Market Insight

Cost and not technicality wins for AMI

January 17, 2019

Susanne Cumberland Susanne Cumberland Senior Research Analyst, Power and Energy Technology, IHS Markit
This product is included in:

Want to learn more?
Have an expert contact you.

Key Notes:

  • Advanced Metering Infrastructure (AMI) shows IoT adoption in utilities is already strong
  • In choosing the connectivity and total solutions, Total Cost of Ownership is arguable a greater factor than technical considerations.
  • For every $1 spent on AMI hardware, another $1 is spent on the provision, software and ongoing operation of the solution.

Discussion:

The buzzwords of connectivity and IoT have long dominated technology discussions for the utility industry, but strong progress for smart metering adoption has continued almost separate to those discussions.  According to IHS Markit data, over 80% of the communicating meters to be shipped in 2019 will enable AMI solutions – yet this is only just beginning to be seen as a pioneer in adoption of IoT for utilities.  In reality, modern AMI solutions match perfectly with the fundamental definitions of IoT on the four pillars of Connect, Collect, Compute and Create (read more on that in our previous insight).

Whilst over 700 million communicating meters are now installed worldwide, AMI adoption initially struggled against the challenge of vendors and utilities choosing the ‘right’ communication technology.  IHS Markit data already shows how no one single connectivity technology will grow to ‘win’ the market overall, and although it remains a key consideration in the decision process, the conversation has now moved onto life beyond hardware.

This will only continue to grow as utilities and vendors explore more applications for AMI beyond purely meter-to-cash.  However, the technical limitations of connectivity technologies are not the biggest roadblocks in implementing these solutions right now – Total Cost of Ownership (TCoO) is the bigger limitation.  IHS Markit has therefore defined a framework for understanding the considerations and the four steps in a utility’s decision-making process.

 

 

Applications and Predetermined Factors

For any given application that the utility wants to target with their solution, there are several factors have a significant influence on the type of communication technology chosen, including:

  • Urgency of data
  • Frequency of data
  • Minimum reliability rate
  • Size of data

With a focus on application and outcome, rather than purely technical considerations such as ‘the solution must provide data every 15 minutes’, there is greater flexibility (and potentially lower cost) in the technology choices.

However, there are some local considerations that a utility and vendor cannot change, some of which could even eliminate technologies from consideration altogether.  Every country or region will have its own weather patterns, natural disasters, legislation, and population density – each factor bringing a particular change to the decision process.  For example, if an area is prone to 8.0 earthquakes or EF-5 tornadoes, smart electricity meters using PLCs could be unsuitable for assisting applications designed around storm outage control because it relies on the powerline infrastructure to send data. Similarly, an area with higher population density (e.g. a major city) has a lower average cost per node for an RF Mesh network than within a rural area with low population density.

Assessment Factors

The main decision process for the utility in assessing the TCoO then comes to the costs across four main areas/factors:

  • Hardware
  • Provisional costs
  • Data management
  • Operational costs.

Different technologies offer advantages and disadvantages across the different areas.  For example, technologies such as SIGFOX are simple to use and cheap to deploy, with a low ‘cost of knowledge’ to the utility, but is most suitable for sending small and infrequent bursts of data. Alternatively, NB-IoT has a typically higher chip cost for hardware than SIGFOX but has a better ground penetration which could be more suitable for meters under cover.

Even in a commoditised market, hardware is still by far the largest individual cost component in the TCoO of the AMI solution.  However, the other costs are rising in both their visibility and their impact on success of these solutions, and IHS Markit estimate that for every $1 spent on hardware, another $1 is spent on the provision, management and operational costs of the solution.

Choosing a Solution

In many cases, the final chosen IoT solution is often a compromise – where applications and expectations may be reduced in order to find an acceptable TCoO.  However, the rise of new business models from vendors, including ‘as a Service’ or Service Line Agreement (SLA) type contracts, is helping to reduce the provision costs and cost of knowledge to the utility, allowing them to adopt new technology more quickly.

The rise of managed services will only increase as utilities look to the next generation of applications for AMI beyond the meter to cash process.  This is likely to further push the TCoO equation towards the ongoing costs such as data management and operational costs, but increase the return on investment from the hardware.

In any case, no single solution will suit all types of utility companies, just as no single connectivity technology wins the whole AMI ecosystem.  However, viewing AMI as an IoT solution better enables a unique solution for each utility need with a stronger understanding of the TCoO involved.

 

 

This analysis was prepared by the Smart Utilities Infrastructure team in IHS Markit Energy Technology.  Further insights on IoT for Utilities will be released across 2019, but please contact us for further information on our research and insight.

Research by Market
Power & Energy Technology
Share facebook Twitter Google Plus Linked In Add This Contact Us