Making every electron count: the rise of the SmartGrid
In 2009, over 16 percent of all energy used is expected to be in the form of electricity, up from 9 percent in 19731. Currently, the average efficiency of the world's legacy electricity grids is around only 33 percent. This contrasts with 60 percent efficiency for grids based on the latest technology2.
Just at the transmission and distribution levels, energy losses are around 7 percent3. Further, the cost of power outages and power quality disturbances is estimated at $180 billion annually in the United States alone4.
But there may be a solution: SmartGrid technologies. These have the potential to reduce up to 30 percent of electricity consumption5 and dramatically reduce the need for the construction of new power plants or the operation of environmentally harmful sources of generation.
Broadly speaking, SmartGrid companies add computer intelligence and networking to what is otherwise a 'dumb' electrical network.
For example, some SmartGrid technologies assist with load leveling of the electrical grid. This allows a powergenerating company to run cleaner power sources, such as nuclear or hydroelectric, at full output, 24-hours a day, while reducing the need to provide more carbon emitting gas, coal or oil plants in a surge (usually for only a couple of hours per day), to meet peak demand. Further, by reducing variability in demand, fewer new power plants need to be constructed.
Other examples of SmartGrid activities include: making the process of traditional electricity generation more efficient; connecting sustainable energy sources to the existing grid, and smart meters.
In 2009, SmartGrid companies may generate $25 billion in revenues, and represent the biggest and fastest growing sector in the GreenTech - possibly even the entire - technology market6. In late 2008, SmartGrid solutions providers were enjoying 50 percent revenue growth and an 80 percent increase in bookings7.
The continued growth of smart energy in 2009 may catalyze the creation of a smart energy stock index over the year. The transition of SmartGrid solutions providers, from addressing early adopters to undertaking largescale implementation, may encourage a spurt of mergers and acquisitions (M&A) activity in 20098.
The SmartGrid is likely to reach the consumer. Smart metering technologies are expected to enable consumers to 'time shift' their power usage to take advantage of off-peak rates, saving 20 percent on their bills9. In fact, although historically most electrical equipment was purchased by utilities, in 2009 more than half of all electrical equipment, both SmartGrid and older technologies, is expected to be purchased by consumers and enterprises10.
Development of a SmartGrid not only allows for more efficient use of the existing infrastructure, it also makes it more resilient, flexible to changing population and usage patterns, and able to accept sustainable but fluctuating sources of alternative energy.
Bottom line
Major manufacturers and utilities should explore partnerships with, and consider acquisitions of, smart energy companies. Companies should not be distracted by falling oil prices. Supply remains volatile, and demand uncertain. And while the price of oil has dropped over 50 percent from its 2008 peak, energy costs remain well above their long-term trends11.
Governments around the world should look at the cost effectiveness of trade offs between sustainable energy subsidies compared with commitments to upgrading the existing grid. The global downturn may make significant government support for SmartGrid spending unlikely, although some administrations are likely to adopt a policy of stimulative infrastructure spending on their electrical grids, some of which will be for SmartGrid equipment. But profit-oriented utilities and enterprises should continue to explore and deploy SmartGrid technologies that offer high returns on investment, even without government support, to conserve costs.
Governments unable to finance SmartGrid investment could instead promote the technology via information campaigns and stimulate adoption through tax incentives. And as governments increasingly focus on energy security, investing in the SmartGrid could be used to reduce dependence on non-domestic energy sources. It could also make the grid more resistant to military or terrorist attacks, by physical or digital means12.
Venture capitalists (VC) should devote increasing resources to understanding smart energy technologies. VC investment in the sectorm remains strong, even during the current economic crisis, with SmartGrid companies receiving the second largest slice of the GreenTech pie, behind only solar energy13.
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