China: The Smart Leader in the East

The recent Copenhagen summit concluded reiterating the need for energy efficiency and a carbon footprint reduction strategy among the participating countries. While the world is split on political and economic grounds on the climate front, technology is acting as the conciliator by offering universal and cost-effective energy-saving solutions like the smart grid.

Smart grid technology has already gained popularity in the United States and Europe. With developing countries like India and China facing the axe from the West on the pollution front, the green focus is being shifted to the Asia-Pacific region, especially to China. China, nicknamed the world’s manufacturing market, is the clear target of smart grid companies around the world. They think that a robust smart-grid infrastructure will help the country sustain its energy resources while taking its business goals forward. The market is now dynamic with a lot of new smart grid projects led by global leaders like IBM, Cisco and GE.

Energy Savings from Smart Grid

“Smart Grid” refers to a “modernized electricity network” that utilizes a two-way digital technology to send electricity from the source to end users and establish a connection between the end user and the provider. A smart grid, in short, is an intelligent monitoring system that can track the electricity flowing through a system. While the technology offers huge power savings benefits to countries, it spares customers from inflated electricity bills. A smart meter is an important component of the smart grid.

Applications and Benefits of Smart Grid Technology

• The smart grid enables integration and management of alternate energy sources such as solar and wind, providing seamless power supply, especially when there is a shortage of energy from conventional sources.
• The technology empowers users with smart control over their electrical devices and keeps their electricity bills under control. The technology is especially helpful to enterprise customers, as they can continuously monitor their power consumption and adopt proactive measures to keep their energy expenses under control.
• The smart grid divides energy consumption into two categories. It turns on select machines, for example a washing machine or an industrial machine, during arbitrary hours when the energy cost is lower. During peak hours, it could turn off such appliances automatically and reduce the demand.
• The technology allows users to track how much electricity is used at a given time. The price of electricity is greater during peak hours and lower during off-peak hours. By convincing users about the economic benefits of using electrical appliances at the suitable hours, governments can fight the challenges associated with energy management.
• The smart grid follows a system wherein the user pays only for the power they consumed, meaning they will not have to pay for the power lost due to power blackouts.

Global Smart Grid Market Scenario

Currently, the United States and the European Union are at the forefront of smart grid deployments.

A recent smart grid research report from ZP ryme Research & Consulting1 reveals that the global smart grid market is estimated to grow at an explosive rate, jumping from the current $69.3 billion to $171.4 billion by 2014. A major factor driving this growth is the rapid smart grid deployments happening in the United States. The $3.4 billion in smart grid grants announced by the Obama administration and several investments that followed the announcement encouraged the smart grid market in the country to grow to about $21.4 billion in 2009. The market will witness explosive growth in the coming years to hit at least $42.8 billion in 2014, the report said.

According to Frost & Sullivan2, the smart grid/smart meter market in Europe is expected to reach $11 billion by 2015. The study covers market segments such as automated meter infrastructure, IT systems and communication technologies. While Italy scores as being the forerunner of the technology since 2005, Denmark gains the credit as the developer of the most intelligent grid to manage the power load generated by wind (the country currently meets approximately 20 percent of its total energy need from wind power).

Smart Grid Initiatives in China

No other country benefits from the power of the smart grid as China. In view of the massive industrial development in the region and acute power shortage, experts say the smart grid is the magical solution that improves the economy of electric supply, energy consumption and environmental protection in the country.

China’s energy demands will double in the next ten years, say government officials. With this target, the country is keen to build a smart grid network. Over the past couple of years, the government spent massive amounts on conducting research and initiating smart grid infrastructure build-out. Official estimates say the smart grid initiatives in the country will take up enormous resources. Earlier last year, Bloomberg3 reported that China will spend as much as $10 billion a year through 2020 to build a modern grid.

The State Grid Corp. of China (SGCC ), China’s largest power grid builder that serves 26 provinces and 1.08 billion people throughout China, initiated the construction of a smart grid network earlier last year. The smart grid in China currently focuses more on the transmission side than the distribution side. This power grid will improve the power distribution and management between the remote thermal power stations and the regional power grids located in different parts of the country.

A unified national power grid network project called the “West-East Electricity Transfer Project,” is underway in the country. The project includes construction of three major west-east transmission corridors, each of which will have a transmission capacity of 20 GW by 2020. The Chinese government hopes these power grids will balance the power generation and utilization disparities among different regions.

Smart meter upgrade and transition to a national Smart Grid system are included as key components in China’s stimulus package announced in November 2008 and valued at about $586 million. According to official sources, Chinese utility companies may require approximately 300 million standard meters – both commercial and residential – during the country’s transition to a national smart grid system. As of 2008, only about 1 percent of China’s utility meters are automated. This indicates the sheer size of the smart grid market in the country.

China has been attracting several smart grid companies since then. After setting strong momentum in the West, the smart grid companies are shifting their focus to the East. China, being the largest greenhouse gas (GHG ) emitter in the world, is the obvious target for all of them.

Recently, GE announced it is setting up a smart grid demonstration center in the Yangzhou New Economy and Development Zone. The demonstration center is set up with the goal of deploying some of GE ’s tested smart grid technologies within four years in the region.

The initial phase of GE ’s demonstration will include wireless-enabled smart meters, home energy management systems, programmable thermostats and smart appliances. Grid infrastructure and control technologies in the demonstration include automated outage identification and restoration software, field-force automation and deployment systems and grid-wide network management software, according to GE sources. The demonstration center may also showcase home-based charging stations for plug-in hybrid electric vehicles (PHE Vs). PHE Vs will gain popularity as they will reduce the country’s oil consumption and carbon footprint.

“Yangzhou’s initiative will be a showcase to demonstrate how China can get the power it needs and reduce energy’s environmental impact at the same time,” claims Mark Norbom, president and CEO of GE ’s China business. “China has experienced unbelievable growth over the past decade, creating a massive need for energy to power businesses and consumer lifestyles – so the time is right for Yangzhou to become a smart city.”

GE is planning to collaborate with industry leaders to deliver a broad portfolio of carbon-smart technologies in the industry to modernize electrical systems from the power plant to the consumer, said company officials in a recent announcement.

Cogo Group, a provider of platform services for the technology and industrial sectors in C hina, is keen to capitalize on the country’s Smart Meter upgrade over the next five years, according to Cogo officials. T he company has already collaborated with several companies for a smart-meter rollout in China, including Holley Metering, Wasion and the Hexing Group.

“We are very excited about the opportunities available to Cogo over the next few years with C hina’s new but rapidly growing Smart Meter upgrade,” said Jeffrey Kang, CEO and chairman of Cogo, in a recent announcement. “We expect that Smart Grid and Smart Meter are going to be key factors in the overall growth of our industrial business, which we expect to grow much faster than the overall company in 2010 and beyond.”

In November 2009, IBM, a leading technology provider, forged a partnership agreement with Chinese energy company ENN Group “to help Chinese companies and cities become more energy efficient,” according to an announcement from the company. ENN operates natural gas, biofuels and thin-film solar panel manufacturing businesses. Under this partnership, IBM will provide consulting and information technology services to ENN Group to help it become “a total clean energy solution and services provider,” an official statement said.

Earlier last year, Accenture, a global technology services and outsourcing company, announced the creation of Accenture Intelligent City Network, aimed at bringing together utilities and city authorities around the world who are committed to deploying smart electric grids. E ast China Grid Co., a Chinese transmission company, is included as one of the initial members of the Network. Accenture has grabbed over 10 projects in the country so far.

Hewlett-Packard (HP ) recently announced it will buy network equipment manufacturer 3Com for $2.7 billion in a bid to grow its business in China. The acquisition of 3Com, which is a strong competition to networking major Cisco, will create tough competition in China where Cisco has already established its networking business in the energy sector. The combined offerings of HP and 3Com will be able to manage the surge of data generated by the smart grids. Added to this, the network security capabilities offered by 3Com’s TippingPoint intrusion prevention products will give an extra edge to their offerings.

Global companies entering the Chinese market are a bit wary of their survival in the region. With the Chinese government encouraging the local companies alone to flourish in the country, foreign companies are likely to be treated with the “stepmother” attitude. To be on the safe side, the global giants are interested in smart partnerships with interested parties in China. This will result in a win-win situation for both the global companies and their Chinese partners.

China will attract more investment in the coming years in smart grid-related industries including smart metering systems, power storage devices, telecommunication devices and software.

Smart Grid Challenges

Challenges involved in smart grid implementation are many. A relatively new technology, the smart grid market is faced with issues related to interoperability and data security. Many large-scale deployments are delayed due to lack of clarity in the business case, says Frost & Sullivan.

Since the smart grid involves communication among different sets of devices, interoperability is of paramount importance. A smart grid system that is able to run on multiple standards will undoubtedly win in the marketplace.

According to Frost & Sullivan analysts2, having high product differentiation is important to survive in the highly competitive smart meter market. “Smart meter manufacturers need to move from a product- to a services-based model,” says Vikas Ravindran, Frost & Sullivan analyst. “Investments in meters alone will not yield higher returns. In order to rapidly gain market share, manufacturers need to customize their entire AMI solution for consumers.”

The rising cost of electricity calls for energy efficient solutions like the smart grid in every market. Additionally, the ability of the smart grid to communicate energy usage data will attract both domestic and business customers, opening lucrative market opportunities for companies involved in this arena of business.

Ravindran of Frost & Sullivan adds, “Moving forward, complete automation of the grid is set to become the norm with real-time information at the customers’ fingertips.”