This article looks at the impact of COVID-19 on the global smart meter market with a specific focus on the water industry.
The global water meter market grew by more than 5% in 2019, shipping a total of 118 million units. Accounting for more than a quarter of the product mix, meters with remote communications will surpass 40% by 2026 despite changing market dynamics in a post-pandemic world.
Whilst rollouts of smart water meters will undoubtedly see some slowdown due to COVID, Omdia analysis shows that the market will be less affected in the short term than electricity meters.
General COVID-19 impact framework
Earlier in the year, the Smart Buildings and Energy Infrastructure team at Omdia built a framework to assess the impact of COVID-19 on the smart metering industry.
The initial whitepaper used fundamental assumptions about short, medium and long-term recovery factors to outline two scenarios for the smart metering forecast – one optimistic and one pessimistic. In the pessimistic scenario, total communicating meter shipments between electricity, gas and water combined from 2019-2025 could fall by as much as 28% due to COVID-19.
COVID-19 APPEARS TO BE A DELAYING EFFECT ONLY, AND NOT AN EXISTENTIAL THREAT TO THE PROJECTS OVERALL
In the short term, the number of infections within a country is the largest factor in halting any rollouts. However, current thinking supports the idea that supply-side limitations due to lockdowns are not expected to be a significant factor in the recovery for the smart utility sector. In many cases, utility-focused companies (such as meter manufacturers) have been able to continue business operations (including manufacturing) throughout, due to their classification as a critical industry. The same has applied for many component manufacturers too, whilst the relative return of manufacturing in China (and to a lesser extent, across the rest of APAC) also eases most supply-side concerns.
Percentage change from annual shipments in the old forecast (before COVID-19)
Some challenges do exist, for example, lockdowns limiting the ability to access warehouses in some US states, or the delaying of new utility spending packages that had been under discussion. However, in most cases, this appears to be a delaying effect only, and not an existential threat to the projects overall.
Apart from infections within a country, the pace of recovery in the medium term is strongly connected to the original drivers behind any smart meter rollout. COVID-19 has had very little impact where utilities weren’t actively rolling out or planning for a rollout before the pandemic began because there was no rollout to disrupt. However, for active or planned rollouts, the length of a delay ultimately depends on whether the project is driven by enforced legislation or organic investment opportunity.
In general, all utility rollouts are likely to encounter at least some delay, but to what degree will vary based on what is driving the rollout. Utilities with legal obligations to install smart meters (as in many European countries for electricity and gas) face penalties/fines for delays and will therefore recover faster. On the other hand, utilities who invest in AMI based primarily on an organic business case aren’t legally obligated to invest in AMI. These utilities will therefore not resume operations until it becomes financially suitable to do so.
Current thinking and the impact on water meters
Based on the current situation, Omdia expects the ‘real’ situation to be much closer to the optimistic forecast for North America, most of Europe and for China (although this does not reflect the current situation in Beijing). COVID-19 is amplifying concerns around top-line revenue and bottom-line costs in a way that could drive more interest in AMI over the long term.
Above all, operational setbacks from lockdown restrictions, and the degree of economic impact, cause regional recovery trends to vary significantly within the water meters market. In general, however, the outlook is optimistic.
Total water meter shipments decline by 11% from the previous forecast in Latin America
Latin America has been hit the hardest by COVID19 – many countries are still trying (and failing) to contain the virus. The economic impacts will linger in 2021 and likely drag out the recovery process. While many utilities are trying to push projects into the back half of the year, alternatively, utilities are increasingly modifying or even reducing, current/future contracts (e.g. Sabesp in Brazil).
Moreover, private (and often international) companies with supply and sanitation contracts, like Suez, have become one of the primary drivers of technology in the region.
However, many of those companies have reported significant H1/2020 losses and are therefore making plans to divest assets; if more companies follow this trend, it would severely inhibit growth in the region.
Overall, the Latin American market is largely project-driven; a slow recovery, therefore, means that total unit shipments from 20192025 will decrease by 9 million compared to last year’s forecast. While North America and a few countries in Western Europe will see initial setbacks too, strong replacement markets and more supportive regulatory frameworks will drive a more optimistic recovery.
Significant declines in 2020 for North America and Western Europe
North American meter vendors reported between 12-22% organic losses in sales/ revenue for Q2. Similarly, Italy, Spain and France all declined in GDP and production by 17%-20% in the second quarter of 2020 compared to the same quarter in the previous year – some of the biggest in the region.
In addition to project delays, COVID-19 has throttled back housing/construction markets and these circumstances will cause sizeable declines in 2020.
Europe as a whole, however, will see relatively minor to mid-size impacts in 2020 and sizeable recoveries in 2021. Countries have predominantly contained the virus and therefore limited the impact to supply chains and housing construction that will linger into 2021.
Communicating shipments grow by 45% from 2020 levels in EMEA
Ultimately, the overall recovery in EMEA and North America is optimistic. While communicating meter shipments for EMEA declined by 20% in 2020, a drop in shipments after a massive push in 2019 by the United Arab Emirates to meet 2020 deadlines is a major factor behind this. Beyond 2020, strong replacement markets and burgeoning technology demand will drive annual communicating meter shipments in 2026, to grow by 45% from 2020 levels.
For example, in Italy, decree 93/2017 mandates that mechanical meters must be replaced every 10 years and static meters every 12. The decree comes into effect in 2020. As a result, the largest utility in Italy, Acquedotto Pugliese, has launched a smart meter replacement programme for approximately 1 million meters over 10 years.
Moreover, in North America, new utility strains on revenue will drive more support and approval from regulatory bodies for AMI.
Consequently, AMR deployments from 20+ years ago will drive an uptick in the market late in the forecast (especially for AMI).
Overall, the general outlook is positive. While total shipments from 2019-2025 decline by 7% from the previous forecast, the majority of those losses are geographically isolated. Many suppliers agree with the sentiment that the COVID situation may ultimately boost AMI technologies in the long-term future. SEI
About the author
Alex Kaplan is a market analyst at Omdia for the smart utility infrastructure team. He focuses on smart metering hardware and network infrastructure for water utilities. Alex also leads research on utility software and services (electricity, water, and gas utilities), as well as information and operational technology spending.