Why 2012's smart grid growth isn't sustainable without a new business model

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Editor's note: Last week Allan McHale wrote about how the smart grid market outperformed in 2012 (but the future looks less bright). In today's column he explains what he thinks must happen for the market to avoid a significant decline.

 

By Allan McHale

Memoori

 

World smart grid sales climbed to $36.5 billion at installed prices in 2012 -- a growth of 30% on 2011. Meanwhile, M&A activity reached $19.5 billion last year, almost doubling the value of deals in the previous year, according to Memoori’s latest report The Smart Grid Business 2012 to 2017.

 

The report shows the smart grid supply industry has made good progress over the last three years. But the future is not as bright as it might seem when you consider the demand side. That's where the real struggle is today, although there are other barriers to sustained smart grid growth as well.

 

What we're seeing is that while regulators and policymakers search for an effective smart grid framework, they often lose sight of the most important reason for developing one, which is to build a system that will accept as much Variable Renewable Energy (VRE) as practical.

 

To do that requires a new decentralised, hybrid business model that breaks down the barriers inherent in the old one, allowing new stakeholders to play a part and be adequately rewarded. We need a model that encourages:

  • Commercial, industrial and residential premises to deliver energy from micro-generation and microgrids

  • Information Communications Technology (ICT) companies to invest directly in developing “Big Data” and analytics to enable a market-based system that not only manages electricity supply and demand, but creates economic value through markets, tariffs, contracts or other value based mechanisms

  • Energy Management Service companies to organize Virtual Power Production that provides scale and flexibility

To be fair, regulators have changed some practices that move us toward a more user-friendly model, but much more effort is needed from policymakers. If substantial progress is not made soon, by 2017 we anticipate the smart grid market will go into decline.