Market Insight

Over 100 million smart meters adopt head-end software ‘as a service’

April 23, 2019

Alex Kaplan Alex Kaplan Analyst, Smart Utilities Infrastructure Technology, IHS Markit
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Over one-third of all communicating water and electricity meters installed in North America and Europe have adopted head-end software (HES) under some form of managed service contract, as of 2018 according to new research from IHS Markit. In comparison, just 20% of the installed base adopted meter data management (MDM) software under a managed service contract.

Meter-to-cash has historically driven initial AMI investments in both water and electricity meter markets; and after a decade of successful case-studies (especially in North America and Europe) the next generation of software and services is finally here. Vendors have always known that AMI data can do more than simply cut labor costs, but the business case and provable return on investment (ROI) has been complex despite the benefits a solution could produce.

A lack of shared language about basic software and service concepts inhibits the market

The value of AMI itself is difficult to communicate because of the many moving parts in a utility. Often, the departments that sign off on investments are separate from the actual end-users. The reality is that most utilities do not have a comprehensive overview of the value chain and each business unit tends to fixate on a different part.

Even vendors themselves lack shared languages for simple AMI components such as head-end software (HES) and meter data management (MDM). To over-simplify, head-end software is data collection, while meter data management is the storage platform – these functions are always two separate components, but complications frequently arise when vendors combine them, whether through a single platform or through marketing of a total solution. This can therefore frame very similar solutions differently to a utility, which in some cases overwhelms and prevents utilities from purchasing solutions at all.

Even as vendors begin to converge a little around the basic definitions, the variance in products and actual solutions continues to vary dramatically between utility types, regions and even within countries.

Electricity has five times the number of adopted head-end software than for water

In general, high variation characterizes the market – for example, at the top-level the installed base of AMI in electricity is nearly three times larger than in water. Adoption of AMI in electricity metering was relatively early in the product development cycle and electric utilities have generally been first adopters of services as they were developed too. In contrast, water has historically been slower to adopt smart meters than in electricity because utilities are smaller, have fewer investment resources and typically a less technically-capable workforce.

Overall, this means electricity has a greater volume of both head-end software and meter data management endpoints under managed service contracts than in water because AMI adoption began much earlier. However, the pace of adoption in water has been much quicker than electricity in recent years because the more resource-limited water utilities tend to prefer end-to-end solutions.

As the installed bases of AMI continues to grow, these differences in adoption trends highlight key considerations for both sectors in the next generation of software and services.

Moving beyond “meter-to-cash”

As the software market matures beyond the initial hype, there are fundamental differences between the investment patterns of water and electric utilities. Specifically, water AMI data typically has fewer potential applications than electricity; these more focused use-cases mean the desired application itself (e.g. leakage detection) can drive the water utility to adopt the total solution and justify the initial spend. Conversely, meter-to-cash will always remain the primary driver of AMI investments in electricity; adoption of further analytics/applications are often only considered once the system has been installed for some time.

Ultimately, there is still a significant misunderstanding of the total cost of ownership for the next generation of investments, with a danger of causing analysis paralysis for the utility. Nonetheless, it’s clear that many utilities recognize the value of smart metering beyond just meter-to-cash, even if they haven’t yet found the specific application and business model to help move them forwards to date. In any case, with over 800 million communicating water, gas and electricity meters installed worldwide, the overall ceiling for managed software and services is far from being fully realised just yet.

 

This analysis comes from a new IHS Markit report, "AMI Software and Services Report - 2019" which is available as part of the Smart Utility Meter Intelligence Service.  Please contact us for more information.

Research by Market
Power & Energy Technology
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