Emergent Markets: Smart Grids

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Smart Grids

Smart grid is the integration of digital technologies in power distribution and management which enables a two-way ‘communication’ between the system and the user. A Smart grid uses a network of smart meters over traditional mechanical meters which allows for communication with the grid in real-time.

Introduction

This is one of the 16 market profiles produced as part of the Economic Market’s foresight study commissioned by the North East LEP. It provides an overview of the future growth prospects for the Smart Grids market globally, a summary of the enterprise base serving the market in the North East and relevant regional assets, and an analysis of how the continued convergence of global trends will affect future market development.

These markets were selected as those most likely to present opportunities for future regional growth in the North East LEP. This was done based on a trends analysis conducted by Frost and Sullivan, which identified 37 high impact trends driving continued change and growth in these markets globally. A shortlist of markets from this trends analysis was then cross-referenced against the current North East position by Cambridge Econometrics. This analysis identified the most significant opportunities for the North East LEP.

Each of these profiles also uses findings from the Data City platform to quantify the number of firms serving the Smart Grids market in the North East. This platform links companies house data to companies’ websites and uses the website text and machine learning to classify firms into Real Time Industrial Classification Codes, which can allow analysis of markets often too emergent to be precisely measured in SIC codes. The data from this platform has been triangulated against ONS data to consider a variety of perspectives on the market.

More detail about the methodology can be found here for the 16 market profiles.

Description and global outlook

Smart grid is the integration of digital technologies in power distribution and management which enables a two-way ‘communication’ between the system and the user.

A Smart grid uses a network of smart meters over traditional mechanical meters which allows for communication with the grid in real-time. Advanced sensors avoid congestion and improve grid stability.

A key benefit which has been highlighted is the grids ability to reduce the distribution loss and provide efficient tracking of consumption.

Market drivers

The smart grid market was negatively impacted by COVID-19 which slowed down the adoption rate owing to an increase in financial challenges, disruption in production and difficulty in implementation. The smart grid market is driven by several factors including technology adoption and regulatory support.

Some of the key driving factors are ageing infrastructure, need for efficient transmission networks, real-time monitoring, smart city projects and provision against cyber-attacks.

The market is increasingly seeing the trends of micro grids, automation across grids, cloud services, use of data analytics in real-time, emphasis on edge computing and demand side management.

The roll out of 5G services and increasing use of renewable energy is expected to further boost smart grid adoption. Despite the increase in demand, the overall market continues to face challenges in growth due to higher implementation costs, need for large scale support infrastructure and complexities with data management.

Scale and scope of global market

The global smart grids market was estimated to be US$ 35 billion in 2020, with expected growth for the period 2020-2023 being 21% owing to global demand. While North America is the largest current market for smart grids, APAC, led by China, is emerging as the fastest growing market.

The smart grid market and adoption across the UK is also high, with the country’s UK Power Networks positioned at the top of list of 85 utility companies globally in 20201.

Some of the leading smart grid companies are: ABB Ltd, Landis+Gyr, Intron, Cisco, Oracle, Siemens AG, Schneider Electric, IBM, Wipro, Infosys, Nextgrid, Fujitsu.

$35 bn in 2020

Capital flows and FDI

Investment in Smart Grid technology has historically been driven by centralised (and highly regulated) investment plans from Distribution Network Operators (DNOs), which are now in the process of transitioning to a more regionally focused model as Distribution System Operators (DSOs). This transition will push further capital into investments in smart grid and oher energy management technologies over the next decade, and support the establishment of rich supply chain ecosystems for technology and service provision.

The rate and scope of investment is in large part the result of brokered agreements between the Electricty System Operator, The energy regulator (OfGem) and the DSOs themselves. This is expected to create some uncertainty in the investment landscape in a post-covid environment, where drivers around energy pricing caps for the consumer, system resilience and decarbonisation timelines are in tension.

Within the sphere of private capital, VCs remain highly active around technologies and platform models that are predicated on smart grid and demand response technologies.

North East presence and capabilities

Newcastle Helix

The Newcastle helix is a 24-arce testbed and collaborative eco-system for public and private sector bodies. Providing state of the art office space and proximity to other innovative firms and organisations, including the national innovation centre for data, the Helix creates the conditions for a thriving local tech eco-system.

Proximity to wind and tidal energy markets

The North East LEP area benefits from proximity to world’s largest offshore wind market, with 32% of global offshore wind capacity currently established, or being constructed off UK shores. Power generating equipment significant export values £1.3 bn out of £11.6 bn.

The UK is a world-leader in wave and tidal energy, implemeting the world’s first commercial tidal stream project in Northern Scotland. Wind energy is a mature market, with tidal energy emerging. The UK has 50% of Europe’s tidal stream energy resource – enough to supply 20% of UK electricity demand.

Long-established heritage in the energy sector

The North has a long-established heritage in the energy sector, including offshore oil and gas, which has led to the energy sector becoming embedded in the fabric of local culture, with a strong legacy of engineering and manufacturing skills, and a concentration of energy research and innovation. Building on this legacy, the North is now playing a world-leading role in emerging energy challenges, with expertise in nuclear energy, large scale renewables, energy storage, transport, and a proven record in the global oil and gas and offshore wind sectors.

Development of hydrogen technology

The North is also acting as the UK centre of excellence for development of hydrogen technology. Through the H21 project Northern Gas Networks, in collaboration with partners, is leading globally significant plans to use hydrogen as a heating fuel, helping decarbonise millions of Northern homes.

Analysis of GVA and employment by SIC sectors

As part of this profile the findings from socio-economic data and economic forecasts were complied for the four most relevenant SIC classifications to smart grids, Electrical Equipment, Electronics, Electricity & Gas, and IT Services industries.

Electrical Equipment is highly productive and employs 3,500, a small sector relative to other sectors in the North East LEP area. Manufacture of Electrical Equipment is a specialism for the North East – with a Location Quotient of 1.4 – demonstrating that the industry is 40% more concentrated in the region compared to nationally. The sector has experienced a decline in jobs over the past 38 years, but continued to increase GVA. Future projections indicate continued job decline in Electrical Equipment.

The Electronics industry employs 2,100, and is less of a specialism than nationally, with a location quotient of 0.6. The sector, although highly productive, has experienced a steep decline in employment and GVA. The outlook is forecast for an increase in jobs and GVA growth.

Electricity & Gas is highly productive and employs 8,000 in the region, and is a moderate sized sector relative to other sectors in the North East LEP area. The sector has experienced a decline in jobs over the past 38 years, but continued to increase GVA. Future projections indicate continued job decline in Electrical Equipment, with modest jobs growth in Electricity & Gas.

The IT Services industry employs 24,400, with a similar share of regional employment to nationally. The sector is highly productive, and has experienced a steep increase in employment and GVA. The outlook is forecast for a further increase in jobs and GVA growth.

Electrical Equipment (Manufacturing)

Electronics Manufacturing

Electricity & Gas

IT Services

The Data City findings

The Data City provides company data based on an AI-driven taxonomy search of terms and content on company websites. This is then connected to companies house data for each company and allows an aggregate analysis for new industry and market definitions. The data captures the number of business branches in the North East LEP area, which means firms registered outside of the North East LEP but with branches in the area are captured in the data.

The Data City suggests that there were 11 firms operating in Smart Grids in the North East LEP area in June 2022 – 3% of the total firms in this sector.

Local Authority location quotients

The Data City also suggests that the North East LEP is a centre for firms in this market. Four of the seven local authorities in the North East LEP had a positive location quotient, and Gateshead and North Tyneside had very strong location quotients. Three of the North East LEP local authorities were in the top 50 local authorities in terms of their location quotients.

Connections with other regions

The data from the Data City suggest that 66% of firms registered in the North East LEP operating in this market had locations outside of the wider North East region. This compares to 34% of firms nationally that have location in more than one NUTS region. Outside of the North East the most common region for firms to have an additional location in was the East of England; the North East had stronger connections to this region than the rest of the country.

North East LEP clusters

Space and satellites firms are distributed across the North East LEP area, but as expected from the location quotients there is a particular concentration of firms in Gateshead.

Sector crossover

One of the innovative features of the Data City methodology is that it allows firms to be classified in multiple sectors. The platform does so through real time industry classifications (RTICs), which are constantly evolving classifications generated by an AI from companies’ websites. Firms can be classified under multiple RTICs at any one time.

This means the data can be used to demonstrate interdependencies where sectors overlap. As may have been expected, there is a strong degree of overlap in this sector with the space economy, electronics manufacturing, and advanced manufacturing. The North East appears to have stronger cross over with electronics manufacturing and telecommunications nationally, however it should be noted that there is a small number of firms in these sectors which means these results should be interpreted with caution.

Subsectors

The Data City methodology also includes individual subsectors within the RTIC taxonomy which allows detailed analysis of the North East LEP’s focus within space and satellites. The most common subsectors for North East LEP based firms to operate in are electronics manufacturing in communications, and engineering and software within the space economy. Compared to nationally, the North East sectors has a particular focus on electronics manufacturing in communications, space economy engineering, the ground segment of the space economy.

Regional prospects

A critical part of this study is to shortlist which emergent markets represent “hot prospects” for the North East economy in the future. Using the findings from the study, and the assessment framework below, the Smart Grids market is rated as:

Emergent status in the North East
National scope in terms of firm activities and ownership
Moderate-scale in the North East with 3% of firms in this markets having a location in the North East LEP (compared to 2% of firms in all markets)

Existing regional specialisms

Strong: high location quotient; high employment and company presence

Firms

Moderate: 1 to 3 major firms and/or start-ups and SME presence

Value chain cluster

Low: small number of SMEs

Innovation / technology

Moderate scale of R&D activity, with national leadership

Skills and human capital

Complementary: associated and foundational skills with infrastructure and provision

Local institutions

Related: can be adapted

Local assets

Relevant major assets: of national significance

Click here to download the full assessment framework.

Strategic commentary

The North East region’s position as a hub for the energy transition and digital economy is a significant strategic driver for growth around Smart grid technology and capital projects. While a small market in the North East context in terms of the number of firms, the complex suite of dependencies and enabled markets outlined in the table below shows that Smart girds occupy an important position in the regional value chain as the North East seeks to grow other markets.

The most critical links are with the Electric vehicles and Energy generation markets. The North East has a very strong position in electric vehicles and is seeking to capitalise on this position to further drive regional growth. Smart grids have an important supporting role to play in creating the conditions for the effective use of electric vehicles, so the North East needs to be aware of their ancillary role as it capitalises on its electric vehicles proposition.

Equally the dependences across applied digital technologies and energy storage show that smart grids can help drive demand in these markets, allowing to the North East to develop a regional specialisation in the application of digital technologies in energy related sectors.

Northern Power Grid’s recent (July 2021) announcement on over £234m of committed investment into its five-year grid digitalisation and decarbonisation plan could feasibly be expected to support significant involvement of commercial market players from for the North East region.

Introduction