J. Bonasia
Investor's Business Daily
On Thursday June 4, 2009, 7:15 pm EDT
Cisco Systems' gear powers much of the Internet, but the company last month made a move to also play a central role in a market it says might be 100 times bigger -- smart grids.
Cisco's not alone. The building of smart grids will be a multitrillion-dollar opportunity for tech companies, industry observers say. The first billions are already starting, thanks in part to the federal stimulus package.
Smart grids combine networked sensors with software to run systems for electricity, transportation, fuel and water.
Inexpensive sensors transmit data over computer networks to do such tasks as reduce energy usage and better move traffic along busy streets.
U.S. utilities alone will spend $1.5 trillion upgrading infrastructure by 2030, says a recent study by research firm the Brattle Group.
Sensors To Permeate Our Lives
Today's powerful, low-cost computer chips and high-speed networks make smart grids feasible. The grid concept is often described as "the Internet of things," said Sam Lucero, an ABI Research analyst.
"Sensors are going into more and more devices that will permeate our lives," Lucero said. "In the next 15 to 20 years, sensors will permeate our infrastructure and monitor the physical environment."
The federal stimulus package includes tens of billions of dollars to upgrade aging infrastructure. At least $4.5 billion is allocated to build smart electric grids and install smart power meters, ABI says. Smart meters monitor how much energy a house or commercial building is using in real time, helping utilities regulate power generation.
Smart meter sales in North America will jump 85% this year, though to a mere $17 million, says ABI. But that's just the start.
Besides Cisco, other big tech companies investing heavily in smart grids include IBM and Intel .
IBM has branded the concept "Smarter Planet." It's designed smart grids for utilities, railroads and transportation systems. Big Blue provides hardware, software and expertise to build grids.
"There's a lot of buzz in the marketplace," said Steve Mills, a senior vice president who heads IBM's software group.
"That's a reflection of more businesses seeing the benefits of these technologies to realize a much more efficient infrastructure," he said.
Smart grids should, for example, let utilities both cut pollution and save money. Smart meters will track how much electricity is being used at households and use that data to make sure power stations, including wind farms and solar installations, are working at peak efficiency.
They'll also use sensors on the grid to immediately detect, and often fix, any problems.
The network gear market for utility smart grids alone should reach $20 billion per year by 2014, says Judy Lin, senior vice president and general manager of Cisco's ethernet switching technology group.
Cisco, GE Team Up In Miami
"We feel our role is to be that communications provider because of our experience with the Internet and voice networks, and our focus on energy management," she said.
On May 18, Cisco released a new platform designed to provide utility customers with all the hardware, software and services they need to build and run smart grids. In April, Cisco partnered with General Electric and Florida Power & Light to build a smart grid pilot for the city of Miami. The project aims to give consumers more choice in how they consume and conserve energy, Lin says.
"Both commercial and residential energy management can benefit from smart energy grids," she said.
For its smart grid programs, IBM strives to make the networks "more instrumented, interconnected and intelligent," Allan Schurr, vice president of strategy and development for IBM's global energy and utilities business, told IBD.
In February, he testified before the U.S. House Select Committee on Energy Independence and Global Warming.
Smart utility grids can slash energy costs, increase efficiency and improve the quality of electrical service, Schurr told Congress. In addition, smart grids give consumers more say about their usage patterns.
Consumers Can Take Charge
For instance, he says, utilities should give users a break for running their appliances during off-peak hours.
"The greater availability of sensors means consumers can be more active participants," Schurr told IBD. "Consumers want to manage their energy consumption, from their pool pumps to air conditioners."
Another focus involves smart grids for transportation. Railways, city streets and highways are increasingly plagued by traffic jams and pollution.
IBM has launched projects in China, Taiwan and the Netherlands designed to provide smart railway grids, or systems that more efficiently run the rails.
Demand for urban transportation is rising much faster than the potential supply, says Naveen Lamba, intelligent transportation lead for IBM Global Business Services.
"Congestion is a big driver for smart grids, because this problem is going from bad to worse very rapidly in many developing countries and in the developed world," he said.
For example, Stockholm has implemented IBM smart grids to charge usage fees for daytime auto traffic in downtown centers.
Sensors on cars and affixed to trellises built over streets automatically track when cars are using downtown roads at peak times, and drivers are automatically assessed fees that vary by the time of day.
Smart grids hold similar potential to manage oil pipelines, water systems and telecom networks.
Trillions, Not Billions
Some observers describe a "pervasive Internet" in which machines of the future will continually talk to each other, says Jonathan Berman, an analyst with Harbor Research.
"This involves taking as many devices and objects as possible and connecting them all to the Internet," Berman said. "While there are billions of people, there are trillions of devices."
Intel, the world's largest chipmaker, is pushing to create technical standards for smart grids.
Intel foresees microprocessors embedded into wind turbines and solar arrays, to provide real-time monitoring.
A host of other big tech vendors also are angling for a piece of the smart grid market. They include Oracle (NasdaqGS:ORCL - News), EMC , Hewlett-Packard (NYSE:HPQ - News), Microsoft and Google (NasdaqGS:GOOG - News).
Smart grids also are a nice fit for industrial giants such as General Electric's GE Energy and metering firms such as Johnson Controls (NYSE:JCI - News) and Schlumberger .
Other big grid players include Hitachi , Siemens and Eaton . Energy service companies, utilities and telecom carriers are getting active as well.
"We're dealing with limited resources for water, transportation and electricity," Lamba said. "Smart grids provide a way to minimize the growing gap between supply and demand."
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