harbinger of this development. The firm will provide communications infrastructure for a 27-million customer AMI deployment.
Regarding AMI communication networks, the U.K.’s approach marks an improvement in the coordination of smart meter and communication network deployment. Instead of focusing primarily on vendor choice, the orders were clearly divided between smart meters and network providers. A similar coordination effort in New Zealand led to Silver Spring Networks selling its metering communication platform to an entire consortium of vendors. This type of approach makes it easier to plan and facilitate the interoperability of networks and meters with networks -- a necessity in the U.K.’s and New Zealand’s competitive retail electricity markets. Households switching vendors expect to use the same meter with different communication technologies. The U.K.’s network topology relies on wireless ZigBee to link local meters to nodes, which are then connected to three wide area networks spanning the country.
The opportunity in this market lies in a coordinated implementation of hardware, communication technologies, and analytics into billing and operations that reap immediate benefits. The risk is that without a change of implementation approach, a post-ARRA slack period could occur.
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Have an opinion on the AMI market? Share it with other energy leaders in our new Grid Edge Executive Council. Our first meeting will take place on December 9th in San Diego, just before our Solar Market Insight conference begins.