Networking and communications for smart grids and utility applications: A $100B opportunity
The following is a Viewpoint by Richelle Elberg, principal research analyst at Navigant Research.
Power utilities today are faced with a fast-changing operating environment. Not only are competitive threats and operational challenges mounting, but customers are demanding more of their utilities — as are regulators.
Meanwhile, technological advances are making it easier and cheaper to deploy connectivity throughout a utility’s territory. Sophisticated IT and analytics programs can now leverage the data made available by connected devices to improve grid reliability, safety, resilience and operational efficiency — all of which augment the utility’s return on the networking investment.
Thus, investment in networking for a multitude of utility applications is accelerating — and the ways that utilities are solving the connectivity problem are diversifying.
Leading trends in utility networking globally
Utilities have a plethora of options available for their networking needs. In addition to well-established solutions such as radio frequency (RF) mesh and power line carrier (PLC) technologies for smart metering, newer solutions such as low power wide area (LPWA) technologies and private 4G LTE are beginning to garner attention on the part of utility networking managers and planners.
The growing demand for fiber capacity — and utilities’ ownership of rights of way and poles — has also prompted many to deploy new fiber when building (or rebuilding) transmission and distribution corridors. This has significant implications for new business models and potential revenue streams as 5G wireless becomes a reality.
Finally, where utilities have historically built application-centric networks (often within operational silos), planners are beginning to take a longer-view with an eye toward multi-purpose, holistic networks across their territories. Longer-term, utilities understand that integration of behind the meter distributed energy resources (DER) and visibility at the grid edge and throughout the distribution network will soon become obligatory.
Navigant Research’s most recent study on Networking and Communications for Smart Grids and Utility Applications uncovered several notable trends in utility networking investment. These include:
RF mesh solutions remain dominant in North America for smart metering networks, while PLC is dominant elsewhere globally. However, utilities are increasingly exploring private network options (usually with LTE wireless). More are also embracing the so-called Utelco model and deploying fiber throughout their territories and, in some cases, to the meter. Smart meter penetration worldwide will approach 40% by the end of 2018; in North America, it is approaching 60%. Some utilities are now planning or deploying second generation advanced metering infrastructure (AMI) systems (e.g., the State Grid Corporation of China or Enel in Italy).
Visibility throughout the distribution grid — once all but nonexistent — is increasingly a priority for utilities. AMI networks, lower cost line sensors, connected distribution grid devices and substations are driving deployment of interconnected — or, in some cases, holistic — networks across vast areas to which utilities were previously blind. In fact, field area network investments once driven primarily by smart meter deployments are now often motivated by the distribution automation (DA) potential that these networks offer, with smart meters considered a secondary benefit.
Utility willingness to rely on public cellular networks remains low in North America — with some notable exceptions. Elsewhere, global carriers are seeing widespread demand for cellular connectivity. In Europe in particular, new connectivity to secondary substations often relies on 3G or 4G cellular. This is expected to be an area of high investment over the next decade.
Leased line and time-division multiplexing (TDM) retirements by telephone companies are forcing upgrades in substations where these solutions have been the standard for decades. Microwave point to point and fiber are increasingly the technologies of choice for new substation connectivity — although satellite is also seeing an uptick in use for remote substations, thanks to lower pricing.
Remote distributed generation (e.g., solar and wind) means new and more robust transmission interconnections must be built. Today, it is common for utilities to deploy fiber networking along new transmission lines by default.
New LPWA networking solutions are beginning to demonstrate how they can enable widespread asset monitoring, and in some cases control, for prices well below older networking options.
The Utelco model — where a utility deploys fiber throughout its territory to provide end-user broadband services or wholesale capacity to other telecoms or enterprises — is gaining traction. In the U.S., cooperatives are getting into the broadband business with local support due to sub-par competitive broadband service offerings in their territories.
In short, the business model for electric utilities is evolving and connectivity will be a key foundational element as digitization becomes de rigueur in the industry. Competitive pressures will mean that these connectivity capabilities are increasingly a business essential, rather than just nice to have.
$100 billion in spending
Utilities are expected to spend more than $100 billion on networking and communications equipment and services over the next decade.
Worldwide, utilities are estimated to have spent nearly $8 billion in 2018 for networking and communications equipment supporting infrastructure and services. The latter, including leased lines, cellular service, tower leasing, satellite services and LPWA services, accounted for approximately 13.5%, or nearly $1.1 billion, of utility spend.
The remaining $6.9 billion can be attributed to utility capital investment in networking equipment. Through 2027, equipment spend is projected to grow at a 3.4% rate, to $9.3 billion. Utility spend on services will expand 10% a year, to more than $2.5 billion in 2027.
An executive summary of the Navigant Research report Networking and Communications for Smart Grids and Utility Applications can be downloaded for free here. Additional detail and country-level analyses are also available from Navigant Research.