Demand-side Energy IT: Green is Good

admin

Follow SecSovTMT on Twitter

Recent world events have raised the importance of IT in energy policy. Even as rebellion in the middle east is reaffirming the precariousness of dependence on oil beyond ecological concerns, the Fukushima reactor crisis has reinvigorated opposition to nuclear power.  At the same time, ballooning global food prices raise questions over the efficacy of bio-fuel programs, while despite years of investment in solar and wind power, these green technologies remain very expensive and ill-suited to the demands of a primary role in electricity generation.  In our view, these conditions may drive a change in global energy policy away from subsidizing generation and toward conservation.  In this, technology is likely to play a leading role, with particular opportunity in “smart grid” implementations and in LED lighting.

The US faces massive capital outlays to address growing electricity demand.  Demand for electricity in the US on a track for a 1.3% CAGR through 2020 while supply is projected to grow at only 0.1%/yr., suggesting that reserve margins against summer peak demand will be inadequate by 2018.  On this trajectory, more than 100 B kWh of new generation is necessary to maintain current margins.  However, construction of new capacity is expensive – coal-fired plants cost $2-3K/kW and nuclear costs more than $4K/kW, with ecological concerns and regulatory challenges adding years, if they can be overcome at all.

Wind and Solar can only help so much.  Clean-tech energy solutions such as wind and solar cost as much as $5K/kW to construct.  Moreover, these technologies are naturally unpredictable – not much power if it is calm or cloudy – so their ability to replace traditional generation as more than a supplemental source is limited to off loading the relatively clean gas-fired peak-load capacity.  This is important, as the most controversial generating technologies, coal and nuclear, are positioned as “base load”, and must be able to provide steady, cheap and predictable power 24/7.

Demand side solutions will gain momentum. Without easy answers on the supply side, we expect policy to refocus attention on conservations.  Here, we see two major opportunities for investors: Smart Grid and LED lighting.  “Smart Grid” technology is a data overlay on the electricity distribution system that helps utilities and their customers to avoid wasting power and to balance power usage to avoid costly peaks.  LED lighting uses semiconductor-based diodes to replace traditional incandescent bulbs, with potential energy savings of as much as 90%, along with other operational advantages.  In theory, these initiatives could yield more than 30% savings in peak electricity usage, obviating need for trillions of dollars of investment in generation.

What is a “smart grid”? Like water in pipes, electricity flows to the path of least resistance, and if demand exceeds expectations, large portions of the system may find themselves no longer able to draw power.  To avoid system blackouts, utilities must manage generation actively.  Smart grid technologies enhance the active monitoring and control of electricity distribution to consumers in real time, reducing system wide inefficiencies and helping users manage their consumption.  In doing so, less total power would be needed and the demand could be smoothed to avoid wasteful peaks.  These technologies may be implemented by utilities – e.g. monitoring/control devices, fault locator systems, advanced sensors, smart meters, and software/systems to manage the distribution grid – or by consumers – e.g. smart appliances, power storage devices, and advanced switches.

Smart Grid market is big, fragmented and growing. Market estimates size the smart grid market at $3-6B, growing 10-15%/yr through 2015.  These estimates include utility-specific technologies, but not the necessary data communications overlay or smart consumer appliances, which could place the potential considerably higher.  Smart grid projects were targeted in 2009 with $3.4B in US Federal stimulus grants out of $16.6B in total to clean-energy.  Of this, $2B is earmarked for the installation of 18M new smart meters by 2015, which would bring the total base to 28% or 40M of the 143M US electric consumers.

LED lighting can significantly cut electricity demand. Lighting is currently 30% of total US electricity demand, and 14% of household demand.  LED lighting is 15 times more efficient than incandescent and 4 times more than fluorescent.  Moreover, unlike incandescent bulbs, which covert more than 90% of electricity used to heat, LEDs do not burden AC systems (more than 15% of total US power usage) and present no fire hazard ($250M/yr losses from lighting caused fires).  LED “bulbs” still cost as much as 50 times incandescent, but can last 20 years, amongst other operating advantages.  However, LED costs are coming down quickly, with key innovations in manufacturing expected to offer step function improvements.  Gartner projects LED lighting to be a $12B global market by 2015 – we expect that to more than double by 2020, with significant growth thereafter.

Smart grid and LEDs are significant opportunities for tech players. Both smart grid and LED lighting are likely to gain further momentum in light of the geopolitical debates on carbon emissions, mid-east oil dependence and nuclear safety.  As policy and economics drive utilities to push smart grid deployment, Cisco, Google, IBM, Oracle, Qualcomm and Texas Instrument have all made significant investment to stake claims to the emerging market.  Smart meters, a key component of smart grid solutions, are led by Itron, Landis+Gyr, Aclara, Sensus and Silver Spring.  As for LEDs, we can neither confirm or refute Cree’s claims of proprietary advantage in their design for lighting applications, but note that China has announced grand plans for capacity expansion.  Given this we are more comfortable with LED capital equipment suppliers, like Veeco and Aixtron.

Print Friendly, PDF & Email