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Smart Grids Bring Opportunity for T&D Equipment

Sma rt Grid Anal ysis believes tha t as Sma rt Gri ds evol ve they will requi re a new breed of
trans missiona nd distribution equipment wi th enti rel y new capabilities , the resul t of which
could be game changing for T&D equipment makers . Sma rt Grid requi rements for T&D Pa ge|1
equipmenta resuch tha t they could reshape the T&Dequipmentindus tryinprofound wa ys .
When the telecommuni ca tions revolutionbeganin the U.S.in the 1980s , there were three
dominantsuppliers ofequipmenttothetelephoneutilities:AT&TNetworkSys tems ,GTEand
Northern Telecom. Thefi rs tof theseis nowessentiallypa rtof theFrench company Al ca tel ;
the two other fi rms a re out of business. No one a t the time woul d ha ve predi cted such
dra ma tic cha nges . Could the advent of the Sma rt Grid bri ng such changes to the T&D
equipmentfi rms ?
The Smart Grid: A New Chance for the T&D Equipment Industry

Green tech, Smart Grids and equipment: Sma rt Grid Anal ysis believes tha ta number of
fa ctors ha vecometogetherinthesocalledSma rtGridtocrea teimportantnewopportunities
forthees tablishedTransmissionandDis tribution(T&D)equipmentindus trya ndeventoopen
up to thema rketfornewentrants . The mos t visible of theseopportuni tiess tems from the
idea tha t the deployment of Sma rt Grids will i mprove the envi ronment. This will ha ve
importantposi ti verevenuei mpli ca tions forT&Dequipmentmakers ,whi chwill increasethei r
businessinSma rtGrids through(1)hi ghperformancegridoverla ysandi nterconnectstobring
renewablepowertopopulationcenters ,and(2)equipmenttha tsupports theva riablenature
of renewables when theya re connected to the grid; thela tterhas beena majorproblemin
the wind powerindustry, forexa mple. TheSma rtGri disalsooften presentedas a wa y of
reducingca rbonemissions .AlotofT&DequipmentcompanyABBsSma rtGri da cti vi tiesha ve
beenin Stockholm, Sweden, where the Sma rt Grid concept is largel y beingpresentedas a
sal veforca rbonemissions .
Automation and Smart Grid equipment: However, the opportunity for T&D equipment
ma kers inSma rtGri dsis a ctuall ymuchbi ggerthanSma rtGrids imageas pa rtofgreentech
mi ghtsugges t.Qui teapa rtfromenvi ronmentalconcerns therea reimportantreasonstobuild
betterreliability,effi ciencyandsecuri tyi ntothegrid.Thekeydri vers here,ofcourse,a rethe
growing number of outages , the pos t9/11 fea rof terroris tatta cksa nd toda ys high cos tof
energy,whi chpromotestheneedforefficiency.

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The opportuni ty for T&D equipment ma kers is to incorpora te the lates t IT, control and
automa tioninto theSma rtGrid,and this opportuni tyis ma de tha t muchlargerbecause,by
common consent, thes ta teof communica tions andITi npower grids as they nows tandis
quitepri mi ti ve. The goal of Sma rt Gridsis todeploya comprehensi veInternet Protocol (IP)
based communi ca tions sui te tha t will fa cilita te subs ta tion automa tion, dis tribution Pa ge|2
automa tion, energy ma nagement s ys tems, conges tion and gri d s tability, moni toring
equipment health, energy theft preventi on, and control stra tegies support. (This is not
intendedasacompletelist).Advancedcommuni ca tions inthegridisalsoobvi ousl yimportant
toenabletheconsumerenergymonitoringtha tis a tthehea rtofSma rtGrids tra tegies many
utili ties.
While T&D equipment ma nufa cturers must obvi ousl y take into consideration the growing
sma rts intheSma rtGrid,theyobviouslywouldnotwa ntto,norwouldi tma kemuchsense
to,enterthecommunica tionsequipmentbusiness.Theconverseisalsotrue.Manyofthebi g
companies tha ta reenteringtheSma rtGri dbusinesstoda yha vecommunica tionsasthei rcore
businessCis coa ndVeri zon,forexa mplebutthesecompanies clea rl yha venointentionof
gettinginto the T&Dequipment businessassuch. Nonetheless, T&Dequipmentsoldin the
future will increasingl y need to embody the interfa ces and control subs ys tems tha t make
Sma rtGri dfunctionalitypossible.Thisispotentiall ya ma rketdifferentia tingfea ture.
Smart Grids, equipment and open markets: Deregula tion and pri va tiza tion a re seldom
associatedwi thSma rtGriddevelopments .However,inpra cti cemanyofthefunctionssuch
as enhancedreliabilityands ophis ti catedmoni tori ngcapabilities tha twill beexpectedfrom
T&Dequipmenti nthefutureas theresul tofSma rtGriddevelopments will enableutili tiesto
compete moreeffecti vel y. Inaddi tion, mores ophis tica tedenergy ma rkets will requi re very
hi gh capa ci ty tra nsmission highwa ys a cross whi ch this tra ding will ta ke pla ce. These
hi ghwa ys a realso pa rtof the Sma rt Gri d concepta nd wouldpresumabl y be cons tructed
usingHVACandHVDCtransmissionequipment.
We think then tha t the Sma rt Grid s tory ca n easil y be transformed by T&D equipment
ma nufacturers intoa s tory buil ta round the premise tha tutili ties cani mprove thei r bottom
lines by buying certain kinds ofequipment. Infa ct, webelieve tha t many projects tha ta re
clothedina SmartGri dima gea remorepreciselycha ra cteri zedas a gridupgra derequi redby
hi ghl ycompeti ti vecondi tions .
A new breed of T&D equipment: The bottomlineis tha t the muchtouted "Sma rtGri d"will
ha vea profoundi mpa ctonT&Dequipmentfi rms tha tmanufa cturetheequipmentusedinthe
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trans missionanddistribution(T&D)infras tructure.Conductors ,transformers ,ci rcuitbreakers ,

swi tches ,subs ta tionequipmentandothergri dequipmentwillallha vetotakeonnewkinds of
functionality.Infact,Sma rtGridAnal ysisbelievestha tanewbreedofT&Dequipmentislikel y
toemergeas the resultofSma rtGrid deployments . This new breedofequipment willbe
dis tinguishedinthema rketplacefromolderT&Dequipmentbyoneormoreofthefollowing Pa ge|3
(s omewha tinterrelated)capabili ties:

Real timemoni toringanddiagnosiscapabilities

Automa tedresponsetogridfailures
Equi pmentautoma tionandremotecontrol
Plugandpla yinterconnectionofnewgenera tingfa cilities
Integra tionofwindandsola rgenera tionintothegrid
Enha ncedconsumerenergymanagementanddema nd/responsemodels
Enha ncedsecuri tyrequi rements
Adva ncedcommuni ca tions/softwareinterfa ces

TechnologiesforT&DequipmentintheSmartGrid:Itisi mporta nttorealizetha tthesekinds

of fea tures will make the T&Dequipment of the future very di fferent from tha t beings old
toda y. For this to happen, T&D equipment makers will ha ve to integra te enti rel y new
technologiesintothei requipment.
Someofthesea renewma terialstechnologies.Ofespecial importanceinthis rega rda reHTS
superconductorma terialsandcomposites tha ta reprovinginas wa ys toboostthecapa cityof
trans missions ys tems. Superconductors ,in pa rticular, ha veal readyshown tha t they can be
usedtocrea teveryhighcapaci tytransmissionlines,faul tcurrentlimi ters(FCLs),trans formers
and other T&D s ys tems of s trategi c importance. For superconducting s ys tems to make
economicsense for utilitiesa t the present time,somekind of governmentsubsidyisusuall y
requi red,butoursenseof the ma rketis tha tsuperconducting technology is not tha tmany
yea rs fromholdingi ts owna tleastincertains tra tegicall yimportantni ches .
Ofeven moreimportanceis thenew genera tionofequipment tha tis beingbuilta round the
la test powerelectronics . Thisequipmentincludes both FACTSand HVDCs ys tems . Inboth
cases,someofthis equipmenthasbeenoutinthema rketfora while,butweexpectthenext
genera tion of these s ys tems to be signifi cantl y more sophisti ca ted a nd to sell in grea ter
quantities .

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Fi nally, the Sma rt Gri d concept s trongl y i mplies that the Gri d will adopt a much more
sophisti ca tedlevel ofITdeploymentthani teverhas before.This is nots omethingtha tT&D
equipment makers a re likel y to become di rectl y invol ved i n. However, they will ha ve to
a ccommoda te this development, both in terms of providing the sensors that serve as the
senses of thenew types ofSma rtGri dequipmentandinsupporti ng theemergingsoftwa re Pa ge|4
interfa cesands tanda rds (includingsecuri tys tanda rds)tha ta rejustbeginningtoemerge.
Sources of Revenues for T&D Equipment Industry

Sma rtGri dAnalysisbelievestha tthetrendsoutlinedabovewillcreateimportantnewrevenue

opportuni tiesforequipmentfi rms tha tundersta ndtheimplica tions oftheSma rtGridonthei r
businessandthei rproducts .Indeed,thechanges inthegri da reexpectedtoberevolutiona ry
enoughtoproducema jorshi fts inmarketsha res amongexistingsuppliers andtoenablenew
fi rms toentertheT&Dequipmentsector.Essentiall y,weexpecttherevenues,whi chwillpa y
fornewequipmenttoputinpla ce,fromSma rtGrids tocomefromthreesources :

Utilitiesseekingtoupgradeexistinggrids.Itcanbeexpectedthatutilities willexploi t
the current fervoroverSma rtGrids to tapsha reholder,bondholderand government
sources to ca rry out muchneeded grid devel opment, whether or not such
improvements reall y fi t the usual defini tions of Sma rt Gri ds. Obvi ousl y, as utilities
pursuethis upgradings tra tegy,theywillha vetoincreasecapi tal expendi tures onnew
T&Dequipment.

Utilitiesseekingtoaddvaluetotraditionalelectricitygrids.TheSma rtGridconcept
enables power companies (a t least potentiall y) to grow thei r revenues through
servi ces tha ttheyha veneverofferedbefore.Themostobviousexa mplehereis sma rt
metering, but one could also i magine their i nvol vement wi th i nstalling home a rea
networks(HANs )orofferi ngcommuni ca tions servi cesoverthepowerlines .Addi tional
equipmentwoul dneedtobeaddedtogrowthebusinessesofpowercompaniesinthis
wa y,s omeofwhi chwouldbeT&Dequipment.Inaddi tion,whilethisexpansionofthe
ma rkets a vailabletothetradi tional powercompa nyfits qui tewell wi ththeSma rtGrid
as currentl y concei ved,i tis by no means certain tha t power companies will dowell
selling these servi ces . A ca utiona ry tale can be seen in the telephone companies'
hopes tha t thedevelopmentof broadbandnetworks wouldlet theminto the content
developmentbusiness.

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Governments that see Smart Grids as a way of pursuing certain policy goals.
Governments,especiallyintheU.S.,ha veva riouslyseentheSma rtGri das a platform
forjobcrea tionandimprovedna tional securi ty,as wellas a wa ytos timula tebusiness
andengineeringinnova tionandi ncreasethepercenta geofenergytha tis suppliedby
renewablesources . Thereis nodoubt thatsomeof the moreinnova ti ve Sma rt Grid Pa ge|5
projects wouldnotexistifi twas notforgovernments ubsidies.Thus,thei nstallation
of T&D equipment tha t uses hi ghtempera ture superconductors for better or
worsewouldprobabl ynotbehappeningnowi fi tweren'tforgovernmentsubsidies.

However, while governmentfunds are certainl yanenablingfa ctorin thedeployment

of Sma rt Gri ds, they must also be measured a gainst shifting politi cal reali ties. For
exa mple,insome pa rts of the world (notabl y Germany)subsidiesfor renewablesa re
being phased out a nd this could i mpa ct the need to integrate renewables as a
jus tifi ca tionforSma rtGriddeployment.

Asall oftheabovesuggests ,webelievetha tthereis ahighpotentialforT&Dequipmentfi rms

toreapa signi fi cantwindfallfromallofthecurrentfuss aboutSma rtGrids .Atthesameti me,
wealsobelievetha ti twouldbeall tooeas yforT&Dequipmentfi rms tobecomethevi ctims
ofhype.If (probabl ywhen) theydo,i twill beeasy for theseequipment fi rms to overshoot
wha tthema rketreall ydema nds .

NanoMarkets, LC | PO Box 3840 | Glen Allen, VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017