Archive for '2013'

    The business of LED lighting

    June 28, 2013 11:00 AM by Alan McHale
    The revenue from the global light-emitting diode (LED) lighting market for buildings will rise from $9.46 billion this year to $25.4 billion by 2017. This represents a compound annual growth rate (CAGR) of 22 percent over a 5-year period.

    The global shape of the LED market will stay broadly the same over this period with the E.U., North America, Japan and China still making up the largest portion of revenues. Growth in India will be the highest, at around 31 percent CAGR, but from a very low base. Penetration rates are likely to remain low there. The rest of Asia, excluding Japan, will experience growth of around 24 percent CAGR thanks to supportive legislation, government incentives and new construction.

    Many global lighting product sectors remain fragmented, and this is likely to change over the next few years. The continued drive for improved lighting performance and lower costs should drive continued vertical integration in the market — particularly downstream in the value chain. With more building controls companies eying the market and acquisitions of lighting controls companies by LED lamp and lighting fixture manufacturers likely to continue.

    Over the course of the past 5 years, we have been closely monitoring developments in the LED market and have tracked 238 significant deals. Although we cannot claim that this list is exhaustive, it certainly paints a picture of the mood in the market and the strategies of its major players.

    The total value of deals (where disclosure was made) during this period was nearly $8 billion, peaking at $4 billion in 2008. The number of deals completed over the 5-year period remained fairly consistent. The median value of deals also fell slightly over the period of analysis, ranging between a maximum of $18.3 million in 2008 to a minimum of $11 million for 2013 data to May.



    Acquisition as a growth strategy, though, seems to have cooled off since 2011. There are three primary reasons for this:

    1. A decline in average spending on acquisitions is not surprising given the impact of the debt crisis in Europe and its impacts on financial markets, liquidity and market growth.
    2. The industry has already undergone major contraction and restructuring from 2006 to 2011 and is now catching up.
    3. There is an element of unease in the market at the risks of oversupply, given that adoption rates have not been as rapid as many predicted.

    Germany takes distributed power seriously

    May 13, 2013 4:58 PM by Alan McHale
    One of the main tasks in delivering a smart grid will be to install and bring together smart grid systems such as AMI and automated demand response with distributed energy and smart buildings to win negawatts. This will go a long way to achieving the main aim of smart grid, which has to be to accommodate the maximum amount of renewable energy on the grid and to reduce carbon emissions.

    The smart grid manufacturer, installer, and supply business underwent a massive consolidation in 2012. Investment through venture capital amounted to $779 million after adjusting for senior debt finance transactions.

    The structure is changing in a perceptible but slow way with a shift from the dominance of the international major players to the medium and small specialist companies that are increasing their market share. A significant number of new entrants from outside the industry (the information technology and communications businesses) are increasing competition and strengthening the business.

    However, the industry is still too fragmented with hundreds of companies. Consolidation will continue for years to come. It is the demand side and structure of the utility market that needs to change if smart grid is to be realized in the next 20 years.

    The present business model needs to be changed from its current centralized structure to a hybrid decentralized one that allows all stakeholders to benefit. All forms of distributed power, microgeneration and microgrids need to be incorporated into the electrical supply system because they can integrate renewable energy, balance supply and demand and deliver locally to make the system more reliable.

    Even if this could be orchestrated through electric utilities and they could acquire the skills to manage this new technology, they could not raise the $2 trillion needed to build the world smart grid while at the same time replacing the fossil fuel-fired fleet of generating stations that would need to be taken offline.

    A new business model for the development of smart grid in many countries, particularly the U.K., could be based around capital investment coming from state-owned investors and pension funds — possibly the Middle East and Asia. IT and communications companies could supply and operate IT infrastructures and the pricing and billing mechanism, but the day-to-day operation of the smart grid would remain the responsibility of the utility companies.

    There are other business models that could work, but they all depend on the electric utility companies taking up the initiative and working with the cooperation of all stakeholders. This is not an easy decision for them to make because in many cases they still have excess generation capacity that they want to work. If they are to play a role, they must adapt to sharing responsibilities and benefits of smart grid with all stakeholders.

    Distributed power is a critical part of achieving a cost effective smart grid solution. A good example of a utility company taking the initiative on distributed power is RWE. The virtual power plant operated by Siemens and RWE, which went online in 2008 as a pilot project, has been expanded with the merging of about 20 MW of electrical generating capacity planned for the first year of operation (2012), which is to be increased tenfold to about 200 MW by 2015.

    The objective is to integrate distributed energy sources like biomass plants, biogas block heating plants, wind turbines and hydroelectric plants throughout Germany. In February 2012, RWE began marketing the virtual power plant on the EEX energy exchange in Leipzig. This is the first centralized direct marketing of electricity from a large number of EEG-compliant (Renewable Energy Sources Act) energy sources in Germany. At the same time, RWE and Siemens are starting the further expansion of the virtual power plant, which RWE and Siemens signed an outline agreement.

    By the close of 2012, RWE connected more than 250,000 plants to the distribution grid that feed in subsidized electricity pursuant to the Renewable Energies Act. They are driving the use of smart grid technologies to guarantee secure integration of renewable energies and improve opportunities for grid control.

    One key aim of this coordinated use of distributed production plants — other than the economic advantages — is to contribute toward improving the market integration of distributed generation system from many hundreds of stakeholders. They enable the provision of system services in the transmission network to be organized by combining emergency generating units or electrical end-use equipment. The virtual power plant aggregates the electrical output from a multitude of plants and makes this supply available to the transmission system operator. If requested, the virtual power plant controls the immediate dispatch of the connected plants, thus contributing to grid stability.

    There are those who think distributed energy has a part to play, but only in certain applications like rural areas, military bases or college towns. Others envision communities driving future microgrid development, particularly those with building codes that require solar, wind or other forms of self-generation. Big Data will have a major impact on how this can work successfully.

    Judging by the column inches that this subject has produced over the last 6 months, distributed energy will continue to gain momentum in the U.S. The Obama administration set a target for the U.S. to build 40 GW of combined heat and power by 2020. The Connecticut Department of Energy announced in February that it would evaluate 27 microgrid projects for possible funding. The projects, some of which range in size to as large as 10 MW, were among 36 that sought $15 million in state grants. Gov. Dannel Mallow has recommended an additional $30 million for the program over the next 2 years.

    State of the smart grid, 2013

    March 14, 2013 1:09 PM by Alan McHale
    Smart grid sales across the world in the last 3 years at installed prices have grown by a compound annual growth rate (CAGR) of about 35 percent and climbed to $36.5 billion in 2012. Given the general global economic demise during this period these figures are remarkable.

    However they include a steady flow of refurbishment business that has for more than 10 years incrementally improved and smartened up the control and reliability of the electrical network.

    If we strip out these numbers then growth in pure smart grid is significantly lower. The main task in delivering a smart grid has to be installing and bringing together smart grid systems such as AMI, automated distribution response and interfacing at the customer end with distributed energy and smart buildings. This is to boost energy efficiency and achieve the main aim of the smart grid, which is to accommodate the maximum amount of renewable power on the grid and reduce carbon dioxide emissions.

    With the exception of smart meters, smart grid is only in its infancy in these business areas. There is still much serious work to be done and roadblocks to be cleared. Fortunately, however, the technology is already in place and the supply industry is poised to deliver.

    In 2012, about $19.5 billion was spent on acquiring and consolidating the smart grid supply business almost doubled its spending in 2011. Investment by venture capitalists amounted to $779 million after adjusting for senior debt finance transactions. Although this was a decline on 2011, it fell short of the general decline in the cleantech industry.

    The structure is changing with a perceptible but slow move away from the dominance of the international "majors" to the medium and smaller specialist companies who are increasing their share of the business. In addition, a significant number of new entrants from outside the industry are increasing competition. The industry is still too fragmented with hundreds of companies below minimum economic size and consolidation will continue at the current pace for many years to come.

    We are confident that the supply side will not hold back smart grid's development. The supply structure is taking on a new shape as the traditional electrical transmission and distribution suppliers are competing with, or forming alliances with, the "new guys" from the digital world of IT, communications and controls.

    The traditional players certainly have a major role to play — although not a dominant one — across all fields of pure smart grid. They have the financial muscle to take on major contracts that will become larger with time. The smart grid supply industry is in good shape and will not hold back the enormous potential of the new smart grid.

    The technology is in place to meet the challenge of smart grid anf there are no known roadblocks here that will restrict its development. The new technology surrounding communications and "Big Data" has yet to be proven in the smart grid environment. However, it is already being used in other industries.

    Asia still has yet to install much of its electrical grid, and this creates a double-edged sword with the benefit of starting with a pure smart grid system not hampered by the problems of a hybrid development, but the disadvantage of requiring much larger sums of investment.

    On balance, it has a stronger potential to rapidly reach large-scale implementation than the other two major regions (Europe and North America) because it is one part of a major infrastructure plan to provide energy, transport and communications services for the majority of countries in the region. It has strong economic growth that at the moment are less likely to be blown off course. Vast differences exist between the capacity and capability of telecommunications networks in rural and metropolitan areas to play their part and smart grid deployment varies enormously across the region.

    The countries that lead on smart grid development in Asia include Australia, Japan, Thailand, Singapore, South Korea and China. China's State Grid Corporation has started what will be the largest smart grid rollout with roughly 350 million smart meters to be installed by 2020.

    In 2012, China spent more on smart grid than any other country overtaking the U.S. for the first time. They are installing for the most part locally manufactured equipment from indigenous suppliers, but gradually Western technology is making its way through thanks to alliances and partnering agreements.

    Up until 2011, North America was the No. 1 regional investor in smart grid systems, but has since been overtaken by China. This is disappointing given that the 2009 American Recovery and Reinvestment Act provided a major incentive for the industry with more than $4 billion in grants for smart grid pilot projects. It does have the strongest supply industry and has spawned a number of impressive start-up companies.

    It is likely to produce the strongest suppliers for the smart grid Big Data sector that will capture much of the business in the rest of the world. However, implementing the demand model could become more of a challenge in the U.S. than most other developed markets. If so, this would drastically hold back smart grid growth.

    Europe has some of the world's most favorable policies for driving smart grid deployment. The E.U. has implemented policies on increasing energy efficiency, installing more renewable energy sources and reducing greenhouse gas emissions all by at least 20 percent by 2020.

    Currently the region has some major economic restructuring ahead of it to solve debt problems, which is likely to delay these targets and in turn smart grid development.

    The electrical transmission and distribution industry consists of both public and private ownership and is large scale and relatively strong financially. The supply side is strong as European manufacturers are leaders in electric grid technology and deployment of smart grid. On the negative side, regulatory policy on standards and interoperability is weak and the decentralized nature of utility markets leads to difficulties in sharing of technology demonstration programs.

    Two fundamental changes need to be made here if smart grid is to deliver. The first is to change the model from its present centralized structure to a hybrid decentralized one that will allow all stakeholders to benefit. Micro-generation and microgrids need to be incorporated into the electrical supply system because they can integrate renewable energy, help balance out supply and demand, deliver locally and make the system more flexible, reliable and efficient.

    The second is that it can't be left to the present owners of the electrical network. Even if this could be organized through the utilities and they could acquire the skills and manage the new technology, the could not raise the $2 trillion needed to build the world smart grid.

    Our report suggests that a new business model for the development of smart grid in many countries, particularly the U.K., could be based around capital investment coming from sovereign/state-owned investment and pension funds, possibly from the Middle East and Asia. The day to day operation of balancing and operating smart grid would still be the responsibility of the utility companies while the IT and communication companies would supply and operate IT infrastructures and the billing and pricing mechanisms.

    A new smart grid model is needed, and quick

    February 28, 2013 2:53 PM by Alan McHale
    World smart grid sales at installed prices climbed to $36.5 billion in 2012 a growth of 30 percent and mergers and acquisitions activity reached $19.5 billion almost doubling the value of deals in the previous year according to our latest report.

    Solid progress has been made in the last 3 years to take the smart grid out of its embryonic stage into its infancy, but other findings show that not all is well. The regulators and policymakers in the developed markets of the world are struggling to find the framework on which the smart grid can be effectively built and in some cases are losing sight of the most important reason for developing a smart grid and that is to build a system that will accept as much variable renewable energy that is practical to meet the needs of the low carbon economy in the 21st century.

    A new model is needed — and quick. It's been clear for some time that the fundamental central architecture of today's electricity grid, based on the concept of a top-down, radical transmission system with unidirectional energy that flows from large, centralized power plants, is not appropriate to meet either the needs of the low carbon economy.

    Micro-generation and micro-grids need to be incorporated into the electrical supply system because they can generate them from renewable energy, help balance out supply and demand, deliver locally and make the system more flexible and efficient.

    We have no choice but to work around the present central system and gradually move to a hybrid decentralized model, but that will require the regulators to oblige the electric utilities to work within such a system that benefits all the stakeholders and not just themselves. Through inbuilt software technology, you can also operate a market-based system that not only manages electricity supply and demand but also allows for economic value through markets, rates, contracts or other value-based mechanisms.

    Even if this could be organized through the electrical utilities and they could acquire the skills and manage the new technology in most countries they could not raise the $2 trillion needed to build the world smart grid.

    Our report suggests that a new business model for the development of smart grid in many countries, particularly the U.K., could be based around capital investment coming from sovereign/state-owned investment and pension funds possibly from the Middle East and Asia. The day-to-day operation of balancing and operating smart grid would still be the responsibility of the utility companies while the IT and communications companies would supply and operate IT infrastructure and the billing and pricing mechanism.

    One of the most important issues now being strongly debated is how much renewable energy can be accommodated by a smart grid. The old thinking is based on the premise that even a smart grid has a limit to how much can be accommodated and some authoritative bodies have published reports saying that in the U.S. the tipping point for benefiting carbon dioxide emissions from wind power could not exceed 20 percent of the total central power generated. Over this limit, spinning reserves will create more carbon emissions and nullify any benefits that are the sole reasons for installing wind power in the first place.

    Germany is now pressing ahead with the new model, which claims that renewable energy can deliver almost all the power they need and will not require conventional baseload generation provided you have a smart grid that can balance supply and demand. Also called for in this model is a mix of renewable generation with some energy storage capacity for its photovoltaic solar content.

    The proof of this is going to played out over the rest of this decade when they plan to have renewable sources providing 35 percent of its electricity by 2020 and 80 percent by 2050. If this model is proven then it opens up much wider options on which countries can base their energy policy, trading cost with long term availability, security and safety of energy supply.

    Germany's grid, which is not yet smart, is currently accepting 15 percent with wind power providing more than 9 percent of the country's grid power while solar photovoltaic has more than a 5 percent share. But penetration rates can be much higher in real time solar production went from zero to 15.6 GW on September 30, at which point it was meeting 30 percent of total demand and renewables supplied about 40 percent of Denmark's power in 2011. Both countries have robust grids and the lowest rates of outage in the world.

    Regardless of which strategy is adopted, the need for a smart grid goes without question with the prime requirement being to concentrate on automating demand response on the transmission and distribution lines, building on an existing but robust system, while taking in distributed power from independent public and private sites. This as we have already noted is also a game changer because it requires the structure of the electrical utility industry to morph from a central to a decentralized hybrid model and that will require smart grid ownership and operation to be shared amongst some new stakeholders.

    The supply side is changing to meet the language. With billions of dollars being invested in smart grid supplier companies through mergers and venture capital funding for new starts and their continuing development. The structure is changing with a perceptible move away from the dominance of the international majors to the medium and small companies who are increasing their share of the business.

    A significant number of new entrants from outside the industry from the IT and communications business are increasing competition and strengthening the industry. The industry is still too fragmented with hundreds of companies below minimum economic size. We are confident that the supply side will not hold back smart grid's development.

    The supply structure is taking on a new shape as the traditional electrical transmission and distribution suppliers are competing with or forming alliances with the new boys from the digital world of IT, communications and controls. The traditional players certainly have a major role to play, although not a dominant one across all fields of pure smart grid.

    The technology is in place and there are no known bottlenecks that will restrict smart grid's development although in some areas a full working prototype at a utility scale has yet to be proven in the smart grid environment. However, it is already being used in other industries and at the utility scale.

    Smart grid connects real estate

    January 11, 2013 3:01 PM by Alan McHale
    2012 was a seminal year for three industries that share some fast-moving technologies and vertical markets: electronic security, energy management and the emerging smart grid. The convergence of these industries is bringing about partnerships that add incentive to their adoption in domestic and commercial sectors.

    The first two industries have operated for nearly half a century in both smart homes and smart buildings. Some of the major suppliers span both markets.

    Smart Homes
    Energy management systems, security systems and other automation technologies are gathering under the banner of home automation networks. Home automation and energy management failed to get off the ground over the past two decades, although there were several false starts. In 2012, home automation and energy management finally moved forward. The combination of these services under the wider home area network umbrella could become the driving force for the sector, lowering costs and improving operational efficiencies.

    There are two reasons for this. First, the introduction of video surveillance as a service, which is becoming an attractive solution in physical security because it delivers a lower point cost and providers can host multiple customers on a shared cloud-based infrastructure. This platform can now collect data and connect energy management control devices, again saving installation costs and providing additional benefits.

    Second, the energy management system passes the regional wholesale electricity pricing information along to smart appliances, which can then delay a cycle depending on the cost of energy at the time. This reduces the homeowners's energy bill and allows utilities to shave peak demand down. So in this case the internet is replacing AMI smart meters through an internet-connected home area network, thus saving utilities investment money.

    In addition to whole-house energy management systems with possible tie-ins to other systems such as security, lighting control, HVAC, motorized shading and home automation, looks very appealing. Where smart meters are already installed, they could communicate pricing, outage and other signals directly to smart appliances, but this is now looking to be an expensive solution. However, the utility industry badly needs detailed information from the energy management systems if they are to achieve optimal control over the distribution network.

    On the supply side of home automation and energy management, despite the many failures over the last 15 years, there is now a strong belief that through interfacing with smart grid together with energy efficiency through these controls, will deliver savings that will provide a satisfactory return on investment. This has given rise to a renewed interest in HAN, where we are now seeing a plethora of new companies setting up and no shortage of interst from the investment community to supply funds.

    Smart Buildings

    In the smart building commercial sector, the connection with the smart grid should be more appealing to utility companies because these buildings are already equipped with sophisticated energy management systems, so the possibility of connecting them to distributed energy is there for the taking. However, the smart building to smart grid interface business is still in its infancy. The technology is, for the most part, already in place on the smart building side.

    The major suppliers to the smart grid market, while confident about the long-term future, have for years known that there could be some long delays in full deployment. Their concerns have hinged on the immense technical and financial challenge that utilities face.

    The smarter utilities came to the conclusion that with the aid of smart building owners, they could circumvent some of these roadblocks. By interfacing smart buildings with smart grid, even at the latter's current stage of development, energy conservation and demand response could reduce the electrical load. Also, where the site generated relatively clean distributed energy, this could be sent back to the grid.

    All of this could be achieved for an investment of no more than 1 percent of the total investment needed to deliver a comprehensive smart grid. More important is the fact that it would not require money from the public purse as private financing would be available for about 70 percent of the investment.

    Most of the major suppliers driving the smart building to smart grid interface business are manufacturer/installers of sophisticated building and electrical management controls. To complete the full spectrum of technical and commercial attributes and offer a total solution, they have carefully build up the expertise needed through acquisition.

    The four leading companies in the smart grid and smart building controls industries include Schneider Electric, ABB, Siemens and Honeywell. The portfolio of acquisition of these companies in the last two years extends much further into the smart grid arena and our analysis shows that control management and hardware acquisitions grew by a factor of 10 in 2011.