Spiraling energy costs, compounded with an antiquated power grid, regulations, and security concerns have created a rapidly expanding market for smart meters as people and governments around the world look for ways to conserve energy.
According to recent analysis from Deutsche Bank, approximately 50 million old metering devices in the United States will have to be replaced by smart meters by the year 2010 at a cost of $18 billion. The market remains huge in the rest of the world also where only 4% of water meters, 8% of natural gas meters, and 6% of electrical meters are automated according to chip-maker Texas Instruments. Consequently, within the next decade it is estimated that some 500 million electrical meters will need to be upgraded. This translates into semiconductor sales of more than $7.5 billion, says Texas Instruments strategic marketing director Mark Buccini.
Power providers are being forced to more precisely measure, monitor and control electrical distribution and consumption because of tightening energy supplies and rising costs. Rolling blackouts and power outages provide a real-world experience of a power grid that is overtaxed.
Governments have also realized the need to upgrade and are passing legislation to promote the transition. Federal legislation has been enacted in the United States in the form of the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007 that detail incentives and policies for the establishment of a smart grid. However, since utilities are regulated by the states, uniform adoption of the smart grid has not taken place, according to Itron AMI (advanced metering infrastructure) product manager Matt Spaur.
Two states’ regulatory arms have led the way for the development of a smart grid in America – Texas and California. In California, Southern California Edison’s SmartConnect program plans to install 5.3 million smart meters for both residential and business customers beginning in 2009 and completing the huge project in 2012. The smart meters in this project are being supplied by Itron at a cost of $480 million. In Texas, Oncor is installing 3 million smart meters supplied by Landis+Gyr at a cost of $360 million.
Meters entered the electronic age decades ago, originally replacing certain mechanical components. As electric companies have become deregulated the desire to more precisely monitor energy consumption has increased as utility managers want to more precisely measure their assets. Precise measurement of energy consumption allows for the planning of power buying and selling strategies. This need has led to towards the development of meters that can provide time of use consumption data by incorporating an internal clock in the meter. From here, radio transmitters were added to meters that allowed for automated metering.
Smart meters came about with the addition of AMI; applying networking concepts to the power grid. With AMI, two-way communications occur between the power provider and its customers. This new ability will give utilities a method to monitor and control energy consumption of individual appliances within a home. Utilities could use the enhanced access to the power grid to cycle air conditioning units off and on during a summer heat wave when demand for energy is at a critical high and the grid is at risk of overloading.
Studies from the US Department of Energy’s Pacific Northwest National Laboratory say that if homes were hooked up to AMI that peak loads could be reduced by up to 15%, which translates into savings of $70 billion over a 20 year period when new power plants would have to be built.
The brains of the smart meter come in the form of a single chip that performs calculations, stores information to be sent, and sends the information. Communications can be transmitted in several ways and currently there is no dominant method. One popular method uses radio frequencies to transmit data first to a neighborhood data repository and then back to the power provider. Another device is embedded in the smart meter that allows communications within the home area network (HAN). Another method includes transferring information over power lines – a popular means in Europe.
Chip manufacturers are already witnessing soaring revenues from the demand for smart meters. Chip-maker Teridian saw revenues double in 2007, and expects an additional 70% revenue growth this year, according to Kourosh Boutorabi, VP and general manager at the company. Revenues associated with smart meters only accounted for 10% of the total three years ago while they account for 50% today.
Chips based on a standard protocol developed by the ZigBee Alliance have been adapted by several American companies. The protocol guarantees links between a home and the meter. Vendors of the ZigBee smart meters believe the devices will become extremely popular in the future. “Energy management is probably the most exciting and the fastest moving market for us right now,” said Bob Gohn, VP of marketing at Ember Corporation. “There’s tremendous amount of urgency to get some of these systems in place.” Ember is a leading manufacturer of semiconductors based on the ZigBee standard.
When Southern California Edison’s SmartConnect program comes online, orders for smart meters are expected to soar. “Looking at the requests for proposals and what the regulators are signing off on in terms of rate adjustments to cover these investments, we’re looking at a market in five years of at least 60 million of these smart meters in the United States,” said Spaur. “And a large number of those will be connected to a home area network, and that home network will have at least one device that can talk to the meter.”
Prospects such as these have semi-conductor manufacturers salivating. The $7.5 billion market for smart meters referred to by Texas Instruments represents only a small portion of the entire market – electrical meters. Many more sales will come from needs for networking equipment and automated appliances that can be used in the home.
“The base function – the electricity meter part – is probably the smaller part of the market,” said Buccini. “The communications piece is as much as three times as big.”
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