-- This Article was originally published by FierceEnergy on January 11, 2012 -- What a difference a year makes! The American smart metering market entered 2011 flush with the ARRA/SGIG infused exuberance of previous years. Smart meter shipments had grown at a compound annual rate (CAGR) of more than 100% between 2005 and 2010 and the industry opened the year abuzz with reports of "building momentum."
As the months passed, however, this momentum transitioned to concern over the end of the ARRA era and a slowdown in new deployment activity at large utilities. Share prices for the three publicly traded American metering companies plummeted 37% in 2011, and communications vendor Silver Spring Networks sought to raise a new round of debt and options in December despite filing a (long-awaited) IPO in July.
What happened? Has the smart metering industry become mired in the market turmoil or are deeper fundamental issues at play?
2011 in Review
IDC Energy Insights forecasts (Q4 and year-end figures will be released in February) that smart meter shipment growth in the United States will be flat to slightly negative in 2011 compared to 2010. By comparison, smart meter installations climbed sharply as several large deployments reached the meat of their installation schedule in the last few quarters.
By the numbers, 2011 was a big year for big projects. Utilities with more than a billion in revenue represent approximately two-thirds of total electric endpoints in the United States, and accounted for more than 80% of smart meter shipments and installations in 2011. The adoption of smart metering by these larger utilities provides a critical foundation for the market and more than 20 utilities in this category, representing 20+ million endpoints, have received smart meter related ARRA/SGIG funding.
2011 was also an eventful year for the vendor community, marked by acquisitions, partnerships, new players, and the rise of new products and solutions.
In May, Landis+Gyr, owned by private equity shop Bayard Capital, was acquired by electronic equipment powerhouse Toshiba. Compared to the wave of mergers and acquisitions in the larger smart grid space (in addition to several smaller deals, in 2011 alone, Schneider acquired Televent, GE acquired Converteam, and Siemens purchased eMeter), the AMI industry has been relatively quiet in M&A since Cooper's acquisition of Eka (2010), and Bayard's steady construction of Landis+Gyr. Toshiba's acquisition granted substance to discussions of upcoming M&A in AMI; more recently, rumors have swirled that Sensus, a privately held American smart meter manufacturer, is also exploring a sale.
M&A activity has been complemented by a deepening of partnerships across the industry.
In June, Echelon, Elster, GE, Itron, Landis+Gyr, and Sensus joined together to form the Smart Meter Manufacturers Association of America (SMMA) to coordinate smart metering advocacy and education in the United States. Partnerships have also deepened in relation to integration and interoperability. While it is unlikely that the European/Asian vision of interoperability will fully manifest in the United States, it is interesting to note that interoperability in America has been lead by two vendors based in Europe, Landis+Gyr and Elster. In September, Elster launched its REXUniversal metering platform, the world's first meter capable of supporting multiple communications networks through alterations of firmware rather than hardware. The RexU platform will initially support Landis+Gyr's Gridstream RF network, but is capable of working with any 900 MHz network. Complementing the Elster agreement, Landis+Gyr and Itron, the two powerhouses of the American smart meter market, jointly announced in June that they would work together to integrate each company's communications technology on the other company's metering platform.
2011 introduced the first significant challenge to the dominance of proprietary RF communications (Mesh and Tower) in America since Duke's decision to work with Echelon in 2009. In September, SmartSynch announced that Consumers Energy had chosen SmartSynch's cellular communications system to provide AMI to their 1.8 million customers. This deployment dwarfs SmartSynch's 230k project with Texas-New Mexico Power, and reignited the public vs. private network debate. While proprietary solutions still dominate AMI in the United States, cellular is quickly moving beyond its current role in backhaul and network-infill.
Finally, in addition to the rising role of cellular, 2011 brought about several additional changes to the smart meter ecosystem. As I noted in October, the smart meter ecosystem continues to evolve. Smaller niche communications vendors like Mueller Systems and Tantalus are gaining share in the Municipal and Cooperative market, while hybrid or dual-fuel metering systems are beginning to gain traction. Start-ups OnRamp wireless and Airspan Networks also increased their visibility in 2011, though neither has yet signed a significant metering agreement in the United States. On the service side, cloud-based managed service offerings are beginning to appear in the United States; GE announced in November that it had signed its first managed service client. While managed services have had some success in Europe (particularly the Nordic countries), utilities in the US have been reluctant to relinquish control. However, given the high upfront cost of AMI, managed services may help expand AMI adoption by the thousands of smaller utilities in the United States. Infrastructure and IT heavyweights like GE, IBM, HP, and Acatel-Lucent have invested heavily in this space.
Looking towards 2012
But what does this all mean? How will the events of 2011 affect the American smart metering industry in years to come? The devil is in the details, but here are some initial thoughts:
- Big projects will continue to drive smart meter shipments in 2012, but smaller Muni and Coop deployments will drive new deployment activity as ARRA funding works through the system.
- In the long-run, Toshiba's acquisition of Landis+Gyr creates the potential for Toshiba/L+G to offer a truly end-to-end (generation to T&D to the home) service. In the near term, the backing of Toshiba will allow Landis+Gyr to expand to new markets and target its R&D efforts to refine products based upon customer needs.
- The creation of the SMMAA will increase awareness of AMI, and help to counterbalance the anti-smart meter forces that have gathered in recent years. The SMMAA seems particularly well placed to help address misplaced concerns over smart meter accuracy and RF-radiation.
- The increase in partnership and integration activity is a win for utilities. Multi-vendor systems provide utilities with more choices, ease supply chain concerns, and will increase competition.
- Operating costs have fallen significantly, and cellular and other next-gen communications systems (LTE, Wi-Max, etc.) are here to stay. However, public and private networks have very different characteristics; there is a place for public and private networks in both standalone and hybrid configurations.
- Smaller vendors will continue to fill a niche that is underserved by larger vendors. However, this niche could diminish if managed services gain traction.
More than anything else, with the introduction of new products, vendors, and service offerings, 2011 illustrated that utilities now have more choices for smart metering than ever before. Time will tell if these solutions will be accepted by the market, but the industry has come a long way since 2005.
As for the pessimism regarding the future of smart metering in the United States, perception is a matter of perspective. From one perspective, 2011 was another banner year for American smart metering; from another perspective, 2011 marked a troubling inflection point. For a financial industry focused on equity returns, the strong bull market in smart metering has become more sluggish, while for utilities, the smart metering value proposition continues to improve as prices decline, products evolve, and choices increase. When faced with these competing narratives, consider that, by utility timelines, smart metering (and indeed, the smart grid at large) is still a nascent application; a certain degree of fluctuation is only natural for an industry that has existed for barely a decade.