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Smart Grids Bring Opportunity for T&D Equipment

Sma rt Grid Analysis believes tha t as Sma rt Grids evolve they will requi re a new breed of

of which

could be game changing for T&D equipment makers. Sma rt Grid requi rements for T&D

equipment a re such tha t they could reshape the T&D equipment indus try in profound ways. When the telecommunica tions “revolution” began in the U.S. in the 1980s, there were three dominant suppliers of equipment to the telephone utilities: AT&T Ne twork Sys tems, GTE and

Northern Telecom. The fi rs t of these is

the two other fi rms a re out of business. No one a t the

time would have predicted such

now essentially pa rt of the French company Alca tel;

transmission and distribution

equipment wi th enti rely new capabilities, the resul t

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drama tic changes. Could the advent of the Sma rt Grid bring such changes to the T&D equipment fi rms?

The Smart Grid: A New Chance for the T&D Equipment Industry

“Green tech,” Smart Grids and equipment: Sma rt Grid Analysis believes tha t a number of

factors have come toge ther in the so called Sma rt Grid to crea te important new opportunities for the es tablished Transmission and Dis tribution (T&D) equipment indus try and even to open up to the ma rke t for new entrants. The mos t visible of these opportuni ties s tems from the idea tha t the deployment of Sma rt Grids will improve the envi ronment. This will have important posi tive revenue implica tions for T&D equipment makers, which will increase thei r business in Sma rt Grids through (1) high performance grid overlays and interconnects to bring

renewable power to population

of renewables when they a re connected to the grid; the la tter has been a major problem in the wind power industry, for example. The Sma rt Grid is also often presented as a way of reducing ca rbon emissions. A lot of T&D equipment company ABB’s Sma rtGrid activi ties have been in Stockholm, Sweden, where the Sma rt Grid concept is largely being presented as a salve for ca rbon emissions.

centers, and (2) equipment tha t supports the va riable nature

Automation and Smart Grid equipment: However, the opportunity for T&D equipment makers in Sma rt Grids is actually much bigger than Sma rt Grid’s image as pa rt of “green tech” might sugges t. Qui te apa rt from envi ronmental concerns there a re important reasons to build be tter reliability, e fficiency and securi ty into the grid. The key drivers here, of course, a re the growing number of outages, the pos t9/11 fea r of terroris t attacks and today’s high cos t of energy, which promotes the need for e fficiency.

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thin film | organic | printable | electronics www.nanomarkets.net The opportuni ty for T&D equipment

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The opportuni ty for T&D equipment makers is to incorpora te the lates t IT, control and automa tion into the Sma rt Grid, and this opportuni ty is made tha t much larger because, by common consent, the s ta te of communica tions and IT in power grids as they now s tand is quite primi tive. The goal of Sma rt Grids is to deploy a comprehensive Interne t Protocol (IP) based communica tions sui te tha t will facilita te subs ta tion automa tion, dis tribution automa tion, energy management sys tems, conges tion and grid s tability, moni toring equipment health, energy theft prevention, and control stra tegies support. (This is not intended as a complete list). Advanced communica tions in the grid is also obviously important to enable the consumer energy monitoring tha t is a t the hea rt of Sma rt Grid s tra tegies many utili ties.

While T&D equipment manufacturers must obviously take into consideration the growing “sma rts ” in the Sma rt Grid, they obviously would not want to, nor would i t make much sense to, enter the communica tions equipment business. The converse is also true. Many of the big

companies tha t a re entering the Sma rt Grid business today have communica tions as thei r core

business – Cis co and Veri zon, for example – but these companies

ge tting into the T&D equipment business

the interfaces and control subsys tems tha t make

future will increasingly

Sma rt Grid functionality possible. This is potentially a ma rke t differentia ting fea ture.

clea rly have no intention of T&D equipment sold in the

as such. None theless,

need to embody

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Smart Grids, equipment and open markets: Deregula tion and priva tiza tion a re seldom associated wi th Sma rt Grid developments. However, in practice many of the functions – such as enhanced reliability and s ophis ticated moni toring capabilities – tha t will be expected from T&D equipment in the future as the resul t of Sma rt Grid developments will enable utili ties to

compe te more e ffectively. In addi tion, more s ophis tica ted energy ma rke ts will requi re very high capaci ty transmission “highways ” across which this trading will take place. These

“highways ” a re

using HVAC and HVDC transmission equipment.

also pa rt of the Sma rt Grid concept and would presumably be cons tructed

We think then tha t the Sma rt Grid s tory can easily be transformed by T&D equipment

manufacturers into a s tory buil t a round the premise tha t utili ties can improve thei r bottom

lines by buying certain

clothed in a Smart Grid image a re more precisely cha racteri zed as a grid upgrade requi red by

highly compe ti tive condi tions.

kinds of equipment. In fact, we believe tha t many projects tha t a re

A new breed of T&D equipment: The bottom line is tha t the much touted "Sma rt Grid" will have a profound impact on T&D equipment fi rms tha t manufacture the equipment used in the

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thin film | organic | printable | electronics www.nanomarkets.net transmission and distribution (T&D)

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transmission and distribution (T&D) infras tructure. Conductors, transformers, ci rcuit breakers, swi tches, subs ta tion equipment and other grid equipment will all have to take on new kinds of

functionality.

In fact, Sma rt Grid Analysis believes tha t a new breed of T&D equipment is likely

to emerge as the result of Sma rt Grid deployments. This “new breed” of equipment will be dis tinguished in the ma rke tplace from older T&D equipment by one or more of the following

(s omewha t interrelated) capabili ties:

Real time moni toring and diagnosis capabilities

Automa ted response to grid failures

Equipment automa tion and remote control

Plug and play interconnection of new genera ting facilities

Integra tion of wind and sola r genera tion into the grid

Enhanced consumer energy management and demand/response models

Enhanced securi ty requi rements

Advanced

communica tions/software interfaces

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Technologies for T&D equipment in the Smart Grid: It is important to realize tha t these kinds of fea tures will make the T&D equipment of the future very di fferent from tha t being s old today. For this to happen, T&D equipment makers will have to integra te enti rely new technologies into thei r equipment.

Some of these a re new ma terials technologies. Of especial importance in this rega rd a re HTS superconductor ma terials and composites tha t a re proving in as ways to boost the capacity of transmission sys tems. Superconductors, in pa rticular, have al ready shown tha t they can be used to crea te very high capaci ty transmission lines, faul t current limi ters (FCLs), trans formers and other T&D sys tems of s trategic importance. For superconducting sys tems to make economic sense for utilities a t the present time, some kind of government subsidy is usually requi red, but our sense of the ma rke t is tha t superconducting technology is not tha t many yea rs from holding i ts own a t least in certain s tra tegically important niches.

Of even more importance is the new genera tion of equipment tha t is being built a round the la test power electronics. This equipment includes both FACTS and HVDC sys tems. In both cases, some of this equipment has been out in the ma rke t for a while, but we expect the next genera tion of these sys tems to be significantly more sophistica ted and to sell in grea ter quantities.

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Finally, the Sma rt Grid concept s trongly implies that the Grid will adopt a much more

sophistica ted level of IT deployment than i t ever has before. This is not s ome thing tha t T&D

they will have to

accommoda te this development, both

senses of the new types of Sma rt Grid equipment and in supporting the emerging softwa re interfaces and s tanda rds (including securi ty s tanda rds) tha t a re just beginning to emerge.

in terms of providing the sensors that serve as the

equipment makers a re likely to become di rectly involved in. However,

Sources of Revenues for T&D Equipment Industry

Sma rt Grid Analysis believes tha t the trends outlined above will create important new

Sma rt Grid on thei r

business and thei r products. Indeed, the changes

enough to produce major shi fts in marke t sha res among existing suppliers and to enable new fi rms to enter the T&D equipment sector. Essentially, we expect the revenues, which will pay for new equipment to put in place, from Sma rt Grids to come from three sources:

opportuni ties for equipment fi rms tha t understand the implica tions of the

revenue

in the grid a re expected

to be revolutiona ry

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Utilities seeking to upgrade existing grids. It can be expected that utilities will exploi t the current fervor over Sma rt Grids to tap sha reholder, bondholder and government

sources to ca rry out much needed

grid development, whe ther or not such

improvements really fi t the usual defini tions of Sma rt Grids. Obviously, as

utilities

pursue this upgrading s tra tegy, they will have to increase capi tal expendi tures T&D equipment.

on new

Utilities seeking to add value to traditional electricity grids. The Sma rt Grid concept enables power companies (a t least potentially) to grow thei r revenues through services tha t they have never offered before. The most obvious example here is sma rt me tering, but one could also imagine their involvement wi th installing home a rea ne tworks (HANs ) or offering communica tions services over the power lines. Addi tional equipment would need to be added to grow the businesses of power companies in this way, s ome of which would be T&D equipment. In addi tion, while this expansion of the ma rke ts available to the tradi tional power company fits qui te well wi th the Sma rt Grid as currently conceived, i t is by no means certain tha t power companies will do well selling these services. A cautiona ry tale can be seen in the telephone companies' hopes tha t the development of broadband ne tworks would let them into the content development business.

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Governments that see Smart Grids as a way of pursuing certain policy goals . Governments, especially in the U.S., have va riously seen the Sma rt Grid as a platform

for job crea tion and improved na tional securi ty, as well as a way to s timula te business and engineering innova tion and increase the percentage of energy tha t is supplied by renewable sources. There is no doubt that some of the more innova tive Sma rt Grid projects would not exist if i t was not for government s ubsidies. Thus, the installation

uses high tempera ture superconductors—for be tter or

worse—would probably not be happening now i f i t weren't for government subsidies.

of T&D equipment tha t

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However, while government funds are certainly an enabling factor in the deployment of Sma rt Grids, they must also be measured against shifting political reali ties. For example, in some pa rts of the world (notably Germany) subsidies for renewables a re being phased out and this could impact the need to integrate renewables as a jus tifica tion for Sma rt Grid deployment.

As all of the above suggests, we believe tha t there is a high potential for T&D equipment fi rms to reap a signi ficant windfall from all of the current fuss about Sma rt Grids. At the same time, we also believe tha t i t would be all too easy for T&D equipment fi rms to become the victims of hype. I f (probably when) they do, i t will be easy for these equipment fi rms to overshoot wha t the ma rke t really demands.