EXECUTIVE SUMMARY: Smart Water Meters Global Outlook for Utility AMI and AMR Deployments: Market Analysis, Case Studies, and Forecasts

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1 EXECUTIVE SUMMARY: Smart Water Meters Global Outlook for Utility AMI and AMR Deployments: Market Analysis, Case Studies, and Forecasts NOTE: This document is a free excerpt of a larger report. If you are interested in purchasing the full report, please contact Pike Research at sales@pikeresearch.com. Published 4Q 2011 Neil Strother Senior Analyst Bob Gohn Research Director

2 Section 1 EXECUTIVE SUMMARY 1.1 Smart Water Meters Poised for Steady Growth The smart water meter market is poised for steady growth in the coming 5 years, but significant deployment costs will keep shipments in check as utilities around the globe struggle to raise the necessary capital to make the switch from traditional products. Much of the modest growth will occur in regions like Western Europe and North America, where aging infrastructure will spur investment in the latest metering technology. Growth will also come from emerging markets in Asia Pacific and elsewhere as water metering rises along with rising standards of living and the need to manage this valuable resource efficiently. 1.2 Market Drivers Aging infrastructure is a main driver of upgrades to more intelligent meters. In some U.S. cities, for example, water systems were built 50 to 100 years ago; as these systems are upgraded utility managers are installing smart meters to more accurately calculate true water consumption and loss due to leakage. Rising demand for water is another key driver of smart water meters. In 20 years, demand for water will be 40% higher than current levels. As demand increases, water utility managers will face increasing pressure to operate their systems with greater efficiency, which can only be done by accurately measuring consumption thus the need for smart meters. Water conservation is another factor spurring demand for more advanced metering. Where water is scarce, as in the Middle East or the desert Southwest of the United States, smart meters can help system managers better monitor consumption. Additionally, these meters can alert customers to alter consumption to prevent shortages. Non-revenue water is water that is treated and distributed but never billed because it leaks out of the distribution system. This, too, drives the need for smart meters, which help to identify the location of leaks in a system, allowing for prompter repairs. 1.3 Technology Issues One of the challenges of deploying smart water meters is the greater technical complexity. For instance, a system of smart meters generates huge volumes of data that must be crunched quickly so that utility managers can take action. Selecting appropriate technology presents another hurdle. Vendors offer different levels of intelligence in their meters, which break down into to two basic categories: those with one-way communication capability, called Automatic Meter Reading (AMR), and those with two-way communication functionality, called Advanced Metering Infrastructure (AMI). Utilities must also pay for data collection hardware and software to manage the information that smart meters generate, and this adds to cost. 1

3 1.4 Key Takeaway 1.5 Forecast Smart meters are the wise choice to improve how water systems are managed and billed, but there are significant financial and technical hurdles that will keep this market in check for the coming 5 years. In North America, annual shipments of smart meters (defined as advanced, smart, and smart communication modules) will rise from almost 5.5 million units in 2011 to nearly 7.3 million in 2017, for a CAGR of 4.8%. It is worth noting that 2011 shipments are expected to mark a drop from 2010 as demand from utility managers softens amidst a shaky economy. Chart 1.1 Water Meter (Advanced, Smart, Comm Module) Shipments, North America: (Units Thousands) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Comm Module Smart (AMI) Advanced (AMR) 1, (Source: Pike Research) 2

4 Total worldwide revenue generated by sales of advanced water meters, smart water meters, and communications modules will grow from nearly $839 million in 2011 to almost $1.3 billion at the end of the forecast, with a compound annual growth rate (CAGR) of 7.3%. The market will be driven by utility operators that seek to more accurately measure water consumption in order to drive down operational costs, reduce leakage, and manage their systems more efficiently. Chart 1.2 Water Meter (Advanced, Smart, Comm Module) Revenue, World Markets: ($ Thousands) $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 Comm Module Smart (AMI) Advanced (AMR) $400,000 $200,000 $ (Source: Pike Research) 3

5 Section 9 TABLE OF CONTENTS Section Executive Summary Smart Water Meters Poised for Steady Growth Market Drivers Technology Issues Key Takeaway Forecast... 2 Section Market Issues Introduction Aging Infrastructure Rising Demand for Water Global Need for More Accurate Meter Reads Leakage and Conservation Conservation and Time-Of-Use Data Non-Revenue Water Economic Slowdown The Water and Electricity Nexus Regulatory Environment Market Inhibitors Risk Aversion Pushback from Consumers Data Deluge Future: More Control, Collaboration Business Case for Smart Water Meters Section Technology Issues Definition of Smart Water Meter Measurement in Water Meters Displacement Velocity Ultrasonic Registers, Encoders and MIUs Smart Water Meter Networks and Infrastructure Network Topologies Star Network Mesh Network Remote Shut-Off Valves Standards Section Key Industry Players Aclara (ESCO Technologies) Arad/Master Meter Badger Meter Datamatic Elster Group Itron

6 4.7 Mueller Systems Neptune Technology Group Sensus Meter Vendor Market Shares Section Case Studies Introduction Cary, North Carolina Dubuque, Iowa Boston Water and Sewer Commission District of Columbia Water and Sewer Authority (DC Water) Leesburg, Virginia East Bay Municipal Utility District Malta New York City Southern Water Section Market Forecasts Global Market Major World Regions North America Latin America Western Europe Eastern Europe Asia Pacific The Middle East Africa Worldwide Markets Section Company Directory Section Acronym and Abbreviation List Section Table of Contents Section Table of Charts and Figures Section Scope of Study Sources and Methodology Notes

7 Section 10 TABLE OF CHARTS AND FIGURES Chart 1.1 Water Meter (Advanced, Smart, Comm Module) Shipments, North America: Chart 1.2 Water Meter (Advanced, Smart, Comm Module) Revenue, World Markets: Chart 2.1 Estimated Need for Drinking Water Infrastructure Spending, United States: Chart 2.2 Non-Revenue Water Rates for Selected Cities... 9 Chart 4.1 AMR/AMI Vendor Market Share, North America: Chart 6.1 Water Meter (Advanced, Smart, Comm Module) Shipments, North America: Chart 6.2 Water Meter (Advanced, Smart, Comm Module) Revenue, North America: Chart 6.3 Water Meter (Advanced, Smart, Comm Module) Shipments, Latin America: Chart 6.4 Water Meter (Advanced, Smart, Comm Module) Revenue, Latin America: Chart 6.5 Water Meter (Advanced, Smart, Comm Module) Shipments, Western Europe: Chart 6.6 Water Meter (Advanced, Smart, Comm Module) Revenue, Western Europe: Chart 6.7 Water Meter (Advanced, Smart, Comm Module) Shipments, Eastern Europe: Chart 6.8 Water Meter (Advanced, Smart, Comm Module) Revenue, Eastern Europe: Chart 6.9 Water Meter (Advanced, Smart, Comm Module) Shipments, Asia Pacific: Chart 6.10 Water Meter (Advanced, Smart, Comm Module) Revenue, Asia Pacific: Chart 6.11 Water Meter (Advanced, Smart, Comm Module) Shipments, Middle East: Chart 6.12 Water Meter (Advanced, Smart, Comm Module) Revenue, Middle East: Chart 6.13 Water Meter (Advanced, Smart, Comm Module) Shipments, Africa: Chart 6.14 Water Meter (Advanced, Smart, Comm Module) Revenue, Africa: Chart 6.15 Standard Water Meter Shipments vs. Smart Versions, World Markets: Chart 6.16 Water Meter (Advanced, Smart, Comm Module) Shipments, World Markets: Chart 6.17 Water Meter (Advanced, Smart, Comm Module) Revenue, World Markets: Figure 2.1 Crumbling Cast Iron Water Main in Syracuse, NY... 6 Figure 2.2 Water Conservation Flyer for Los Angeles... 8 Figure 2.3 Protesters Demonstrate Against Smart Water Meters in Calabasas, California Figure 3.1 Neptune T-10 Water Meter, Which Can Be Either AMI or AMR Figure 3.2 Diagram of an Oscillating Piston Used to Measure Water Flow Figure 3.3 Simplified Diagram of a Water Utility s Star Network for Meter Data Collection Figure 3.4 Diagram of a Mesh Network Figure 5.2 STAR Network Meter Transmitter Installed Inside a Meter Pit Figure 5.2 Malta s Pembroke Reverse Osmosis (Desalination) Plant Table 4.1 Aclara SWOT Analysis Table 4.2 Arad/Master Meter SWOT Analysis Table 4.3 Badger Meter SWOT Analysis Table 4.4 Datamatic SWOT Analysis Table 4.5 Elster Group SWOT Analysis Table 4.6 Itron SWOT Analysis Table 4.7 Mueller Systems SWOT Analysis Table 4.8 Neptune Technology Group SWOT Analysis Table 4.9 Sensus SWOT Analysis

8 Section 11 SCOPE OF STUDY Pike Research has prepared this overview of the smart water metering industry as a resource for market participants such as meter manufacturers and suppliers, communications vendors, water utilities, regulators, investors, and other interested parties. This report focuses on the communications technology that makes water meters smart, as well as on the meters themselves. Its major objective is to identify and evaluate opportunities and challenges facing the industry and to forecast likely growth. Pike Research also provides a review of demand drivers, technologies, key players within the competitive landscape, and noteworthy deployments. The report s purpose is not to provide an exhaustive technical assessment of the technologies and markets covered, but rather a strategic examination from an overall business perspective. Pike Research strives to identify and examine new market segments to aid readers in the development of their business models. All major global regions are included, and the forecast period extends through SOURCES AND METHODOLOGY Pike Research s industry analysts utilize a variety of research sources in preparing Research Reports. The key component of Pike Research s analysis is primary research gained from phone and in-person interviews with industry leaders including executives, engineers, and marketing professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the value chain, including but not limited to technology companies, utilities and other service providers, industry associations, government agencies, and the investment community. Additional analysis includes secondary research conducted by Pike Research s analysts and the firm s staff of research assistants. Where applicable, all secondary research sources are appropriately cited within this report. These primary and secondary research sources, combined with the analyst s industry expertise, are synthesized into the qualitative and quantitative analysis presented in Pike Research s reports. Great care is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown and assumptions must be made, analysts document their assumptions and are prepared to explain their methodology, both within the body of a report and in direct conversations with clients. Pike Research is an independent market research firm whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. The firm is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets. 59

9 NOTES CAGR refers to compound average annual growth rate, using the formula: CAGR = (End Year Value Start Year Value) (1/steps) 1. CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well. Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2011 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding. 60

10 Published 4Q Pike Research LLC 1320 Pearl Street, Suite 300 Boulder, CO80302USA Tel: This publication is provided by Pike Research LLC ( Pike ). This publication may be used only as expressly permitted by license from Pike and may not otherwise be reproduced, recorded, photocopied, distributed, displayed, modified, extracted, accessed or used without the express written permission of Pike. Notwithstanding the foregoing, Pike makes no claim to any Government data and other data obtained from public sources found in this publication (whether or not the owners of such data are noted in this publication). If you do not have a license from Pike covering this publication, please refrain from accessing or using this publication. Please contact Pike to obtain a license to this publication. 61