Deep pockets, defined ROI to drive smart grid uptake

Organizations interested in smart grid projects need adequate funding and clear business plan to drive smart grid adoption, says IDC analyst, adding that IT vendors can help drive agenda for discussion among interested parties.
Written by Kevin Kwang, Contributor

Having a deep pocket for investments, support and upgrades as well as a clearly defined return of investment (ROI) business model are vital to accelerate smart grid adoption among both public and private organizations, an analyst said. But the best implementers for smart grid projects will be experienced consulting firms, he added.

Mayur Sahni, senior market analyst at IDC Asia-Pacific's practice group, said that despite recent activities by IT vendors such as IBM and Cisco Systems to strengthen their respective smart grid capabilities, it will be the people funding smart grid projects who will determine the adoption rate of such technologies.

He added that governments which are convinced about the benefits of such technologies and have the necessary regulatory framework in place will have already embarked on smart grid projects. However, private-sector initiatives will be harder to push through as factors such as pricing models, ROI and project management will have to be agreed upon before any work can be done, the analyst noted.

Additionally, smart grid investors will have to ensure that they have a clear business case figured out, Sahni urged. He said that while the "no-brainer" approach would be to adopt smart grid, which will lead to better resources and cost management and, in turn, allow companies to resell the freed-up utility capacity on the open market for a higher price, securing funds and building a long-term business case are "essential".

"Not too many vendors are looking at [smart grid adoption] from this perspective and do not have a clearly defined business model. The current adoption trend is based on the fact that it is 'good' to adopt smart grids," he pointed out.

But while funding and a defined ROI will accelerate adoption, IT vendors do have a role to play in determining the agenda for discussion among interested parties, Sahni pointed out. "The push from such [vendors] will surely increase Interest levels in smart grid and intent to deploy such projects from governments," he said.

IT vendors build out capabilities
Cisco, for one, put the spotlight back on smart grid technology when it partnered meter maker Itron to advance Internet Protocol (IP)-based communications for the power grid. The two companies are working to create a reference design based on the IPv6 networking protocol to form the basis for gear installed in smart meters, sensors and computing systems inside utilities, company executives stated.

This partnership was followed by its announcement to acquire wireless sensor maker Arch Rock, which provides a system for collecting information from networks of IP-based wireless sensors, routers and servers. An earlier report stated that the acquisition would help beef up the networking giant's smart grid and datacenter business.

Janesh Moorjani, managing director of emerging solutions and smart+connected communities at Cisco Asia-Pacific, told ZDNet Asia in an e-mail that the Arch Rock acquisition and Itron partnership will bring about important capabilities to its smart grid portfolio.

"When combined, they give Cisco a leading edge in offering IP-based advanced metering and field area communications solutions that utilities can scale and build upon in the future," he said.

The executive also said that for the smart grid market size, Cisco believes the technology and communications portion of the market will be worth between US$15 million and US$20 million globally in the next five to seven years.

Similarly, IBM has been making investments in terms of developing hardened industry innovations for smart grids via acquisitions, Sahni noted. The difference between Cisco and Big Blue is that the latter is focusing on software and, specifically, analytical capabilities, he said.

"What's common to IBM and Cisco is the way they are looking to build an ecosystem around them but almost exclusive of each other," he said.

"Cisco is engaging with smart meter companies, talking to energy and device companies such as General Electric, as well as software firms like SAP and Oracle for building a network-based architecture for smart grids. IBM, on the other hand, is offering its technology as the base for its partners to come and build their stack [on top of it]."

These developments make for positive prognosis, according to Keith Williams, president and CEO of Underwriters Laboratories, an independent product safety certification organization that has been working with regulators to come up with guidelines for smart grid implementation.

He said in his e-mail that large tech companies such as Cisco and IBM, together with other industry players, all play a "critical role" in the enablement and development of smart grids. Additionally, IT vendors will help drive innovation and lower investment costs through "scale and increased adoption rates", the CEO noted.

Asia-Pacific prime for smart grid investments
Asia-Pacific, in particular, is an area worth watching out for when it comes to smart grid investments, Gartner's principal research analyst Derry Finkeldey pointed out.

According to him, China, India and Australia are "leading the growth" in smart grid investments within the research firm's forecast period up to 2014. Finkeldey added that developing markets are "leapfrogging" older technologies to focus on technologies such as micro grids, while more mature economies such as Australia are involved in legacy system upgrades and replacement exercises.

The Chinese government had earlier allocated US$7.3 billion to upgrade its energy grid in three phases, the Gartner analyst added. The pilot phase has been ongoing since 2009, while the second phase from 2011 to 2015 will involve "interactive deployment". The entire upgrade is expected to be completed by 2020, with a number of utilities planning "massive advanced metering infrastructure (AMI) rollouts", said Finkeldey.

"Global AMI deployments [alone] are expected to nearly triple by 2015, exceeding US$200 million," the analyst stated.

IDC's Sahni concurred with his counterpart's analysis. He said that smart grid adoption in the Asia-Pacific region will outpace the traction in Western markets, and this is driven mainly by China, South Korea and Australia, which are further along the adoption curve than other regional countries.

"A key facilitator for smart grid projects in the Asia-Pacific region is the availability of finance for investments. Government-led projects in this region should be simpler to plan and deploy from a financial perspective because they have money here," noted the IDC analyst.

The fiscal debt issues in Asia-Pacific countries are "nowhere near" that of their Western counterparts, Sahni stated. Citing the example of India, whose fiscal debt is "well below 10 percent", the analyst said this level of debt makes it easier to raise investment funds.

IBM, for one, is already playing heavily in this region. According to Hemant Shah, IBM Asean's executive for systems software, cloud computing and smarter systems, Big Blue has "a number of active engagements" in this region for smart grid technology, although he declined to name any customers.

He also explained that IBM's involvement in the region is because Asia-Pacific is where economic growth is and all the societies in this part of the world have "adopted a technology-leapfrogging strategy", including smart grids.

"We want to be ahead of the curve in energy management in all aspects and IBM is excited to partner with all the customers in Asia-Pacific that want to adopt smart grid solutions," Shah said.

But Cisco's Moorjani preached patience amid the positive outlook. He said: "Smart grid will be a transition that [takes time] and requires a fabric of solutions that are all based on IP standards so that machines can "talk to one another", scale for future growth and [be easily] replicated within a market as development continues."

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