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Recent reports from Wall Street insiders have warned of a smart grid market slowdown. To some extent, these warnings represent the Street’s recognition of the coming pause in smart meter awards we wrote about in September.

So we were interested to hear from Andrew Weisel of Macquarie Research that a recent survey reveals utilities intend to move forward with smart grid plans, despite headwinds such as consumer pushback and regulatory delays. We asked him to share his insights with SGN readers.

By Andrew Weisel

Macquarie Research recently conducted its second smart grid survey. Fifty-five utilities responded with their views about smart grid applications. The findings: Utilities are even more interested in smart grid programs than a year ago, despite pushback from regulators and ratepayers.

More interest in smart grid spending

We were surprised with the level of interest in making smart grid investments in the coming years, despite high-profile opposition. Relative to 12 months ago, 37% of utilities are more likely to deploy smart meters and demand response (DR). Only 3% are less likely for both technologies. Other findings:

·         61% of utilities that have not yet deployed smart meters intend to within three years

·         44% of those that haven't deployed demand response intend to within three years

·         Only 3% do not plan to roll out either technology until required

Despite regulatory/ratepayer pushback

Most utilities believe that their regulators support smart meters and DR. Regulators seem to have a slight preference for DR, consistent with Macquarie’s industry thesis that DR is more attractive in today's weak economy. However, between a third and a half of utilities have seen pushback from regulators, and over 20% worry about it in the future. Opposition from ratepayers is also a concern, particularly for smart metering.

Economics not attractive in isolation

Only about a third of utilities surveyed believe that smart metering and DR investments are economically attractive on their own. Utilities favor dynamic pricing as the best way to create a positive smart grid business case. Even though the economics are better for DR, 50% of the utilities deployed smart meters first (or intend to). Only 21% deployed (or will deploy) DR first. We believe that this is because utilities are generally able to add smart meters to their rate base and earn a return on equity. DR programs, on the other hand, reduce demand and thus sales (except in states with decoupling).

Given stronger-than-expected interest from utilities, we are now more positive on smart grid industry growth, and therefore on investment opportunities in the space.

Andrew Weisel is a sell-side equity research analyst for Macquarie Capital, which provides advisory and capital raising services to corporate and government clients. Andrew covers US utilities and smart grid companies. He can be reached at andrew.weisel@macquarie.com or 212-231-1159.

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