Issue 52 September 12, 2012 In this issue: Current Market Dynamics and Future Growth Trends for Smart Water Metering in the United States By Eric Meliton Frost & Sullivan
Current Market Dynamics and Future Growth Trends for Smart Water Metering in the United States BY ERIC MELITON FROST & SULLIVAN Introduction With the rising costs of energy and the need to address the inefficiencies of outdated water systems and infrastructure, smart water metering technology provides a long-term solution for municipal utilities. The overall demand for smart water metering technology is growing in the United States. This period of growth is linked to improvements to overall operational efficiency, which includes reduced maintenance costs, enhanced leak detection and accurate meter readings for service billing. The focus of growth in the United States is on two types of smart water metering technology, advanced metering infrastructure (AMI) and automatic meter reading (AMR). AMI technology consists of a two-way, fixed network system that provides two-way communication between the meter and utility. AMI data is generally more complex and collected more frequently than an AMR system. Meters with two-way communication capabilities allow data to flow between the meter and a remote backend system. In contrast, AMR technology is an automatic reading system with one-way communication capabilities. These meters permit remote reading, typically with either a walk-by or a drive-by reading system, unlike meters with one-way communication capabilities, which do not allow utilities to send information to them. As the economy begins to recover in different parts of the US, municipalities will elect to invest in smart water metering technology, as the technology does not require a large investment for implementation and provides a solid return on investment rates. Frost & Sullivan opines that implementation is expected to pick up pace over the next two to three years, as the municipal water infrastructure recovers, especially amongst major urban centers.
What are the main challenges? Currently, the US water infrastructure industry has a number of major challenges to overcome. Spending on ways to reduce longterm costs and improve operational efficiencies will continue to be sought after, particularly after the economic downturn of 2009, that is still imposing on the growth potential of the US municipal water and wastewater treatment market. Increasing costs for retrofit and replacement projects may not be ideal for many municipalities with an inability to generate adequate capital and operational expenditure budgets. However, it is too beneficial to ignore the ability to improve the accuracy of service billing, enhance operational efficiency through energy savings and reduction of labor costs, while also addressing losses due to leaks or excessive water use. Despite the perceived growth potential of the US smart water metering market, the competitive landscape is currently quite small and the market awareness of the benefits of metering technology is limited to forward-thinking municipalities. As case studies are developed for existing installations showcasing short-term and long-term benefits of the technology, combined with a proliferation of the competitive landscape providing an influx of technology innovation and service capabilities, the segment will continue to be perceived as a market with potential, rather than one with actual results. Similar comparisons to market buzz and perceived awareness can be drawn between smart water metering technology and the desalination technology sectors. Despite all of the challenges experienced in the US related to water shortages and scarcity, desalination technology has only taken hold in niche areas of the country due to high costs for implementation and operation. Unlike desalination, these issues do not hold true for smart water metering technology and should experience a market surge in the coming years. 3
What is the market potential? Frost & Sullivan has done extensive global research in this segment and is slated to analyze the US market in 2012. As a base for comparison, research findings in Europe found that the European smart water metering market was estimated at approximately $1.45 billion in 2011, with a forecasted growth potential of $13.2 billion by 2020. Parallels can be drawn from the level of implementation and market trends experienced in Europe and other regions across the world, thus the assessment of the US market should discover a robust marketplace with sustainable growth opportunities for the competitive landscape. In Europe, the market drivers include energy-efficiency and cost savings, implementation of technology and innovation of new systems, and service expansion of municipalities that implement the systems. Additionally, the market restraints conveyed are slow implementation, market fragmentation beyond the Tier I players and issues with data security. In comparison to the market trends identified for the US, factors such as the aging water infrastructure, water scarcity concerns, and improved billing and customer service are viewed as the initial drivers for implementation. Restraints in the US sector include the long-term negative effects on municipal utilities caused by the economic downturn and the short-term investment costs for technology acquisition and installation. As shown by this contrasted viewpoint, the European market is further along in the growth stage for smart water metering technology, nevertheless the US market potential is considered strong, as the segment is overall considered relatively new. As more US based municipal utilities install and experience both short-term and long-term benefits of utilizing smart water metering technology, the strength of the market will continue as end-user awareness and vendor reputation become procurement factors. 4
Figure 1-2 Smart Water Metering Market: Benefit Analysis (Global), 2010 5
What are some of the important developmental areas that could lead to growth? Long-term implementation of smart water metering technology in the US aligns with the technological trends experienced in other parts of the globe, as well as in other sectors. Smart infrastructure on all fronts (e.g. buildings, energy grids) will lead to further longterm implementation of smart water metering technology. Acceptance of smart water metering is expected to emerge in the US, as consumers become more aware of the benefits of these other smart infrastructure systems. According to Frost & Sullivan, the developmental areas that could lead to growth in the US smart water metering market address the various issues experienced by municipal water utilities. Combined sewer overflow management is an example in which smart water metering technology can be used to optimize operational challenges. Smart water metering technology can also be used to maximize distribution networks, to further enhance operational efficiency and to reduce distribution interruptions (e.g. leaks, system failures, etc.). Smart water metering technology is also being utilized to enhance treatment systems, maximizing the effectiveness of both drinking water and wastewater applications. As a result, in order to keep up with the pace, treatment technology providers, data and analytical software providers, design and engineering firms and automation and control system vendors will also need to evolve existing technologies and service portfolios offered to address the growing requirements of smart water metering technology. 6
Figure 1-1 Smart Water Metering Market: Value Chain (United States), 2011 7
Conclusion With the increasing need to improve the outdated water infrastructure in the US, smart water metering technology is viewed as the likely culprit to evoke changes throughout the water value chain. Our research finds there will be a slower implementation rate of smart water metering technology in the US, but a strong, long-term growth potential for the overall market. Collaboration amongst industry participants throughout the value chain will enhance long-term implementation and will serve as a means to further innovate other outdated value chain components, such as software, automation, and even early generation treatment systems. As the economy begins to recover in the US, only time will tell if municipalities elect to invest into smart water metering technology. With the comprehensive list of benefits that result from implementation, the potential of the market will be difficult to ignore. 8
About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best in class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best practice models to drive the generation, evaluation and implementation of powerful growth strategies. Frost & Sullivan leverages over 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 40 offices on six continents. Author Profile: Eric Meliton Eric Meliton is an Environmental Technologies Industry Analyst for Frost & Sullivan. His expertise includes industrial and municipal water/wastewater treatment technologies, regulatory affairs and compliance. Meliton holds a Bachelor of Science in Chemistry and Environmental Science from the University of Western Ontario. Contact Information Tel: 210-477-8481 URL: http://www.frost.com. Twitter: @frost_sullivan Analyst LinkedIn: http://www.linkedin.com/profile/view?id=36793839 Email: Britni Myers britni.myers@frost.com 9