Utility Industry Predictions: What IDC Got Right ... And Wrong

The smart folks at IDC Energy Insights issued their annual utility industry predictions recently. My interpretations and comments are below.

1.  Energy efficiency and demand response will continue to be the “first fuel” choice for electric utilities.

·         Drivers include demand growth (up 30% by 2030) and regulatory mandates, plus the high costs and long lead times for traditional generation

·         Utilities will ramp up demand response and energy efficiency, including home energy management

·         Utilities will also ramp up back office applications to automate customer enrollment and management

·         Third-party energy management solutions (including those from Google and Microsoft) will increase dramatically, but the space is overcrowded, so expect a shakeout

I’m glad to see IDC adding its voice to our earlier warnings about the coming consolidation in the home energy management space. Utilities, consumers, and investors all face a very real risk of being stranded by suppliers who go under.

2. Renewable energy capacity additions will exceed natural gas plant additions.

·         Drivers include state renewable portfolio standards and other policy incentives, plus cost reductions from economies of scale

·         Wind will lead

·         Central solar may achieve grid parity in the Southwest

This is good news for Smart Grid vendors; the more intermittent renewables that come onto the system, the greater the need for a Smart Grid.

3. Utility-scale stationary energy storage will have its coming out party.

·         Drivers include state renewable portfolio standards that allow storage to qualify; the ARRA demo grants; integration of renewable energy; and the ability to defer system upgrades by using storage instead

·         Lithium-ion will dominate

·         Lithium-ion and flywheels will provide frequency regulation

·         Some compressed-air projects will break ground

·         More incentives may appear this year at the federal level

As we told you earlier this year, we think grid-scale storage has reached the tipping point.

4.  Smart Grid spending will hit $18 billion by 2013.

·         Drivers include the ongoing smart meter rollouts; the stimulus funding won’t have an impact until late 2010 at the earliest

·         By year end the country will be at 20 million smart meters and 15% market penetration

·         The infatuation with consumer-facing technologies will cool and the focus will shift to distribution automation

We've said before that we expected distribution automation to be the next growth area. However, expenditures will still be relatively modest compared to the larger metering segment.

5. The first wave of electric vehicles and charging infrastructures will emerge.

·         Drivers include the improvements in batteries and the appearance of charging standards and the commitment of the car makers (the auto shows have turned into electric vehicle showcases)

·         30,000 electric vehicles will be on the road by year end, the “beginning of a flood”

·         Utilities will start to experiment with business models for home and business charging

IDC rightly predicted growth here, though real growth will trail far behind the growth in media coverage. However, IDC missed the fact that this growth will disproportionately affect certain utilities. EVs will appear first in "pockets," especially high income, progressive neighborhoods in urban areas. The utilities serving those areas may wake up soon with an urgent need to upgrade their infrastructure to accommodate the big new loads created by hybrids and pure play EVs.

6. Trading of energy commodities will grow.

·         Players are returning in anticipation of changes in policy that will support energy trading

·         Traders are looking to exchanges for electronic clearing

·         Natural gas will be a big part of the energy trading party

In a rare moment of restraint, I will forgo the obvious Enron jokes here.

7. Traditional generators (fossil fuels, nuclear) will focus on managing for sustainability.

·         Drivers include expected carbon regulations

·         Generators will look to IT for complex modeling and simulation to optimize their portfolios

·         Generators will wait to build carbon trading infrastructure until regulations become clear

In other words, carbon regulation has already begun to affect utilities’ decisions even before it has actually arrived.

9.  Smart cities will emerge as proving grounds for the “smart economy.”

·         Drivers include urbanization, pervasive broadband and the availability of smart devices

·         Amsterdam Smart City, Austin’s Pecan Street Project and Boulder’s SmartGridCity will emerge as leaders; in general, medium-sized cities will move faster than big cities

·         Smart Grid will be the initial focus; then water, transportation and buildings will leverage that infrastructure

10. U.S. utility industry IT spending growth will accelerate dramatically.

·         Drivers include the accelerating economic recovery and the Smart Grid stimulus grants, plus increasing regulatory mandates for smart meters and energy efficiency.

·         The utility industry will have the biggest jump in IT spending of any sector! (11% in 2010 compared to 2.6% across all industries.)

·         The electric segment will dominate -- gas and water will be flat.

·         Top IT initiatives will include smart metering, meter data management, enterprise resource planning, telecommunications, asset and workforce management (including GIS) and customer portals.

Who would have thunk it. After being the boring laggard for the last 20 years, the utility industry is suddenly the IT spending leader. And if you were to subtract the gas and water utilities that are pulling down the average, the growth rate at electric power utilities would be considerably higher.

What happens when you are one of the only rapidly growing sectors in a sluggish economy? About the same thing that happens when you drop chum overboard into a group of hungry sharks. The utility industry is going to be in the sights of every IT provider.

From the source …

IDC Energy Insights

Related SGN resources …

How Storage Snuck Up on Us (and Why You Should Finally Pay Attention)

Survey: Demand Response Increasingly Driving Smart Grid Spending

Smart Grid communications

Electric Transportation

Stay connected with SGN …

·         Get LinkedIn with Jesse

·         Be a Fan on Facebook

·         Follow Us on Twitter

·         Try our RSS feed

·         Get our email digest