REPORT SCOPE
INTRODUCTION
STUDY BACKGROUND
The century-old U.S. electrical grid has been called the largest interconnected machine on earth. It consists of more than 9,200 electric-generating units with more than 1,000,000 MW of generating capacity, connected to more than 300,000 miles of transmission lines. Several years ago, the U.S. National Academy of Engineering voted the national electrification made possible by this grid as the “most significant engineering achievement of the 20th century.”
However, the grid is showing its age. There have been massive blackouts in recent years, including the 2003 Northeast blackout, the worst in the nation’s history. Although it was accidental, the 2003 blackout was a reminder of the grid’s vulnerability to terrorist attack. And this blackout was foreshadowed by a troubling trend: According to the Department of Energy, 41% more outages affected 50,000 or more consumers in the second half of the 1990s than in the first half of the decade. The “average” outage affected 15% more consumers from 1996 to 2000 than from 1991 to 1995 (409,854 versus 355,204).
Regular power outages and blackouts cost the U.S. economy an estimated $80 billion annually, according to a 2005 Lawrence Berkeley National Laboratory study. The figure reflects only direct losses to the economy, and does not take into account the inconvenience and frustration experienced by users during a power outage.
In addition to growing concerns about the U.S. electric grid’s robustness and reliability, the grid was designed and built with one basic objective in mind — keeping the lights on. Meanwhile, other concerns have become increasingly important in the political and public dialogue about the status and future of the electrical grid, particularly:
- Energy efficiency
- Environmental impacts
- Consumer choice.
Governments and utilities in the U.S. and elsewhere are investing in new technologies in order to build a 21st-century grid that:
- Runs more efficiently
- Generates higher-quality power
- Resists attack
- Is self-healing
- Enables consumers to manage their energy use better and reduce costs
- Integrates decentralized generation (e.g., renewable energy) and storage (such as fuel cell) technologies.
In addition to meeting the need for reliable, high-quality power, these technologies are intended to meet the economy’s energy needs as efficiently as possible, optimizing energy consumption and related environmental impacts such as greenhouse gas emissions.
These technologies are often referred to generically as smart grid technologies. Smart grid describes a set of related technologies, rather than specific technology with a generally agreed-on specification. These technologies fall into five main areas:
- Two-way integrated communications: allow for real-time control, information and data exchange to optimize system reliability, asset utilization, and security
- Sensing and measurement: evaluate congestion and grid stability, congestion and grid stability, monitor equipment health, detect energy theft, and support control strategies support
- Advanced components: flexible alternating current transmission system devices, high-voltage direct current, first- and second-generation superconducting wire, high-temperature superconducting cable, distributed energy generation and storage devices, composite conductors, and “intelligent” appliances
- Advanced control that enables rapid diagnosis of and precise solutions to specific grid disruptions or outages
- Improved interfaces and decision support that reduce complexity so that operators and managers have tools to effectively and efficiently operate a grid with increasing numbers of variables.
GOALS AND OBJECTIVES
This report is an update of an earlier BCC report that was published in early 2009. Since then, there have been many important developments that have the potential to affect the development of the smart grid. These developments include the passage of the American Recovery and Reinvestment Act (stimulus bill) of 2009, which earmarked $4.5 billion for investments in smart grid technology; the growing interest of large private sector players such as Google, IBM, GE, and Cisco; and a significant increase in the amount of venture capital flowing into smart grid–related investments.
On the negative side, the 2008 and 2009 recession and the subsequent slow recovery have dampened the growth of the smart grid, for example, by making it harder for utilities and suppliers to obtain credit, making the weighted average cost of capital higher, and impacting the discounting of costs and benefits in the business case. Regulators in some states (e.g., Maryland and Hawaii) have rejected utilities’ smart grid proposals, arguing that consumers were expected to bear too much of the cost and risk and that potential returns do not justify the cost.
In view of these developments, BCC believes that an update of the earlier report is timely. The overall goal of updating this report is to reassess the business opportunities for providers of smart grid technologies that will arise over the next 5 years as products utilizing these technologies increase their market penetration. In support of this goal, specific objectives of the report include:
- Identifying the smart grid technologies with the greatest commercial potential over the next 5 years (2011 to 2016)
- Estimating the market for these technologies in 2010
- Analyzing the technical, economic, and other demand drivers for these products, and other prerequisites of success in these markets
- Projecting the potential U.S. markets for these technologies through 2016
- Analyzing macro-level political and economic forces that are helping to shape the market for smart grid technologies.
INTENDED AUDIENCE
The report is intended especially for providers of smart grid technologies and products based on these technologies. Although the report is structured around specific technologies, it is largely nontechnical in nature. That is, it is concerned less with theory and jargon than with what works, how much of the latter the market is likely to purchase, and at what price.
As such, the report’s main audience is executive management, marketing, and financial analysts. It is not written specifically for scientists and technologists, although its findings concerning the market for their work, including the availability of government and corporate research funding for different technologies and applications should interest them as well.
Others who should find the report informative include government agencies, environmental, and public policy interest groups with an interest in energy, the environment, and sustainable development in general.
SCOPE OF REPORT
The study covers the major enabling technologies for the smart grid, including:
- Communications technologies
- Sensing and measurement technologies
- Advanced components
- Control technologies
- Interface and decision support technologies.
The study format includes the following major elements:
- Executive summary
- Definitions
- Benefits of smart grids
- Smart grid “roadmap”
- Policy, regulatory, and economic environment for the transition to a smart grid
- Enabling technologies for the smart grid
- Developers and suppliers of smart grid–enabling technologies
- Current (2010) and projected market for smart grid technologies through 2016
- Patent analysis.
METHODOLOGY
The report is based on the results of targeted interviews with producers and users of smart grid technologies, complemented by a thorough literature review and BCC’s internal databases. The base year for analysis and projection is 2009 or 2010, in cases where data for all of 2010 were not available at the time the report was written.
With 2009 or 2010 as a baseline, market projections were developed through 2016. These projections are based on a combination of a consensus among the primary contacts combined with BCC’s understanding of the key market drivers and their impact from an historical and analytical perspective.
The methodologies and assumptions used to develop the market estimates and projections are described in detail in the chapters on smart grid markets. That way, readers can see how the market estimates were developed and, if they so desire, test the impact on the final numbers of changing assumptions such as price.
AUTHOR’S CREDENTIALS
Andrew McWilliams, the author of this report, is a partner in the Boston-based international technology and marketing consulting firm, 43rd Parallel, LLC. He is the author of the previous edition of this report, as well as several other reports that analyze selected smart grid technologies, such as Energy Management Information Systems: Global Markets (EGY052B); The U.S. Market for Clean Technologies (ENV011A); Superconductors: Technologies and Global Markets (AVM066B); Metamaterials: Technologies and Global Markets (AVM067A); and Advanced Materials and Devices for Renewable Energy (EGY053B). Mr. McWilliams is also the author of several other energy-related BCC reports, including Petroleum Fuel Optimization Technologies (EGY051A); Building the Global Hydrogen Economy: Technologies and Opportunities (EGY055B); and Nanotechnology in Energy Applications (NAN044A).
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DISCLAIMER
The information developed in this report is intended to be as reliable as possible at the time of publication and of a professional nature. This information does not constitute managerial, legal, or accounting advice; nor should it serve as a corporate policy guide, laboratory manual, or an endorsement of any product, as much of the information is speculative in nature. The authors assume no responsibility for any loss or damage that might result from reliance on the reported information or its use.
