December 2011

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Allan McHaleEMAIL INTERVIEW - Allan McHale and Ken Sinclair

Allan McHale, Director, Memoori

McHale's career spans 40 years in the Energy and Building Controls Industry. In 1980 he formed Proplan to provide consultancy services in marketing and business development of products for security, safety and environmental control in buildings. In 1998 Proplan was merged into a new start company, i&i limited in order to provide more comprehensive solutions to both the demand and supply side of intelligent and sustainable buildings. In 2008 the assets of i&i Proplan were acquired by BSRIA Ltd. Later that year he co-founded memoori ltd to provide web based business intelligence services to energy and security related industries.

During the last twenty years McHale has managed a wide range of marketing strategy assignments for some major international companies, and is the author of forty published market studies and numerous papers on physical security, fire detection and environmental controls and smart grid industries and has lectured in the U.S.A, Europe and the U.K. on business development.

The Analysts are Slashing Their Forecasts

But Smart Grid Will Weather The Economic Storm Better Than Most Businesses

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Sinclair:  Why have the investors suddenly decided that investing in Smart Grid is too risky?

McHale. This is a very scary time for the world economy as it makes little progress to overcome the aftershock from the 2008 financial meltdown. The future for just about everything is being heavily marked down, so it’s hardly surprising that the analysts are giving the thumbs down to the market valuation of the smart grid players as they forecast a sharp decline in utility demand for smart grid as they defer spending until the economy picks up. One cannot argue that present economic woes will have a negative impact on the business and will reduce demand but the extent of this will be decided by the ROI on smart grid investments and the cash than can be generated from improved productivity and reduction of wasted energy. This is not a nice to have but a must have product.

Sinclair:  Which markets are likely to be hit hardest by any turndown?

McHale: The US could become one of the more difficult markets to trade in because utilities and regulators focus really hard on minimising customer bills during difficult economic times. However this has already been the case during the last two years but fortunately the stimulus programmes have compensated. A significant proportion of these funds are still in the pipeline; sufficient to keep the investment programme rolling for up to a year but then its impact on investment will rapidly fall off. So whilst growth will slow down we still expect business to increase in 2012.
The North American electrical utility market spent something like $23 billion on Electrical Transmission and Distribution equipment in 2010.  The vast majority of this was spent on retrofit and refurbishment of existing systems and much of this was replaced with smart grid ready equipment ensuring a steady base load of business. Judging by the creaky state of the network if they reduce expenditure here then blackouts will increase leading to a further deterioration year on year. We suspect that the customers would prefer to pay a little more for a reliable electrical supply.

Sinclair:  What is the situation in Europe and is it in anyway different?

McHale: Northern Europe has a much more reliable grid system but customers pay daily a lot more for having one. However the politicians are now realising that they can’t take this for granted much longer and it may not be possible for a smart grid to finance itself from increasing utility revenues. If the low carbon economy is to be realised in the planned time span then governments will have to engage in some serious stimulus programmes along the lines of the US model.

In Europe the drive to reduce dependence on nuclear and conventional power and increase renewable electrical generation cannot be achieved without a massive investment in smart grid. In Germany the decision to rapidly close down all nuclear power stations requires a doubling of effort in smart grid deployment. The question now is do they have much choice but to slow down the nuclear closure and CO2 reduction programme and spend more on getting the economy back on track.

We suspect that both in Europe and North America compromises on the low carbon economy agenda will have to be made. One solution here is for more use of natural gas to be allowed to generate power from the latest advanced gas turbines that are 60% fuel efficient which is a 15% increase in efficiency on existing systems. They have the capability to rapidly increase and shut down load giving the kind of flexibility to compensate for the downside of renewable power. This would put less strain on the grid and allow more time for smart grid to be introduced in a much more integrated and balanced way rather than spending the lion’s share of investment on smart meters when they can’t deliver their full potential until all aspects of smart grid are in place.

[an error occurred while processing this directive] Sinclair:  What are the long term implications of this?

McHale: Investment in smart grid may lack growth in the next two years in the developed economies of the world but the present programmes in China and Asia will press on and within two years China will be largest single market for electrical transmission and distribution equipment in the world.

Sinclair:  Will Smart Meters continue to take the lions share of the business?

McHale:  In the short term yes, However the priority will be spending on automating the transmission and distribution network to achieve balance and voltage optimisation. However integration programmes that bring together information to enable more efficient overall control of the grid will take lower priority despite the fact that they can help reduce outages and protect revenues and payback on their investment. However if IT and Communications companies invested in the Smart Grid this would give it a massive uplift.

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