By the Numbers: A Look at the Substation Automation and Integration Market

By Chuck Newton, Newton-Evans Research, with Kathleen Davis, associate editor

The Newton-Evans Research Company four-volume research series “The World Market for Substation Automation and Integration Programs in Electric Utilities: 2005-2007″ has found that more than 80 percent of global utility respondents indicated that they have substation automation and integration programs under way.

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The study compared the current round of research findings with earlier studies conducted by the company. Newton-Evans Research estimates the current annual global spending for substation automation and integration programs at about $550 million to $600 million, with an overall potential market size of nearly $40 billion.

Looking at History

The years 2002 to 2004 were slow growth years -or “no growth” years for some utilities-in most categories of intelligent electronic equipment sales related to the modern, increasingly digital, electric power substation. Few retrofit programs were undertaken except for the most critical of substations. (Increasingly, it is becoming more difficult to separate substation product classifications as manufacturers tout their platforms as “multifunctional” and the product positioning of many electronic devices now cuts across multiple product classifications.)

Newton-Evans further estimates that only about 12 percent of utility-operated substations had been fully automated and integrated by year-end 2005. Most of those were, in fact, newly or recently constructed substations. Most substation equipment manufacturers (mid-sized and smaller companies) and integrators surveyed in the second half of 2005 indicated some moderate-to-good growth market conditions within their utility sales sectors, resulting in sales that were as much as 5 percent to 15 percent higher than 2003 or 2004 sales levels.

Economic growth has continued in many electricity dependent sectors. In turn, this spurs demand for increased electric power, and increasingly reliable power. This results in internal planning for infrastructure and automation programs-thus leading to our 80 percent of respondents with substation automation and integration programs in the works.

However, on the downside, there remains some concern in the industry about the dearth of skilled engineering resources due to retirements and layoffs. This may further impact the ability of technology supplier companies to engage utilities for anything other than short-term requirements. However, third-party engineering and integration service firms are now making significant strides in winning substation automation-related business from planning to design to construction.

The World Market

If new estimates are correct, then there are nearly 65,000 transmission substations in the world (including sub-transmission) down to 110/115 kV. There are likely more than 210,000 electric power distribution substations operating at voltages below 115 kV down to about 30 kV.

We can thus estimate the total world market potential for substation automation and integration programs by estimating the cost to integrate and automate a single substation (i.e., a “typical” substation) which has ranged from $75,000 to $150,000 for a single distribution substation, to $200,000 to $350,000 for a transmission class substation. (See Table 1 for monetary details on the world market.)

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These amounts typically include costs for engineering; consulting; installation of a communications network within the substation; and, procurement of new or upgraded digital relays, meters, switches and RTUs for use within the substation. At the higher end of the estimates, spending includes the costs of remote monitoring equipment for larger substation apparatus from transformer and circuit breaker monitors to battery monitors.

These estimates do not include any “infrastructure” equipment costs for switchgear, transformers, other apparatus and panels for the substation.

While the numbers of substations in the world have actually increased by as many as 5,000 net additional units in the intervening three years since the last report, the cost to integrate and automate the substations has held steady, due to decreasing costs of electronics and communications, largely offsetting increases in the hourly cost of skilled technical labor.

Keep in mind that the world’s electric power utilities had been adding an estimated net additional 3,000 to 4,000 new or replacement substations annually up to 2001. From 2001 to 2003, the rate of new substation construction around the world dropped to a rate of about 1,800 to 2,200 per year, as estimated in the fourth quarter of 2002. By mid-year 2005, substation construction (net new, and replacement units) picked up momentum and once again the number of newly constructed substations (including replacements) is estimated to be in the 3,000 to 3,500 range.

The life expectancy of a substation automation system or system component ranges from 5 to 20 years, according to the many survey respondents participating in the study.

At the current rate of world spending for substation automation and integration programs of less than $600 million per year, this market will not be completely saturated for about 60 or more years.

The North American Market

The study found that 76 percent of the utility respondents indicated having a substation automation and integration strategy in place. In the mid-2002 study, 93 of 129 responding utilities (72 percent) had indicated that a substation automation and integration strategy was in place. The new findings include 87 percent of the 38 investor-owned utilities, 65 percent of the public utilities, and 90 percent of the cooperatives, indicating a strategy in place. Fifty-three percent of the Canadian utilities reported having a current strategy in position.

In contrast, in the 2002 study, only 70 percent of the respondents indicated having a program under way.

Respondents were requested to indicate the relative importance of “potential obstacles” to implementing substation automation programs. The lack of appropriate communications technology (substation to substation) and the fact of not enough skilled internal staff were leading “potential obstacles” to substation automation and integration program investments in the North American market. Lack of funding was especially important for investor-owned utilities and for Canadian utilities. Canadian utilities were more likely to be concerned with the uncertain management philosophy concerning substation automation at this time.

In the mid-2002 study, the lack of funding was the single most important obstacle standing in the way of implementing substation automation and integration programs in North American utilities. This was followed by “benefits do not outweigh costs” and “not enough skilled internal staff.”

In the 2000 study, “benefits do not outweigh the costs” was the most important of the listed potential obstacles. “Lack of funding” was a close second in importance.

Next came “not enough skilled internal staff” and “economic justification case not made for substation automation program” followed by “lack of standard protocols” and “uncertain management philosophy.”

For retrofit substations, the biggest obstacles reported in this current study were lack of funding and benefits/costs perceptions. This finding was reported by IOUs, public power utilities and Canadian utilities. Cooperatives were more likely to be concerned with the benefits, but concerns over substation communications were strong as well.

Additionally, for retrofit substations, there was more importance placed on rankings for each of the 12 “potential obstacles” listed on the survey. That is to say that these obstacles were deemed more likely to be viewed as impediments to planning for a substation automation program for existing substations. In the 2002 study, two factors stood above the rest and were viewed as important obstacles. These were “lack of funding” and “benefits to not outweigh costs.” These top two obstacles switched places from the mid-2000 study. It is important to note that investor-owned utilities also looked at the “lack of appropriate communications technology between substations” as an important obstacle. For Canadian utilities “economic and business justification case has not been made on behalf of substation automation programs” ranked as the third potential obstacle.

The study group reported significantly increased plans for spending on substation automation-related programs from earlier studies. The total of $78 million is more than double the amounts reported as available for substation automation spending in the 2002 study. Again, IOUs dominated spending plans, but the other groups also plan to spend in the millions of dollars ranges.

Plans for spending on retrofit substations was equally strong, with $77 million budgeted and even higher amounts planned for the next five years (192 million dollars) than for new substations over the same five year period (177 million dollars). Since the overall respondent group represents about one third of all utility-operated T&D substations in North America, multiplying the survey results by 3X would likely bound the upper end of spending for substation automation programs and equipment (amounting to as much as $450 million in 2005).

In the 2002 study, respondents reportedly planned to spend about $37 million per year for substation automation and integration programs involving new substations, with the majority of such spending ($30 million) coming from investor-owned utilities. On the average, this amounted to about $589,000 for each respondent, and about $1.1 million per investor-owned utility. This group planned to spend about 125 million dollars over the 2002 to 2005 years for new substation automation and integration programs.

The respondents planned to spend about $42 million per year for retrofit substation automation and integration programs, with less of a majority coming from investor owned utilities ($27 million). Over the 2002 to 2005 period, more than $160 million was planned for retrofit substation automation and integration programs among this group.

New substations were responsible for about 40 percent of all planned spending for substation programs over the five-year period (2000 to 2004). However, in the North American market, substations planned to come on line over 2000 to 2004 accounted for only about 10 percent of all substations on-line at that time.

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See Figure 1 for more detailed information on the North American market.

Getting Equipped

North American respondents were asked to select from among the following five options the approach they most often use to purchase their substation automation-related systems and equipment:

  • Buy from larger suppliers providing multiple substation equipment types;
  • Buy from best-in-class equipment supplier whether large or small;
  • Buy from a substation systems integrator who will select individual components;
  • Buy our own equipment ourselves, and we do the integration; or,
  • Develop a plan with a consultant before buying and implementing the equipment.

There were 96 respondents to this question in the current study. Forty-four (46 percent) indicated that they bought from best-in-class suppliers of individual substation equipment for automation and integration programs. Nine percent indicated purchases only from larger suppliers active in the market. Over one-third (34 percent) reported buying equipment only, and then integrating the equipment internally. Thirteen others reported use of consultants to develop a comprehensive substation automation and integration plan. Only three reported purchasing directly from substation system integrators.

Canadian respondents were much more likely than co-ops and public power utilities in the U.S. to plan to do the integration work internally. IOUs were less likely than others to be using or planning to use a consultant.

More information on this and other Newton-Evans Research reports can be obtained by contacting Chuck Newton at cnewton@newton-evans.com.

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