As we all know, utility companies play a vital role in society—the timely delivery of electricity, gas, and water are essential features of a functioning societal system. For generations, utility companies performed everything required for their operation: from resource acquisition and distribution, to overseeing usage and consumption, to account management and billing—the whole host of functions the industry necessitates. These diverse operations were not integrated, existing independently of each other. This has resulted in a system rife with operational inefficiencies, with resource and revenue losses a concomitant reality in the industry.
A rising industry vertical within the utilities sector is that of smart utility companies. Consequent with the adoption of internet technology in global industry, smart utilities incorporate Internet of Things (Iot) to connect devices and integrate new digital technologies to boost business operations.
For smart utility companies, IoT has leveraged the inherent connectivity of digital devices, tools, and systems proliferating in the age of the internet and has helped them to:
- Capture data and generate valuable insights
- Make data-driven decisions
- Create a valuable networking for their business and the overall industry
This networking capability—of tools and devices from the ground up—has led to smart utility companies achieving superior operational efficiencies, vastly improving the transmission and distribution of the vital products required by a well-functioning society.
It is relevant to note that while digital and cloud-based technologies such as sensors, smart meters, and AI-driven data acquisition and data analytics tools aids efficiency and usability, it also creates a higher need for data security control.
Utility Consumers ‘Going Smart’
A groundbreaking April 2021 report by the Edison Foundation on smart meter deployment found that utility consumers are embracing the devices in droves, because these allow them to intelligently monitor and control their utility consumption, and to create and track utility budgets, thus to use energy efficiently and in cost-sensitive ways.
- Smart meter installations in the US have been steadily on the rise and are expected to continue doing so: 98M smart meters were installed at the end of 2019, with the number rising to 107M the following year. Projections for the end of 2021 were at 115M smart meter deployments.
- 88% of smart metering infrastructure (AMI) installations in the US were residential. More than half of US states have achieved more than 50% smart meter installations, with 58 investor-owned utilities achieving full deployment.
Smart Utilities and a Sustainable Planet
The latest United Nations Climate Change Conference in 2021 (COP26) saw world figures and government representatives, environmental activists and ordinary citizens, corporate leaders and captains of industry, all reaffirming their collective goal to significantly reduce the world’s carbon emissions. The Edison Foundation has also shown that deployment of smart meters contributes to cutting down carbon emissions— stating that carbon emissions in the US power sector at the end of 2020 dipped 40% below 2005 levels, the lowest in over 40 years.
New resiliency studies, as in this 2022 Deloitte analysis have shown that the use of smart utilities is critical in ensuring supply and demand balance during the extreme weather events brought about by global climate change. Smart utilities leverage real-time data analytics and AI in response to these increasing environmental crises. These tech-enabled, interconnected, utilities are now considered a key tool in the effort to reach the global initiative of 100% carbon reduction.
- Investment in smart grids has increased. In 2021, the International Energy Agency (IEA), saw investments reaching $290B, recovering from the pandemic-driven collapse in 2020, and eclipsing the $270B investment in 2019.
- Going into 4Q21, 46 out of 54 investor-owned utilities announced their commitment to cut down their carbon footprint.
- More utilities are expected to get onboard in 2022, driven by consumer expectations, environmental, social, and governance (ESG) initiatives, evolving clean energy regulations, value creation, and potential federal legislation.
The Advent of Smart Cities and Virtual Power Plants
The rise of smart cities is fueling the rapid creation of new technologies that supercharge the performance of urban utilities systems. Market analysis reports such as this March 2022 publication from Grand View Research on global smart cities market size highlight the use of IoT, AI, cloud- and machine-learning to enhance the quality of urban services such as transportation, health care, and utilities. Another report, published in January 2022 by Meticulous Research on urban global centers spurring smart city growth, projects that by 2030, 43 megacities around the world will routinely use smart technologies to drive systematic and sustainable growth.
A specific example of innovative technology arising from smart city growth are virtual power plants (VPP). A VPP is a distributed, cloud-based, power plant that centralizes and aggregates distributed energy resources, aiming at enhancing power generation, and selling or trading power in the electricity markets. VPPs employ cutting-edge technologies in AI and machine learning, enabling smart utility companies to aggregate and pool production from multiple distributed sources, achieving flexibility and scale in electricity markets trading.
- An estimated 68.4% of the total population will live in smart cities by 2050.
- Smart cities market size globally was valued at $648.36B in 2020, and as a sector is projected to grow to more than $6T by 2030.
- In 2021, the energy management branch of the smart utilities segment accounted for a 55% revenue share.
- 20% of electricity in the US comes from solar, wind, hydropower, and other renewable sources. VPPs play a demonstrably positive role in achieving and maintaining a delicate, real-time balance between energy supply and demand.
Noteworthy M&A Deals in the Smart Utility Sector
In its Deals 2022 Outlook, PricewaterhouseCoopers (PwC), reported dealmakers completing 42 smart utility M&A transactions worth $48M in 2020. The following year registered a 3% increase, with a total of 55 M&A deals completed, worth $55M. These are some other significant M&A transactions involving smart utilities:
- EQT Partners acquiring Covanta Holding Corporation for $5.3B.
- PPL Energy Holdings, LLC acquiring Narragansett Electric Company for $5.1B.
- KKR & Co. acquiring a 20% stake in Sempra Global for $3.4B.
- Liberty Utilities Co. acquiring AEP Kentucky Power and Transmission Companies for $2.8B.
- Brookfield Infrastructure Partners acquiring a 19.9% stake in FirstEnergy Transmission for $2.4B.
Smart utility companies form an attractive asset class with excellent potential for investment and value. Evolving regulations in federal policies concerning smart utilities, the sea-change in consumers’ desires for energy-efficient and sustainable lifestyles, corporate interests trending towards ESG initiatives, and widespread investor interest, all suggest that smart utility companies are here to stay. However, as in any up-and-coming industry vertical, there are challenges and risks, along with growth opportunities. An example of such challenges are data integration issues in smart meters, leading to inaccurate prediction of energy requirements. Management of core enterprise data also reveals problem areas, with issues pertaining to data security, quality, and usability coming to the surface.
Sources: Statista, Smart Energy, Edison Foundation, US Energy Information Administration, ROBECO, Deloitte, International Energy Agency, Allied Market Research, Grand View Research, Globe Newswire, Alliance to Save Energy, PwC