The shale gas boom in the United States will play a key role in the development of the nation's smart grid—helping to drive the development of microgrids; and in doing so, unleashing resurgence in the market for related equipment starting in 2015, according to a report released this week by Englewood, Colorado-based IHS (News - Alert).

After three years of decline, demand will rise again in the combined market for distribution automation hardware and smart meters in North America the analysts predicted, with revenue rising to $3.2 billion in 2015—up 3 percent from $3.1 billion in 2014.  By 2017, revenues will reach nearly $3.6 million.

"The shale gas revolution in the U.S. is having a massive impact on the energy market, with the new energy production expected to bring the country closer to energy independence, an event with major economic and geopolitical ramifications," said Donald Henschel, senior analyst, Metering and Energy Management, for IHS. "However, this development also is having an impact in another, more surprising area—the smart grid. Natural gas is optimal for use in smaller distributed-generation operations, which can form the basis of microgrids. The rising attractiveness of flexible, adaptive microgrids will help the smart grid grow to overcome the serious challenges faced by this region's utility sector, and will drive growth in sales of required equipment in the coming years." 

The Convergence (News - Alert) of Gas and the Grid

Smart meter shipments hit a high point in 2010 thanks to the surge of money made available by the American Recovery and Reinvestment Act (ARRA) of 2009.

"ARRA has redefined the U.S. and thus the greater North American smart grid market, reshaping investment patterns for years to come," Henschel said. He noted that, by halving the cost of new smart metering systems and distribution automation projects as well as application testing, ARRA created the environment for smart grid development with three big changes:

• First, it built up a new, much larger installed base of field networks and sensors.
• Second, it allowed decision makers at utility organizations to see the value of these technologies in viable-use cases at neighboring utility networks.
• Finally, it created the market volume necessary to encourage greater competition, innovation and cost reduction in what had been previously much smaller, higher-cost equipment markets.

The U.S. smart meter market then entered a major decline in 2012, with shipments plunging by 16 percent. However, now, the refinement of shale gas extraction techniques and the discovery of further tight gas resources have converged to rapidly increase the amount of domestically available natural gas.

Today, natural gas is extraordinarily plentiful and cheap. These low prices are also being driven by a lack of short-term export potential, as the infrastructure to compress or liquefy and ship natural gas to hungry oversea markets is still being built.

Natural gas affects the utility grid in several ways. Its rising role in centralized generation is critical, but the opportunity for natural gas also extends to more affordable and environmentally sound microgrid development. In light of extreme weather and related outages, many consumers and organizations are seeing microgrids as a way of ensuring energy security. These market forces will converge to grow the industry.

Evolution and Emerging Needs

The outlook will remain positive, according to the analysts, because of a variety of other factors propelling the growth of the U.S. smart grid market—among them:

• The increased availability of dedicated sensors, which together with smart meters are expected to spur the next wave of smart grid schemes.
• The requirement for greater security in the electricity grid.
• Strong demand from rural electric cooperatives, which are emerging as technology and business innovators in North America.
• A profound inflection point in the growth of the microgrid market, spurred by requirements for improved reliability and reduced operational cost.
• A range of new challenges for electricity utilities that could be addressed by smart grid technology, including severe weather, electric-vehicle charging and increased stress on aging grid infrastructure.