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“A new market is emerging”
Dr. Carlo Velten, Senior Advisor at Experton Group, responsible for innovation, on the business potential of smart grids and smart metering for ICT companies.
Dr. Carlo Velten, the European Union believes the potential investment volume for smart grids and smart metering is over 100 billion euros. Does this mean a lucrative new market awaits the ICT industry?
There is no doubt that a new market is emerging, a very big market. Power grids in some countries are very outdated, especially where the energy market is more or less a monopoly. There is a considerable need for modernization and capital expenditure. And this extends to the ICT technologies and services required to make grids intelligent. Because the energy industry needs greater transparency if the generation, distribution and consumption of electricity are to become more cost-effective.
There is no doubt that a new market is emerging, a very big market. Power grids in some countries are very outdated, especially where the energy market is more or less a monopoly. There is a considerable need for modernization and capital expenditure. And this extends to the ICT technologies and services required to make grids intelligent. Because the energy industry needs greater transparency if the generation, distribution and consumption of electricity are to become more cost-effective.
Where does the ICT industry see the greatest demand for capital investment – in software, hardware or services?
We believe the main focus will be software, in conjunction with services. The IT industry is interested in developing software that will support intelligent load management and better grid control. This is especially relevant with regard to integrating renewable energy sources. Ultimately, we have to develop solutions that allow us to manage both sides of the energy equation. On the one hand we have monitoring and analysis, and on the other hand the active management of power consumption. Moreover, consumers require software to track their electricity usage in near real-time via Webservices, for example via their smartphones.
We believe the main focus will be software, in conjunction with services. The IT industry is interested in developing software that will support intelligent load management and better grid control. This is especially relevant with regard to integrating renewable energy sources. Ultimately, we have to develop solutions that allow us to manage both sides of the energy equation. On the one hand we have monitoring and analysis, and on the other hand the active management of power consumption. Moreover, consumers require software to track their electricity usage in near real-time via Webservices, for example via their smartphones.
Who has the edge in the market for smart metering and smart grids: the big ICT players or the SMEs?
In one sense, only the large service providers and equipment manufacturers can handle this kind of work. Yet they do not necessarily have the entire skill set. Enterprises with specialist knowledge are essential. There are plenty of mid-sized software and consultancy firms, often with a background in engineering, that have been active in energy management for some time. But there are not many organizations serving consumers in the smart-grid or smart-metering space. And this is where Deutsche Telekom would be a potential candidate with its nationwide presence.
In one sense, only the large service providers and equipment manufacturers can handle this kind of work. Yet they do not necessarily have the entire skill set. Enterprises with specialist knowledge are essential. There are plenty of mid-sized software and consultancy firms, often with a background in engineering, that have been active in energy management for some time. But there are not many organizations serving consumers in the smart-grid or smart-metering space. And this is where Deutsche Telekom would be a potential candidate with its nationwide presence.
How do you rate Deutsche Telekom’s prospects in this market?
A major player like Deutsche Telekom should offer a platform to smaller, more specialist enterprises. These niche companies can then combine their solutions with the strengths of Deutsche Telekom, who could then effectively market the resulting offerings. This would create a sustainable ecosystem of diverse skills and resources. What Deutsche Telekom brings to the table is nationwide service, billing models and the whole issue of security, which is going to become increasingly important. Deutsche Telekom acts as a trusted partner to the customer, and this is a solid basis from which to face up to their main competitors, the big equipment manufacturers.
A major player like Deutsche Telekom should offer a platform to smaller, more specialist enterprises. These niche companies can then combine their solutions with the strengths of Deutsche Telekom, who could then effectively market the resulting offerings. This would create a sustainable ecosystem of diverse skills and resources. What Deutsche Telekom brings to the table is nationwide service, billing models and the whole issue of security, which is going to become increasingly important. Deutsche Telekom acts as a trusted partner to the customer, and this is a solid basis from which to face up to their main competitors, the big equipment manufacturers.
Do you think that the partnership between Deutsche Telekom and ABB is the right move, even though they are both heavyweights?
Absolutely. The market needs to combine infrastructure and equipment with power-grid skills and software. This does not necessarily mean excluding smaller specialist firms, however. In addition, telcos have the resources to provide effective billing services.
Absolutely. The market needs to combine infrastructure and equipment with power-grid skills and software. This does not necessarily mean excluding smaller specialist firms, however. In addition, telcos have the resources to provide effective billing services.
Is smart metering a worthwhile investment for the utilities?
Mathematical models show that smart metering could cut their process costs. For example, smart metering would eliminate the need for physical, on-site meter reading, and would strengthen customer loyalty. However, the technology has yet to catch on in any big way. Although the legislation is very similar throughout the continent, other European countries have had better adoption rates than Germany when it comes to smart metering as they have better incentives.
Mathematical models show that smart metering could cut their process costs. For example, smart metering would eliminate the need for physical, on-site meter reading, and would strengthen customer loyalty. However, the technology has yet to catch on in any big way. Although the legislation is very similar throughout the continent, other European countries have had better adoption rates than Germany when it comes to smart metering as they have better incentives.
So Germany is adopting a wait-and-see approach, as is so often the case as regards new technologies?
Despite the hype it is important to keep the reality of the situation in mind. Customers are very reluctant to pay for this type of service. It’s simply a matter of the expense being weighed up against the potential savings. A household paying 100 euros a month for electricity and saving 10 percent with smart metering would be willing to pay a maximum of eight euros a month for the service, probably far less. This means that the success of the model is to some extent dependent on how energy prices develop. If they rise by 50 or even 100 percent, the technology will take off.
Despite the hype it is important to keep the reality of the situation in mind. Customers are very reluctant to pay for this type of service. It’s simply a matter of the expense being weighed up against the potential savings. A household paying 100 euros a month for electricity and saving 10 percent with smart metering would be willing to pay a maximum of eight euros a month for the service, probably far less. This means that the success of the model is to some extent dependent on how energy prices develop. If they rise by 50 or even 100 percent, the technology will take off.
But surely increased visibility into consumption can help businesses make great savings on energy costs?
The question is whether transparency can make a difference to households’ or businesses’ actual consumption levels. Would manufacturers really be in a position to delay or bring forward production to take advantage of cheaper electricity? We believe that ICT providers must quickly get to grips with the ins and outs of energy management.
The question is whether transparency can make a difference to households’ or businesses’ actual consumption levels. Would manufacturers really be in a position to delay or bring forward production to take advantage of cheaper electricity? We believe that ICT providers must quickly get to grips with the ins and outs of energy management.
Who do the energy industry see as the main driving force – the four big utilities or the 800 or so smaller providers?
It makes a lot of sense for the regional utilities to launch innovative smart metering solutions, as they have strong customer relations with both consumers and businesses. These relationships can be safeguarded and strengthened through offerings that prevent customer churn. In this respect, the smaller utilities would make ideal partners for IT players.
It makes a lot of sense for the regional utilities to launch innovative smart metering solutions, as they have strong customer relations with both consumers and businesses. These relationships can be safeguarded and strengthened through offerings that prevent customer churn. In this respect, the smaller utilities would make ideal partners for IT players.
