Smart grid’s big promise lures blue chips

By Poornima Gupta – Analysis

SAN FRANCISCO (BestGrowthStock) – After the Internet, the power grid is seen as the new frontier for many big companies.

The lucrative challenge of converting the antiquated electrical transmission system into an intelligent network is attracting heavy investment from technology giants, telecommunication companies and industrial conglomerates.

From Cisco, IBM, Motorola, Sprint to industrial conglomerates GE and Siemens, companies are vying for contracts with utilities that own the power lines and racing to stake claim on the opportunities in the emerging market.

Modernizing the aging grid and deploying smart grid technologies is a market that is forecast to grow to $200 billion over the next five years, according to Pike Research.

The market was valued at $21 billion last year.

An infusion of federal funds, nearly $4 billion so far, in various projects has given a boost to the building of a smart grid, a loose term used to describe a more efficient electricity supply chain.

“The large IT and technology players are certainly seeing huge opportunities in the smart grid space,” said Clint Wheelock, managing director at Pike Research, which tracks the market. “Cisco and IBM are among the most aggressive in recent years.”

“GE is very active. I think the competitive positions are already being staked out,” he added.

The $1 billion acquisition of smart grid software company Ventyx by Swiss engineering group ABB on Wednesday indicates how competition is increasing as larger companies enter or expand in this attractive market, said John Quealy, analyst with Canaccord Adams.

The U.S. power grid is currently seen as already working at its limit. The vision for a smart grid is a network that will wring new efficiencies from thousands of miles of power lines and aid the development of renewable energy, introduction of “smart” appliances that turn themselves on and off, and support a fleet of electric cars.

This creates the need for communications systems, data integration and other software, smart meters, security systems and a host of other services — all of which play to the current strengths of established companies.

GROWTH EYED

The smart grid is “absolutely” a growth area for Cisco, Laura Ipsen, senior vice president of Cisco’s smart grid unit, told Reuters. “We see a pretty big wave in infrastructure in two to five years. There is a lot of change happening.”

Cisco, which is working with a number of utilities including Duke Energy and Florida Power and Light, has said a smart grid will be bigger than the Internet in reach and has identified $20 billion in opportunities in the next five years.

The company is also hiring aggressively to beef up the unit, including luring a former California utility executive as its new smart grid chief technology officer, Ipsen said.

IBM, too, is seeing a lot of momentum internationally. While it did not reveal the size of the opportunities in the U.S. smart grid market, the company expects its China energy unit alone to grow by $400 million from now until 2014.

Smart grid projects are “one of the top revenue streams inside Smarter Plant,” said Alan Schurr, IBM’s vice president of strategy and development, referring to the initiative that aims to apply information technology to efficiently manage electrical grids, transportation systems and other networks.

IBM has hired more than 100 people in the last two quarters globally in the smart grid division and working on more than 50 smart grid projects across the world, including networking the electric and water systems in the island nation of Malta.

The key to growth in the sector, however, is the power utilities — a group that is traditionally known to be risk averse and slow moving.

While most utilities around the country are laying the groundwork to upgrade their network, the power providers in California and Texas are the most aggressive, said Don Von Dollen, smart grid program manager for the Electric Power Research Institute.

The deployment of smart meters is the most visible part of the effort to modernize the grid.

California utilities such as Pacific Gas and Electric, Southern California Edison and San Diego Gas & Electric are on track to deploy 12 million smart meters and 5 million advanced gas meters by the end of 2012.

“Electric utilities touch everybody,” Dollen said, adding that the deployment of smart grid can boost other nascent markets like the home energy management systems.

Google and Microsoft are two of the big companies looking into this part of the sector.

“When you start looking at home energy management systems … the potential market is every single home,” he said.

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(Reporting by Poornima Gupta; Editing by Steve Orlofsky)

Smart grid’s big promise lures blue chips