Smart Grid’s Market Size and Trends

Although the smart grid industry offers many opportunities across the spectrum, it is important for major role-players and investors to understand the risks involved when it comes to embracing a market which is still in its early developmental phase. Our report, The Future of the Smart Grid: The ICT and Data Management Perspective, written by authors Jane Fae and Professor Merlin Stone, analyze both the opportunities and risks involved.
Published: Thu 13 Dec 2012

The smart grid market is still in its infancy and because of this, it is too early to predict what shape it will take in the future. Major technology players see the market as a source of opportunity even though they are currently unable to supply all the elements of the smart grid network. This is because they are still in the process of “testing the water.” Many are still determining which areas are best to supply, as well as in what combination ie. Independent supplier, in partnership with utilities or in partnership with smaller niche enterprises offering particular services or products.

Opportunities

The industry’s opportunities are “enormous” say the report’s authors. The forecast cumulative global spend on smart grids over the next decade is expected to run in to hundreds of billions of dollars. Pike Research predicts that global spending on smart grid projects will reach US$36bn by 2013, with worldwide investment reaching a cumulative total of US$600bn by 2020. The International Energy Agency points out that China alone plans to spend US$96bn over the next decade, while the US has earmarked US$4.5bn for smart grid investment. This makes the value of even modest market share significant.

The authors warn that investment estimates should be treated with extreme caution as they are attempts to “pin down” major international spending against a background of highly uncertain macro-economic conditions, and a slowdown in a major economy, such as China. Hesitation around smart investment by US utilities could also result in massive deviation from the above estimates.

However, it must be pointed out that investment in transmission and distribution (T&D) smart infrastructure is a lot more immune from fluctuation than “downstream” investment in smart home technology. This is due to the fact that they are infrastructure projects and for various reasons, a number of major nations need to renew or create major T&D grid elements afresh:

  • The US, one of the first nations to industrialize and therefore create an energy infrastructure, is also the first to suffer from the obsolescence of its existing grid. Ageing infrastructure and a declining workforce in respect of traditional T&D skills makes grid replacement a necessity over the next decade. The upgrade to a smart grid is thought to enhance effectiveness and efficiency, as well as circumvent the skills gap.
  • Major developing nations, such as China, Brazil and India need to establish T&D infrastructure in order to fulfill promises of connecting every citizen to the grid, including those who live in remote rural locations.
  • Countries such as Japan, where electricity tends to be transmitted over regional subgrids, must create a single national grid to avert future energy crises.

In addition, cross-border cooperation between nations is creating an ever greater need for smart T&D grids to handle cross-border energy flows. In North America, there is an ongoing energy transfer between the US and Canada. This is also evident in Eastern Europe, Germany, Austria, Poland and the Czech Republic which have a growing energy interdependence.

At the same time, organizations such as Grenatech, which has a vested interest in promoting super grids, have been arguing the merits of a pan-Asian smart T&D grid, bundling electricity, natural gas and telecommunications infrastructure, and stretching from China to Australia by 2050.

Risk for Investors

While opportunities are large, investors must steer a course between two parallel risks. On the one hand, the market is changing quickly and there is, at this stage of technology development, the possibility of making large losses by over-investing in a solution or strategic direction that subsequently proves to be a dead end.

On the other hand, movers in this market cannot afford to wait too long, as doing so could lead to them being locked out by competitors which are more prepared to take risks. However, immersing themselves too quickly, too soon in a particular approach could result in making strategic errors.

Engerati Analysis

It is important for market players to find a balance where possible when it comes to smart grid investment. Although a delayed investment is not recommended, reckless decision-making should be avoided too. Investors should rely rather on proven expertise and technology robustness.  

Sources                                            

Engerati-The Future of the Smart Grid: The ICT and Data Management Perspective (The Big Report)