Growth Slows for Smart Meters in North America, but Overall Trend is Still Upward

The hype and excitement surrounding smart electric meters has started to fade. Deployments of new smart meters are slowing in North America, following years of rapid rollouts sustained by US federal stimulus funding. In other countries, expected growth in smart metering has been delayed for now – particularly in Great Britain and Brazil, where regulatory moves have changed the pace for new smart meter deployments in the near-term.

The one major exception is China, where the government’s five-year plan continues apace with the installation of new meters in addition to major upgrades to transmission systems, distribution networks, and generating capabilities. The pace of meter deployments in China is impressive, with tens of millions of new units installed per year.

In spite of this current lull outside of China, smart meter manufacturers remain hopeful that other large deployments will result in new orders in the not-too-distant future. France, for example, is about to become the next important center of smart metering. In early July, French utility ERDF received government approval to move forward with the first phase of a deployment plan that calls for the eventual installation of 35 million residential smart meters – essentially every home in the country will get one.

Likely Winners

The new smart meters – dubbed “Linky” – in France will be deployed in phases. The first phase involves 3 million units to be installed starting in 2014, with completion by 2016. The remaining 32 million smart meters will follow in subsequent phases. The total value of this long-term deployment, which is expected last through 2021, is estimated at between $6.7 billion and $9.3 billion.

The big question among smart meter vendors is who will win orders from ERDF, which oversees the power distribution network in France that covers nearly all of the country’s electricity customers. ERDF is expected to choose multiple meter vendors. The most likely winners are Landis+Gyr (a subsidiary of Toshiba), US-based Itron, and Iskraëmeco, a Slovenian meter manufacturer. All three have taken part in early smart meter pilot projects in France. German meter vendor Elster has also worked with ERDF on the project, and could emerge as a winner as well.

I got a preview of this big French deployment when I attended the SG Paris 2013 conference in early June. Hardware vendors were optimistic about their prospects of winning orders in the deployment of Linky smart meters. The Linky meters use a technology called G3-PLC, a communications protocol process based on power line carrier (PLC) technology that transmits data simultaneously along the same lines as electric power.

Laying the Foundation

In Great Britain, the start of a massive rollout of smart meters has been delayed a year by the UK Department of Energy & Climate Change (DECC). More time is needed for vendors to work out technical issues associated with the new equipment and conduct further testing, DECC said at the time the announcement was made in May of this year. The start of the big rollout, which calls for more than 50 million smart meters (both electric and gas), was to begin in 2014. But now the massive deployment phase is set to begin in the fall of 2015, with expected completion by the end of 2020.

Even with this delay, some utilities in Great Britain are continuing to deploy smart meters during what is called the “foundation” phase. Two utilities in particular, British Gas and RWE npower, are installing smart meters now to get a foothold (and a jump on competitors) in the market before the massive deployment phase starts in 2015. Redwood City, California-based Trilliant has benefited from these early moves. Trilliant signed a contract in June of this year with RWE npower to supply hardware and software during this first phase of smart meter rollouts. This deal solidifies Trilliant’s position in the British smart meter market: Trilliant has been supplying smart metering communications gear to British Gas for several years.

Meantime, in Japan, Tokyo Electric Power Company (TEPCO) is moving ahead with plans to deploy some 27 million new smart meters, though specific meter vendors have not been chosen. Furthermore, there are ongoing pilots in other Asia Pacific countries, in Latin America, and in the Middle East – which are likely to turn into new business opportunities at some point.

Market Drivers

Even with a cooling market, particularly in North America, the drivers of smart metering have not changed. Utilities can still build a strong business case for deploying these devices, which includes the following benefits:

Reducing operating expenses, particularly labor costs associated with meter reading and customer connection and disconnection
Improving operations and reliability from better outage detection and capacity planning
Reducing theft of service, and even prevention and recovery
Driving greater energy efficiency, and reducing peak demand

The last driver can help reduce a utility’s energy and capacity costs by minimizing the need to deploy high-cost peaking power and delaying or avoiding the construction of new generating plants.

In addition to economic drivers, policymakers see smart metering as an enabling technology to achieve climate change and energy security goals, since smart meters enable greater energy efficiency and improved peak-demand shifting. In many markets, Europe in particular, regulatory initiatives and policies are a major force behind smart meter deployments.

Market Forecast

Our smart meter forecast takes account of the regional differences in how the market has unfolded. In the US, growth has leveled after Smart Grid Investment Grant money drove an initial boom between 2009 and 2012. A number of utilities continue to explore the business case for smart meters, and this market is expected to continue to flourish even as the rate of deployments slows.

Smart meter mandates in Western Europe will continue to drive growth through 2020. As improvements in network infrastructure spread across China, the country’s adoption of advanced metering has accelerated, with growth occurring much earlier and faster than expected. In Japan, utilities are continuing to pursue full deployment of smart meters, beginning to select vendors for advanced metering infrastructure (AMI)-related services in the first two quarters of 2013.

Ambitious rollout plans in Brazil, India, and Canada have stagnated due to a number of factors, including legislative obstacles and bottlenecks, economic downturns, lack of customer engagement, and network infrastructure-related issues. These influences have caused a lowering of Navigant Research’s market forecast, scaling back expectations in these three countries.

In the Middle East, Saudi Arabia AEC, ICT Europe, and Enel are pursuing smart grid implementations in Saudi Arabia, Bahrain, Oman, Qatar, Kuwait and United Arab Emirates, indicating strong growth potential in this newer market. In Africa, small pilot projects continue in South Africa and Egypt, but evidence of large-scale deployments remains absent.

While many countries, such as India, have yet to begin substantial smart grid and smart meter projects, most vendors indicate deepening their relationships within existing markets is a key goal in the next few years. In other words, providers of smart metering products will focus on near-term opportunities among mainly current utility customers, while keeping a close eye on potential markets that are still some years away from kickoff.