February 2012

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The Smart Grid Industry Gave A Stellar Performance in 2011
But Can It Deliver On Its Promise In 2012 & Beyond
Allan McHale
Allan McHale,

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Despite the background of a troubled world economy during the last two years Memoori’s annual report The Smart Grid Business in 2011 shows that pure Smart Grid business has grown from a world market value in 2010 of $16 billion to approximately $22 billion in 2011. The report estimates that the technical market potential to retrofit the world grid and future extensions to meet the CO2 emission targets by 2030 would require an investment of $2 trillion. To keep on track to achieve full penetration by the year 2030 Memoori estimates that it will need to grow by a CAGR of 23% to reach its zenith of $155 billion in 2022. The Smart Grid is therefore currently in its embryo stage of development and is also heavily biased to one segment of the market with AMI business complete with smart meters taking almost 40% of the pure Smart Grid market in 2010 but will account for only 9% market share of the total investment of $2 trillion needed to achieve Smart Grids full penetration. Fig1 shows how AMI is leading the field and will reach maturity well before other sectors of the pure Smart Grid businesses. The prime reason that smart meters have run away with the investment dollars is that they are considered by the utilities as a relatively safe bet to provide a return on their investment at little technical risk.
 Figure 1

So whilst the good news is we are off to an excellent start the downside is that we have not given sufficient time and money to develop a “smart” transmission and distribution network. This is more challenging and technically demanding and the solution will take more investment dollars and time to perfect than AMI. We estimate that given that the demonstration projects announced in 2011 run on time automated demand response is running some 10 years behind smart meter penetration. This will mean that the full benefit of AMI will not be realised well after it has been installed but more importantly it would appear it has held back progress on other vitally important issues. Insufficient attention has been given to developing open communication standards and delivering a solution for protecting the grid from cyber attack.

We firmly believe that in 10 years time, when we are in the midst of trying to seamlessly join up and secure Smart Grid and counting the cost, we will wish that we had spent more time and effort on balancing out time and budget across the full spectrum of Smart Grid needs.

The second road block that needs shifting is even more fundamental and that is who is going to foot the $2 trillion Smart Grid bill. The problems hinge around the political and commercial aspects, not technology and security concerns which observers believe will be overcome. It seems that everybody loves clean energy but no one wants to pay for it. Our report draws attention to a number of investigations carried out by august bodies including the The World Economic Forum is concerned that utilities are struggling to create the business case for Smart Grids as regulatory incentives often fail to provide the right incentives and reflect the low-carbon agenda and this is particularly true of the USA and some European countries. However it resolutely confirmed that Smart Grid is a key enabler of a worldwide low-carbon economy and that CO2 reduction targets cannot be achieved without it. This is without doubt the bottom line and confirms that Smart Grid is inevitable but could suffer some delay on our best case scenario of achieving full penetration by 2030.

Reliable Controls The report shows that in 2011 The USA was the number 1 investor in pure Smart Grid and estimates the total potential world market for pure smart grid built up from the top 10 current major electrical producing countries, plus one figure for the rest of the world. These numbers have been extrapolated from the estimated US investment of $440 billion. The figures have been adjusted in each country to allow for the different rates of future forecast growth in electrical consumption and the wide differences in installation cost between developed and emerging countries. The report shows that China will invest some $500 billion in pure Smart Grid at installed prices taking 25% of the world market, very closely followed by the US at 22%. India, Japan and Brazil will make up the top 5 countries with market shares of 6%, 5.5% and 3.75% respectively.

We estimate that it would require an investment of some $2,000 billion to deliver a full Smart Grid standard to the world’s electricity network and in order to meet the CO2 reduction targets this needs to be realised by 2030. This figure can only be regarded as a “guesstimate” because it is based on assumptions that may change over time and the introduction of new technology which will improve the ROI and or reduce costs. The roadmap for delivering a full operational Smart Grid will differ between countries and it is likely that some emerging markets such as Brazil and India will not have a fully completed Smart Grid by 2030..

The Smart Grid market has performed well in the last two years with growth in line to achieve the target. The supply side has strengthened through consolidation and increased investment in new venture companies, whilst similarly major traditional and IT & Communication companies have moved to take stronger positions. The question now is will growth be sustained in 2012 for across the developed markets of the world or are governments likely to reduce their commitment to Smart Grid and this would slow down the momentum.

About Memoori
Memoori is an independent market research and business intelligence provider. Our intelligence and advice helps technology companies and investors create sound strategies for future success. For more information, visit http://memoori.com


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