Smart Energy International recently interviewed Cameron O’Reilly, CEO of Landis+Gyr, the global leader in energy management. Landis+Gyr was built through a series of 10 acquisitions over the past four years and today has revenues of US$1.2 billion with more than 5,000 employees and operations in 30 countries.
Has the changed global economic landscape affected Landis+Gyr’s strategy for 2009 and beyond?
Despite the difficult economic climate, we see plenty of market opportunities as we energetically execute our business plan. Today, governments from Johannesburg to Seattle recognise they must address energy independence and global climate change. In the US, the new Obama administration and many state governments are focused on the urgent need for a smart grid to ensure we can deliver electricity from suppliers to consumers using digital technology to save energy and cost. The European Union is also pushing ahead aggressively to promote grid modernisation as it ramps up for its 20-20-20 energy and environmental goals – increasing energy efficiency and share of renewable energy by 20% and reducing greenhouse gas emissions by 20%, all by 2020. None of this is remotely possible without the introduction of the pre-requisite for the smart grid-smart meters. Of course, we, like all businesses, will not be immune to global economic headwinds. However, the positive industry trends and L+G’s broad base of operations give us confidence of another year of progress in 2009. We remain committed to our strategy of building the world leader in smart metering.
Can you elaborate on the impact of these economic changes on the industry as a whole, both for vendors and utilities?
Times could be better. But the current economic challenges are also serving as a catalyst for dramatic change. People realise we need a new approach on the big issues. One of those issues is how to manage energy better. In the US alone, national demand for electricity is growing three times faster than power resources are being added, making energy conservation critical. So we expect the market for smart meters and other smart grid network infrastructure to continue to grow. Government policy is driving that demand. In mid-October, for example, the US Congress passed a provision in the Emergency Economic Stabilization Act which accelerates depreciation for smart meters and smart grid technologies to 10 years from the current 20 years. This will put the country on a faster path towards deployment. Governments all around the world are taking similar steps. For utilities, the good news is that heightened demand is dramatically increasing competition among vendors and triggering rapid-fire improvements in smart-meter technology. And government support is only further strengthening the utility business’ cases for smart metering that are continually improving as new functionality drives more utility and customer benefits.
You have recently suggested that over 500 million old meters worldwide could be replaced over the next 10 years with smart meters, including some 50 million in the US by as early as 2010. Do you think the changed global economy will affect those estimates?
The global economy will recover – it is just a matter of time. What is certain is that the next several years will witness game-changing infrastructure and green technology investment. The Scandinavian countries are ahead of the curve. Canada, Australia and a number of major countries in Western Europe are already committed. The UK government plans a nationwide smart meter rollout. To figure out what is driving the investment one has only to look at the US where energy demand is expected to increase by 30% by 2030, according to the Department of Energy. In order to keep up with this increased demand, we need to empower consumers and utilities to manage energy more efficiently. So we are optimists.
After all, at their core, our smart meters are designed to save utilities and consumers money. And who would scoff at that? In the US, a recent Brattle Group study found that just a 5% drop in peak demand nationally would eliminate the need for installing and running some 625 infrequently used peaking power plants, translating into annual savings of $3 billion. The Energy Savings Trust, a London-based organisation which addresses climate change issues, published a study earlier this year which concluded that installing smart meters could save households many hundreds of pounds a year. So the logic is pretty powerful.
Against a background of mergers and acquisitions in the industry, does Landis+Gyr see further opportunities for M&A, especially given potential market weakness?
We are always on the lookout for promising acquisitions that will further strengthen our global footprint and add to our suite of next generation solutions. Landis+Gyr, after all, has spent over $1 billion on more than a dozen acquisitions and investments over the past six years to build an undisputed global leader.
What are the key challenges facing companies such as Landis+Gyr, both technologically and strategic?
As demand for smart-meter solutions accelerates, there will be increased competition on technology. A critical part of this is recognising that one size does not necessarily fit all. To remain the partner of choice, we recognise the need to offer utilities tailor-made solutions. That is why we employ nearly 700 full-time professionals dedicated to nothing but research and development. We are committed to providing utilities with end-to-end, advanced metering infrastructure that empowers the next generation of smart grid – driving better financial and environmental results for utilities, consumers and society. We know we are on the cusp of a major paradigm shift from where the consumer is required to turn things off, to one where technology creates a smart home or business which optimises energy consumption in a seamless and convenient way. For example, homeowners will be able to make choices to manage their energy use on a manual basis based on visible pricing information, or they may have smart hardware and software that automatically allows them to save money and the environment by discreetly managing their energy for them. These are exciting times, provided you anticipate and prepare for them.
Which areas of the world do you anticipate will show the greatest demand for smart metering systems in the next 5 years?
Although shaken by the recent credit crunch, the BRIC countries of Brazil, Russia, India and China remain incredibly compelling markets for metering overall. Consider that, only three decades ago, China and India together accounted for less than 8% of the world’s total energy consumption. In 2005 their share had grown to 18%. By 2030, China and India will consume 25% of the world’s energy. That hunger for energy will be much more acute if the BRIC countries fail to embrace energy efficient solutions as they upgrade their infrastructure. We see smart metering in Brazil and India being focussed on revenue assurance which is obviously a big issue there. China and Russia are also exciting markets with a greater focus on extending and improving network performance.
Notwithstanding the growth in the BRIC countries, the biggest growth in terms of numbers of smart metering endpoints will be in North America, Western Europe and Australia/NZ. This is driven by government mandate and also the higher cost of meter reading in industrialised countries than developing ones. In the US, we have now seen two of the larger states, California and Texas, deciding to go for full smart metering rollouts. With an additional push from the Obama administration, there is little doubt that we will see smart meters rolled out in all 50 states. Similarly in Europe, we see France, the UK, Netherlands, Spain and ultimately Germany following the lead of Italy and Scandinavia. And of course in Australia, where our company was originally formed, we will also see a national rollout over the next five years. This is truly a global phenomenon.
What impact will PHEV’s have on metering and smart-grid infrastructure?
A future full of plug-in hybrid electric vehicles is really exciting when you think about the potential environmental and energy security benefits. But only if done right. The introduction of millions of electric cars would put enormous stress on the existing grid. That is another reason why we have joined many forwardlooking utilities in calling for a major federal effort in the US to build a smart and dynamic grid – in the same way the Eisenhower administration built the national highway system in the 1950s. Today’s grid is only of average intelligence and without smart meters, or in this case smart chargers, consumers will be inclined to plug in and juice up their vehicles when convenient, rather than when utilities would prefer. A recent report by the Oak Ridge National Laboratory found that the number of hybrids on US roads is expected to surpass the number of conventional automobiles by 2030. If all hybrid owners charged their vehicles at 5pm, we would need to build 160 large power plants to supply the extra electricity. Utilities recognise they will need to create incentives to encourage people to wait by charging more for peak power and less for off-peak. Smart meters or chargers will know the price of power, the demands on the system and the time when the car will be needed next to optimise charging for both the owner and the utility. The key to more effective energy use will be in encouraging owners of these vehicles to use their smart meters and recharge during off-peak periods. Stored energy could also be directed back to the grid during times of peak-demand. Smart meters are all about encouraging people to use common sense and play their role in improving the environment while at the same time saving themselves money.
The deployment of AMI opens the way for multi-utility/multi-resource metering, ie electricity/water/gas/ heat, on the same infrastructure and is Landis+Gyr promoting this?
We absolutely believe the future is in multi-utility/ multi-resource metering. Already today, Landis+Gyr offers solutions that allow electric, gas and water metering data to flow over the same communication infrastructure. In addition, distribution automation capabilities are also possible over this same network. We released what we call the UtiliNet Series 3000 last year. It is the latest product line within our two-way mesh network combining AMI, DA, SCADA and multi-utility meter operation functions into one smart grid network platform. Currently, more than 200 utilities worldwide have deployed this network. Utilities, consumers and policymakers are increasingly recognising the value of an integrated solution that makes connecting to customers and responding to system needs more intelligent. It is the way of the future.
What is your view on standardisation and interoperability within the AMI segment?
There are substantial benefits of standardising AMI requirements. Landis+Gyr is working in several markets around the globe to develop consistent regulatory frameworks. In the US, we are one of the leading members of the ZigBee Alliance, a nonprofit association of companies that are working to standardise global communications between devices. Standardising smart metering technology will enhance the ease of use and cost efficiency of our products and networks in general, and make the wide deployment of smart meters more accessible for our utility customers around the world to manage their energy better.
How important is meter design and packaging? Is it likely that the meter will become an end-user commodity similar to a mobile phone that the individual consumer chooses based on its design/functionality/brand and will meter companies market their meters to consumers?
You remind me of a recent US Department of Energy report which noted that if Alexander Bell were to see his original invention — the telephone — today, he would be staggered by the progress of telecommunications. In stark contrast, not much has changed for electricity distribution and technologies since Thomas Edison’s time. That is about to change and change dramatically. It is probably fair to say the word sexy has rarely been used when discussing electricity meters. But we are determined to change that. We spend a good deal of time and effort thinking about how to improve design and functionality. Obviously there is a big difference in design for the meter itself which tends to be outside the house and any in-home equipment. The critical need for the meter to be highly weather and time resistant has not made its aesthetic qualities a big issue. However, I foresee that this will change, and we are already seeing some utilities looking for more attractive casings. The area in which we will see big design efforts is in-home equipment. Already, we see this in places like the UK. In Australia, our userfriendly ecoMeter in-home display is well on its way to becoming a celebrated brand, having already won awards for how it charts in real-time the cost of electricity, CO2 emissions through electricity use and even historical household data. When my family lived in Sydney, we had two in our home. My children could not stop playing with them. Smart meters will change the way we manage energy and help make the planet a better place to live. But there is no reason why they cannot also be fun and compelling to use and a part of our everyday lives.
What do you think is the best way for utilities to motivate consumers to change their consumption behaviour?
Given today’s economic challenges, consumers are looking to save money everywhere and anywhere. So using multitier pricing for electricity use is the key to changing consumption behavior. Devices such as our ecoMeter in-home display allow utilities to involve customers in the energy management process. Dynamic pricing alerts and control signals to smart thermostats and appliances empower consumers to use electricity more wisely. Dishwashers and other household appliances can be run at night for instance during cheaper off-peak hours. The benefits are enormous. Personal energy management trials have proven that changes in consumer behavior can help shed up to 30% of peak load. Some studies suggest that smart meters are capable of delivering a 10% cut in annual energy use. Another report estimates that dynamic demand-side response in the EU could save electricity equivalent to the domestic consumption of Germany and Spain. After all, you can’t fix what you can’t measure. You can’t stay within the speed limit if you don’t have a speedometer. It is high time to empower the energy consumer.
How quickly do you see the integration of renewables and distributed generation becoming a key functional requirement of smart metering?
The integration of renewable energy and distributed generation is already a key functional requirement of smart metering. As countries develop their use of renewable energy to reduce greenhouse emissions, they will increasingly depend on smart-metering solutions to achieve their goals. And not just in terms of increasing efficiency. As we step into the brave new world of renewable energy, we need a smart, flexible system that can manage intermittent sources of clean energy such as wind and solar and employ them in tandem with more traditional sources. The grid must be capable of carrying renewable power to city centers, which in many cases will require long-distance transmission. The current grid configuration cannot handle the growth in electricity demand expected over the next few decades unless we act quickly to modernise it with the adoption of smart grid technologies, including smart meters. Currently, the US derives only 2 to 3% of its electricity from renewable sources, excluding hydropower. That is expected to jump tenfold in the next 20 years. We had better be ready.
Can you reveal any future products in the Landis+Gyr pipeline?
Rest assured that our team has many new and exciting solutions to share with the market. But you need to be patient. We will announce them at the appropriate time.
What do you think the utility landscape will look like in 2020?
The utility CEOs we talk to recognise the landscape could be far different, possibly even unrecognisable. Smart utilities understand that they will need to empower consumers by embracing new approaches and technologies in order to thrive. Many see the rise of local co-operative energy farms, microgeneration technology such as solar and wind generators built into houses, use of artificial intelligence and, of course, smart metering.