The Focus on Smart Meters Is A "Red Herring"

28 Comments

redherringWhile I was edumacating attendees of our “Biggest Opportunities of the Smart Grid” webinar this morning (for subscribers to GigaOM Pro), I learned a great deal from Pike Research analyst Clint Wheelock, who gave an overview of the market on the call. Most interesting to me was that out of a predicted massive investment in smart grid infrastructure — estimated at $210 billion between 2010 to 2015, according to Pike Research — smart meters will actually play a pretty small part of the market: just 11 percent of the total smart grid revenue opportunity.

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“The focus on smart meters is a red herring,” explained Wheelock in the webinar this morning. Given all the attention surrounding utilities rolling out smart meters, I thought it was interesting that revenues from smart meters trailed other smart grid sectors like transmission infrastructure and distribution automation. And revenues from smart meters actually just tied the demand response market, and barely beat out the revenues from substation automation. Wheelock pointed out on the call that utilities will get a better return on their investment for those technologies like distribution automation, and additional transmission capacity compared to smart meters.

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Images courtesy of Pike Research and Flickr Creative Commons.

28 Comments

Hans de Kraker

At this point energy meters are still niche – until it becomes clear to those who pay the electricity bill – how much money can be saved. The green factor is not a motivator – the dollar one is.

In the same way, utilities are motivated by the $$$’s and what CEO wants to go back to stakeholders and tell them that “next years revenue will go down because we will help our business customers and consumers consume less because we will invest in new devices that empower our customers reduce their expenditure and reduce our revenues year on year”.

As Bob Wallace stated, when you give people a sense of their consumption – you allow them to measure it (in an easy interactive way – rather than some complex bill from a billing system)and even compete – they will curb their behaviour. Refer to study from North Carolina.

I am also working with clients that provide consumption visualisation dashboards that allow buildings on campuses to compete with each other curbing resource consumption by more than 20%.

Another client provides savings of $30 to $100 per computer (that is approx 500kg of carbon a year in Australia)- with the help of the same resource consumption visualisation. (Also recommend reading Richard Thaler – Nudge, behavioural economics)

Dashboards help visualising that consumption behaviour to the consumer (business or residential) and that is where Google sees the opportunity I believe, in empowering companies and households with data.

The utilities world wide are not in a great rush to see their revenues go down and here in Australia or in Europe it is very much the same.

Innovation in the grid will almost certainly come from outside and as stated before by Kathie and others – it is looking like the Telco’s will bring part of that innovation and smart start ups.

Today it is still a cottage industry. Because there is no smart grid – but in 10 years time, those small start ups that made the right steps and alliances combined with the Telco’s – will pose a serious threat to the traditional energy companies.

Energy companies are just now coming out of a space of purely generation in the background – not a great deal of customer interfacing if any at all. Those that do not learn quickly how to create that customer interface, will risk a lot.

So smart metering and utility companies represent a conflict of interest and only impetus from outside the traditional utility space will bring about the necessary change.

Bob Wallace

The utility business here in California is quite interesting. Legislation seems to control the electricity distribution companies in ways that cause them to aid customers in using less power.

We have had generous appliance trade in programs in order to get older inefficient refrigerators out of houses and replace them with newer models which use half as much power to do the same job. Recently I saw a notice in our community center that there was a utility sponsored (at least partially sponsored) program that provided free refrigerators to people below a certain income level. All they had to do is turn in their old clunker.

We can commonly purchase brand name CFL light bulbs for $0.59 because of utility company subsidies.

I’m not sure how the system works. I think it might be that retail rates are fixed while wholesale rates are allowed to fluctuate. That would put electricity distribution companies in the position of wanting to keep demand limited as much as possible to what can be supplied by less expensive producers. The more they can avoid buying expensive peak power, the more money they can make. If you have to pay eleven cents and can sell for only twelve cents you make no money.

Utility companies operating under rules such as these are likely to welcome smart meters. Just shifting some demand to off-peak hours can improve their bottom line. Selling five cent wind for twelve cents makes the shareholders smile….

Brad Rogers

My impression was that Google PowerMeter (even the Energy Inc. version) does not in fact bypass the smart meter. The PowerMeter is a display portal for smart meter information. The newest version can use data from a consumer-purchased meter in addition to a utility-owned meter. All displays will have to rely on meter data of some sort to be successful. I’m not sure who the ultimate display portal winners will be…offering it for free has got to increase the odds, though.

Katie Fehrenbacher

Yeah I agree with you guys. Anyone have any thoughts on how well the energy management tools that will bypass the smart meter (like the gadget partnership Google and Energy Inc announced) will do?

Bob Wallace

I don’t understand what Google is trying to do. Is this a device that could be purchased by someone living in an area where their utility company is going to wait a long time before installing smart meters? Sort of a fancy Kill-A-Watt?

It seems like a poor substitute for an actual smart meter, it lacks the control features, does it not? There’s no way, for example, for grid/home owner control of appliance or EV charging which is essential for load shifting.

Google making an issue of more rapid access to information as opposed to waiting for the “commonly slow utility network”. Viewing ones use of electricity hardly seems something that needs to update in nanoseconds.

Anyone have a better idea of why Google has a better idea?

Taco de Vries

couple of comments:
a meter by itself does not do much more than read the energy used. Current state of the meter market indicates that the only added innovation is that utilities roll out an infrastructure to carry that data back to their control center. NO EV charging, no load shifting, no HAN management, none of the US utilities have even begun touching that. AMI is about meter reading and getting rid of the meter readers, period.

What Google is doing is putting its name behind a device you can install yourself that also reads your energy use. Combined with its software, it will provide you information. Pretty expensive device combined with free software, guess it is more hype than an offensive.

Subodh Nayar

Smart metering maybe a small part of the forecast investment, but it is the only aspect of the smart grid that a utility can implement with relatively minor changes to its operations and maintenance practices. In my view how quickly utilities undertake the migration from reactive to proactive T&D operations will dictate the size and complexity of the smart grid in 2014.

Brad Rogers

I agree with Damon and Subodh. Advanced meters are definitely the “low-hanging” fruit for the utilities…and they’re a good first step toward considering and developing a more complete Smart Grid strategy.

Damon Clark

The public hears more about smart meters because that is what they will be interacting with the most. 11% saving is a 100% of the public controlled savings, other than public support for the grid. Instead of calling it a red herring calling it a less significant component of the smart grid from an energy producer standpoint may be more useful.

Bob Wallace

“…smart meters will actually play a pretty small part of the market: just 11 percent of the total smart grid revenue opportunity.”

Interesting if you’re looking at the issue from the standpoint of an investor.

But if your interest is in seeing us cut power usage and shut down coal plants then smart meters rise to the top of the heap.

The recently released study from North Carolina demonstrated that giving people feedback on their electricity usage via smart meters (and some help on ways to cut their usage) produced a 20% average drop in electricity consumption.

Twenty percent, across the country would allow us to shut down 40% of all coal plants now. We could meet our CO2 reduction goals a decade or two early.

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