AMR Growth Continued in 2002, But 2003 is Not So Clear

By Howard Scott, Cognyst Consulting

For the fourth consecutive year, the AMR industry has enjoyed significant growth. Utility deployments have increased despite the economic downturn. The underlying momentum continues; widespread AMR use is already under way and will surely continue.

The greatest unknown is what will happen in 2003. Because utilities take a long time to make AMR decisions, this year’s deployments will depend on last year’s sales (as well as on 2001 sales). A large number of new projects started in 2002, so the underlying fundamentals for the industry are good.

However, the war in Iraq was a shock to the economy and produced a period of indecision. In addition, the impact of the recession finally hit utilities. Some utilities are worried about reduced revenues, which could put some spending on hold. Though many economists are now reporting economic recovery, it is too early to tell what impact this will have on AMR purchasing in 2003. This is a time when an increasing number of utilities want to introduce automation to control costs; the question is whether they have the cash to do so. The likeliest outcome is a year of “coasting” as even more utilities start projects but few new major announcements are made until the economy recovers.

Deployments Up Again

This article summarizes new data from The Scott Report: Insights on AMR Deployments in the United States, which was just released. It shows U.S. deployments in 2002 were 20.7 percent above the 2001 figures, which were extremely strong at a 42.6 percent increase over 2000. The growth occurred across the board, with most vendors reporting an increase in business.

The AMR industry seems to be entering a new phase in its evolution. There is little question about its benefits. Most utilities want it; the question is whether they can afford to deploy it.

As with any time of transition, it is difficult to predict the exact route that the industry will take in the next few months. One outcome is clear–the industry is not near its limit, and the demand for the product among utilities is very high.

Deployment Data

Figure 1 shows the performance of the active AMR vendors in 2002 in the U.S. A few vendors are missing from this list, but they represent a small percentage of the AMR business. The chart is in decreasing order for the total number of AMR units shipped in 2002. Ranking is by “vendor,” which Cognyst defines as the company that sold the product to the utility.

Click here to enlarge image

Source: The Scott Report: Insights on AMR Deployments in the United States, Cognyst Consulting

Many of these companies had superb years in 2002, but two of them stand out.

  • Itron re-emerged as the industry leader. The numbers below don’t tell the whole story, because Itron also sold 450,000 other units through Badger and AMCO/Elster.
  • DCSI has emerged as a solid No. 3 vendor in annual shipments, outpacing several other companies in 2002 and positioning itself for further growth in 2003.

These achievements are especially impressive because they occurred at a time that most other vendors also enjoyed a strong year.

Figures 2 and 3 show data on the annual shipment of units to the United States, with Figure 2 focusing on the trends in preferred communications technologies. Note that the radio frequency (RF) shipments dropped significantly in 1998, but have recovered strongly since. The use of powerline communications (PLC) has grown steadily over these years, with the only variable being rate of growth. In contrast, telephone shipments suffered a major decline in 1998 and have only gotten worse since then. The charts show that RF dominates the marketplace followed by PLC and then telephone. However, telephone is the technology of choice for reaching commercial and industrial customers.

Click here to enlarge image

Source: The Scott Report: Insights on AMR Deployments in the United States, Cognyst Consulting

Click here to enlarge image

Source: The Scott Report: Insights on AMR Deployments in the United States, Cognyst Consulting

Data is presented differently in Figure 3 to show how AMR projects are distributed among the different utility types. The data is dominated by electric utilities, which have been steadily growing each year except 2000 when shipments were level. In comparison, AMR shipments to the water utility market have grown at an even stronger rate. At the beginning of this study period (1997), gas utility shipments were at about the same level as electrics. Yet while the electric market for AMR grew, the gas market shrunk, tried to recover, failed, and has not yet re-achieved what it accomplished in 1997. More water AMR was shipped in 2002 than gas.

Growth and Penetration Details

In 2002 the AMR industry enjoyed growth across all market sectors. Penetration into all utility types grew, but the extent of AMR usage by electric utilities is especially impressive. A large number of new projects, especially by publicly owned water utilities, indicate that each segment of the marketplace is making important contributions to the entire AMR industry.

Growth: The 20.7 percent growth rate for all AMR in the United States is impressive (Figure 4), but within some segments of the market, it is quite higher. Among ownership types, the highest level is for publicly owned utilities, where the growth rate was 37.3 percent. For all water utilities, the growth was 34 percent. Clearly, the bulk of new project growth in 2002 was with publicly owned water utilities. The “Other” category is included only for completeness and is a catch-all category for data that did not have the tracked parameter specified.

Click here to enlarge image

Source: The Scott Report: Insights on AMR Deployments in the United States, Cognyst Consulting

Penetration: In many parts of the United States and in many segments of the industry, AMR deployments have reached such high penetration levels that it is the norm, not the exception. Although the overall penetration of AMR is now at 16.9 percent in the United States (Figure 5), the percentage of utilities with some form of AMR tells a very different story. As Figure 5 shows, 63.7 percent of all IOUs have some form of AMR, as do 65.8 percent of all co-ops. There are states where the AMR penetration is 100 percent of all gas meters.

Click here to enlarge image

Source: The Scott Report: Insights on AMR Deployments in the United States, Cognyst Consulting

Data Focus of Electric Utilities

The breadth of data in The Scott Report allows us to infer actions that we don’t directly measure. One such topic is the extent that electric utilities are focusing on gathering and using data.

There has been considerable debate over whether the future of AMR favored systems that could deliver significant amounts of data (such as hourly or every 15 minutes) or those that were focused on infrequent reads (such as monthly). For this discussion, the first category will be called “data rich” and the second category “data sparse.” Only electric utilities will be considered in this discussion as they have the greatest motivation to use data rich options, since electricity has real-time value.

There is no way to determine if a utility actually uses all the features of the data rich systems (and anecdotal information suggests that they often do not use all the data), but we can measure the extent to which utilities are buying such systems.

Shipment data over the past six years is displayed in Figure 6. Historically (before 1997) most AMR systems were focused on monthly reads, so they were data sparse. The interest in data rich systems peaked in 1999 and has dropped each year since then. There is no information to suggest this is a long-term trend

Click here to enlarge image

Source: The Scott Report: Insights on AMR Deployments in the United States, Cognyst Consulting

The inability of data rich systems to achieve industry dominance is a surprise to some observers and deserves further discussion. The data sparse numbers are dominated by two vendors–Itron and Hunt. Both vendors enjoyed strong growth in 2002. Itron’s shipments were mostly mobile RF units whereas Hunt’s were powerline communication. There is no reason to believe that either of these types of systems will diminish in sales over the next several years. There are many utilities that have no interest in any form of data analysis and a large number of others that can derive significant value from less-frequent meter reads. Both data rich and data sparse AMR systems have their own fans among electric utilities and each may hover near 50 percent on the chart below for many years.

Industry Projections

Figure 7 is the culmination of a detailed analysis of historical AMR deployments–an analysis that Cognyst performed last year. Usually, we take all the latest data and do an in-depth study fully expecting that the answers are in the numbers. Of course, the real world is full of surprises, and we have had our share of them over the past few years. Most recently, the war in Iraq may have delayed business decisions. In addition, the recession is finally being felt by some utilities. Though AMR systems are often decided a year or more before shipments occur, the easiest way for a utility to delay buying more AMR units is to not have the money to pay for them. The latest data from the Department of Energy shows a downturn in electric and gas consumption in 2001 (though revenues still rose). Some utilities informally report a reduction in collections in 2003.

Click here to enlarge image

Source: The Scott Report: Insights on AMR Deployments in the United States, Cognyst Consulting

Figure 7 shows a gradual growth of the AMR industry through the mid-1990s when several large projects were completed. AMR shipments then declined (1998), followed by an industry recovery that grew in intensity. We see three possible scenarios for future growth:

  • The upper curve, which continues the massive growth seen in 1999 through 2001,
  • The lower curve projects forward all historical data,
  • The middle curve tempers strong growth with the possibility of some slowdowns.

Our projections for 2002 were dead-on, which makes our on-going projections easier. If the Iraq war and the recession had little impact, then aggressive growth could still occur. However, if one or more of those factors is affecting utility decisions about AMR, the 2002 projections could accommodate a slowdown for 2003. It is possible that we may see an impact somewhat similar to that seen in 1998 and 1999–a slowdown that shifts the growth forward a year or more. With all the news of an economic recovery under way, it is likely that any delay would be no more than one year in duration.

We will have a much better picture of future growth at the end of 2003 and continue to have great confidence in the future of AMR and utilities’ use of the technology. All the underlying indicators are positive and customers seem to be even more sure of the future this year than ever before. But as the marketplace takes pause to analyze all that has happened in the world, The Scott Report decided to do the same.

Conclusion

The Scott Report: Insights on AMR Deployments in the United States has shown that the AMR market is continuing its extraordinary growth. Each industry segment expanded in 2002. The penetration into investor-owned and cooperative electric utilities are now in the mid-60 percentiles. A large number of publicly owned water utilities started new AMR projects.

Though there is strong support for AMR among utilities, the greatest unknown is the extent to which the AMR industry will grow in 2003. A conservative projection has been made that supports both continued strong growth as well as a year of “coasting.”

There is a high likelihood that 2003 will be viewed as an important year, though not necessarily one of great growth. The industry has seen its first major round of acquisitions, and others are on the way. New communication platforms are appearing that could force a re-thinking of AMR system design. Many vendors are finally focusing on the data, which was a key initial reason for creating the AMR industry, and useful new products (and companies) should appear. The “Golden Age” of AMR is about to blossom. In 2003, we will begin to see its future form.

Howard A. Scott holds a doctorate in physics from the University of Rochester and is a managing partner of Cognyst Consulting, L.L.C. He is the author of The Scott Report, a series of studies that document market activity in the AMR industry. He is a charter member of AMRA and was the first recipient of AMRA’s Outstanding Contribution Award in 1994. Dr. Scott has conducted scientific research with three major universities and corporate research with Bell Labs and Bellcore.

Previous articlePOWERGRID_INTERNATIONAL Volume 8 Issue 4
Next articleEnron, creditors reach tentative agreement

No posts to display