A true smart grid contender: Aclara comes out swinging

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By: SGN Staff

By Jesse Berst

 

Ask experts to name the best pound-for-pound boxer and they will often pick a smaller man, a middleweight or a welterweight. Yet smaller fighters – no matter how good – rarely get the attention showered on heavyweights.

 

St. Louis-based Aclara – a subsidiary of Esco Technologies (NYSE: ESE) – is pound-for-pound one of the top companies in the smart metering sector. Yet because it emphasizes smaller munis and co-ops instead of heavyweight investor owned utilities (IOUs), it doesn't always get the attention it deserves.

 

"I consider Aclara the industry leader in gas and water," says Carter Shoop, equity research analyst at KeyBank. Aclara execs told me they currently have 2.5 million smart water meters in use and 50% of the market for fixed networks for water. "And Aclara is the clear electric leader in the muni and co-op market with its powerline carrier technology," Shoop continues.

 

Not that Aclara is immune to the overall doldrums of the smart metering sector. In August, parent Esco Technologies reported that sales in its utility segment (of which Aclara is the biggest part) fell 12% from the same period a year ago. Despite the parent company loss for the previous quarter, Aclara CEO Brad Kitterman told me that revenues in his division are currently up 20% over 2011 – quite a feat given the current market slowdown.

Product roadmap

As befits its Midwest origins, Aclara takes a slow and steady approach to winning the race, focusing on a series of incremental enhancements. Here are some of the product enhancements you should watch for in the next while:

·         An upgrade to its powerline technology that will increase headroom and make it closer to the European flavor

·         Enhancements to the consumer engagement software

·         Additional "modules" for its unified operations center for demand side management

·         Distribution automation solutions

·         Additional applications in all three verticals (electric, water, gas), often with partners

·         A mobile solution for consumer engagement that takes a fresh approach

·         Additional data analytics and data management offerings. "Utilities are thinking about things differently," now that the stimulus money has dried up, according to Kitterman. "They are pulling back and asking themselves what is the end value and what is the ROI? "  The new focus, he says, is "what do we do with all that data?"

 

Further out, look for more cloud-based solutions, which are often a great fit for cash-and personnel-strapped co-ops. Aclara already delivers its demand-side solutions that way in conjunction with partner Calico Energy Services.

 

Aclara strengths

Aclara has at least four key differentiators:

 

Focus on small power. Aclara has largely stayed away from the IOU bidding frenzies of the past where, as Carter Shoop puts it "if you lose you lose and if you win you lose." In their eagerness to get business, Shoop says, some venture-backed companies bid so low they lost money on every project. In retrospect, Aclara's focus on munis and co-ops has been a smart move.

 

Loyal customers. GTM analyst David Leeds calls Aclara "one of the most trusted companies in the smart grid space." I was able to confirm this in person a few years back when I delivered a keynote at its annual customer gathering. Aclara's customers do indeed see the company as a long-time partner.

 

Partnering skills. Aclara has been clever about finding partnerships to fill holes and to create total solutions for customers.

 

Aclara's consumer engagement software doesn't get as much attention as that from companies such as Tendril and Opower. It is clearly one of the company's underappreciated strengths. When it comes to paper reports, Aclara's offering has long been one of the best. When it comes to web portals, it has recently won bake-offs at SDG&E, SMUD and Fort Collins.

 

Aclara challenges

Despite its strength, Aclara faces headwinds:

 

Slowing sector. The smart meter market in North America has been drooping for some time now that the stimulus funds have largely been spent. Shoop and others say it may take another two years for that market to find its "steady-state." The slowdown in big deals is creating some desperate competitors. Although Aclara hasn't been hit as hard as many others, it will nonetheless feel repercussions.

 

Powerline skepticism. In North America and certain other regions, powerline carrier is derided as a "toy" solution that is barely sufficient for basic AMI much less for layering additional applications such as distribution automation. Companies such as Cisco and Silver Spring Networks are promoting "multi-service" networks that claim to have more bandwidth and more speed.

 

Switching to a software mindset. Aclara was a hardware company at heart in its early days. As more and more value migrates to software, Aclara (like many of its competitors) has had to scramble to reinvent itself as a software company that happens to sell enabling hardware. That reinvention requires a shift in mindset that permeates everything from accounting to hiring to management to marketing, and Aclara is still in the throes.

 

Margin erosion. If you heard about Echelon's recent progress in China with its partner Holley then you know that Chinese and other low-cost manufacturers have their eyes on the global smart meter market. Expect hardware margins to erode, putting pressure on Aclara and every other manufacturer.

 

Increasing competition in the "small power" segment. Frustrated by the IOU showdown, more and more companies are turning their sights onto municipals and co-ops. And not just smaller players. Companies such as SAIC and General Electric have robust offerings tailored to smaller utilities.

 

Aclara opportunities

I see at least four major opportunity areas:

 

Increase its share of wallet. Aclara's biggest opportunity, in my view, is to go to its ultra-loyal customer base with add-on products and services.

 

Water. The market for smart water networks will accelerate eventually. When it does, Aclara is positioned to benefit. And not just with single-service, water-only utilities. Aclara also has one of the best solutions for a multi-service utility. Not only does it sell all three kinds of meters (water, gas, electric), its demand-side platform can handle all three with the same interface. And give customers a single portal as well.

 

Hybrid communications. If and when cellular takes off as a preferred option for IOUs, Aclara would be well-positioned to supply hybrid networks that use a mixture of powerline, cellular and RF in service territories that need to grapple with both urban and rural constituencies.

 

Overseas growth. Just as Aclara has picked its spots in North America, it has been similarly judicious about overseas expansion. It seems to be approaching Europe with caution, preferring instead to push strongly into Asia. "Our next beachheads are China and Japan," Kitterman told me. "Our powerline technology is a good fit for those markets." He told me the company has pilots underway now, but doesn't expect the Asian markets to accelerate until 2014.

 

I'll be curious to read your comments (use the form at below) to learn what you see as Aclara's strengths and challenges as the smart grid slugfest evolves.

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Jesse Berst is the founder and chief analyst of Smart Grid News.com, the industry's oldest and largest smart grid site. A frequent keynoter at industry events in the U.S. and abroad, he also serves on advisory committees for Pacific Northwest National Laboratory and the Institute for Electric Efficiency. He often provides strategic consulting to large corporations and venture-backed startups. He is a member of the advisory boards of GridGlo and Calico Energy Services.