EXECUTIVE SUMMARY: AMI

EXECUTIVE SUMMARY: AMI Managed Services Smart Metering as a Managed Service, Transitional and Traditional Outsourcing, Cloud Computing, and AMI Hosting Services: Market Analysis 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 2Q 2012 Bob Lockhart Senior Analyst Bob Gohn Vice President, Research

Section 1 EXECUTIVE SUMMARY 1.1 Introduction to AMI Managed Services Managed smart metering may be the best kept secret in the smart grid market. Known more formally as advanced metering infrastructure (AMI) managed services, this market already has noticeable activity, with plans afoot for quite a bit more. It is a new market today, but not for much longer. This report enables market stakeholders to understand the viability of AMI managed service (AMS) offerings. To that end, Pike Research defines AMS as repeatable offerings that can be sold to utilities with little variance. Management can be either remote or on-site, as long as a third party manages the infrastructure. Pike Research anticipates that some utilities will want to roll the entire infrastructure cost into their monthly service fees to avoid any capital outlay. Others especially large regulated utilities in North America will want to capitalize the infrastructure, even if it remains at a cloud hosting center. There are many different motivators for a utility to consider an AMS offering that differ depending upon the size of the utility. Smaller utilities may consider managed service offerings only because their size and scale prevents them from doing such projects in-house. Conversely, large utilities may choose to avoid the managed services route and instead select a do-it-yourself approach. However, some large utilities in the United States may yet consider AMS if they did not obtain stimulus funds through the American Recovery and Reinvestment Act of 2009 (ARRA) and do not believe that they can get a rate case approved for AMI capital in the current political environment. 1.2 AMI Managed Service Market and Trends Cloud computing remains a controversial and sometimes sensitive topic in the AMS market. Nearly every vendor that offers AMS is doing so from a cloud computing facility almost always at a private cloud hosted at a secure site and rarely (if ever) at a well-known public cloud facility. Despite the extra security incorporated into cloud solutions by those vendors, most are reluctant to mention to clients that they are using cloud computing. Instead, they simply refer to managed services and focus on business benefits. Business benefits are another trend in this study. To date, AMI selling and AMI deployments have been dominated by technology and infrastructure discussions. This has caused AMI to often be labeled as a science project market. However, the dialogue around AMI and general (and especially AMI) managed services is changing to a focus on business issues rather than technology. To illustrate the changing focus from infrastructure to business issues: Pike Research has encountered some vendors that have stopped quoting prices per meter per month and instead now quote prices per service per month. In this scenario, one meter may host multiple services. This report also includes an analysis of the likelihood of AMS gaining acceptance in many markets around the world. For each of the major regions, the likelihood of AMS in key countries is discussed. As a general rule, but with exceptions, the more liberalized energy markets appear more likely to support AMS offerings. State-owned monopolies may be much less fertile ground for AMS. 1

This perception leads Pike Research to forecast that there will be no market for AMS in China or India, given the above definition of AMS. While it is indeed possible that third parties may manage some very large AMI deployments in both nations, it is highly unlikely that those AMI systems will use a standard, non-customized offering. That forecast reflects the overriding tone of this report: Rather than simple mathematical extrapolations, considerable thought was given as to what will happen in each region often, in each country and Pike Research modeled those assumptions in detail. More specifically, greater than 35% of the world s population was eliminated from consideration in Pike Research s modeling for this report. This was necessary to produce an accurate forecast of the market for AMS. Many different types of providers offer AMS or plan to offer it. At present, the most successful offerings are from AMI vendors. Note, though, that one systems integrator has been quite successful and one telecommunications carrier intends to be successful in offering AMI as a prime contractor. AMI as a technology is already well understood, even as it continues to evolve. Managed services have been around since the early 1960s. Combining the two introduces new business challenges, but not many new technical challenges that did not already exist. Therefore, this report focuses on business issues, though it also includes a brief discussion of cloud computing in order to clarify that aspect of the market. 1.3 Market Forecast The financial forecasts in this report show steady growth in AMS revenue throughout the forecast period, with a market that stabilizes in terms of growth near the end of the period as deployment volumes become very large. By the end of 2020, Pike Research forecasts an installed base of just over 91 million AMS endpoints. Even at the end of the forecast, growth rates remain steady (if no longer spectacular). Despite Pike Research s already published claim that North American smart meter deployments have passed its peak, this report forecasts that North American AMS revenue will continue to increase throughout the decade. 2

Chart 1.1 shows Pike Research s overall projection of AMS revenue for the forecast period 2012 through 2020. Annual revenue is projected to rise from just over $1.0 billion in 2012 to nearly $2.3 billion by 2020 at a compound annual growth rate (CAGR) of 10.4%. Cumulative revenue during the period is expected to reach $14.8 billion. Pike Research s report Smart Meters, published in 2Q 2012, forecasts a CAGR of 4.9% for revenue from smart meters for all types of projects. This suggests that AMS will grow faster than the overall AMI market. That is, Pike Research expects managed services to gain a larger share of the total AMI market. The anomalous drop in North American revenue between 2012 and 2013 is due to a transitional effect that Pike Research projects will occur in the U.S. market. More details are provided in Section 5.6 of this report. Chart 1.1 AMS Revenue with Service Price per Meter by Region, World Markets: 2012-2020 ($ Millions) $2,500 $2,000 $1,500 $1,000 $500 North America Western Europe Eastern Europe Asia Pacific except China China Latin America Middle East and Africa Average Service Price $6 $5 $4 $3 $2 $1 ($ Average Service Price) $- 2012 2013 2014 2015 2016 2017 2018 2019 2020 $- (Source: Pike Research) The AMS market is just now poised to take off. While researching this report, Pike Research discovered more current activity and more installed endpoints than expected. However, the current volumes pale in comparison with what is likely to come over the rest of this decade. The successful vendors will be those that can stick to a business dialogue with their clients while internally optimizing their technology and delivery capability continuously. 3

Section 8 TABLE OF CONTENTS Section 1... 1 Executive Summary... 1 1.1 Introduction to AMI Managed Services... 1 1.2 AMI Managed Service Market and Trends... 1 1.3 Market Forecast... 2 Section 2... 4 Market Issues... 4 2.1 Definition of AMI Managed Services... 4 2.1.1 Characteristics of AMI Managed Services... 4 2.1.2 AMI Managed Service Scenarios... 4 2.1.3 Hosting versus Cloud... 5 2.2 Motivations for Choosing AMI Managed Services... 5 2.2.1 Financial... 5 2.2.2 Regulatory... 6 2.2.3 Speed to Market... 6 2.2.4 Size... 7 2.2.5 AMI Pilots as Managed Services... 7 2.3 Market Timing... 8 2.4 Addressable Market... 8 2.4.1 Large Utilities... 8 2.4.2 Small Utilities... 9 2.4.3 Government Agencies... 9 2.4.4 Regulated and Deregulated Retail Energy Markets... 9 2.5 Types of Providers... 10 2.5.1 Systems Integrators... 10 2.5.2 Cloud Computing Providers... 10 2.5.3 Smart Meter Manufacturers... 10 2.5.4 Large Utilities... 11 2.5.5 Professional Services... 11 2.6 Managed Service Pricing... 12 2.6.1 Pricing Approaches... 12 2.6.2 Comparison to In-House Pricing Elements... 12 2.6.3 Unit Pricing... 13 2.7 Global AMS Markets... 14 2.7.1 North America... 14 2.7.2 Europe... 15 2.7.3 Asia Pacific... 17 2.7.4 China... 18 2.7.5 Latin America... 18 2.7.6 Middle East and Africa... 19 Section 3... 20 Technology Issues... 20 3.1 Introduction... 20 3.2 Cloud Computing... 20 3.2.1 NIST 800-145... 20 3.2.2 Essential Characteristics... 21 3.2.3 Service Models... 22 63

3.2.4 Deployment Models... 23 3.2.5 Difference from Hosting... 23 3.3 Technology Refresh... 24 3.3.1 Hardware... 24 3.3.2 Software... 24 3.4 Cyber Security in Managed Services... 25 3.4.1 Networking... 25 3.4.2 Data... 26 Section 4... 27 Key Industry Players... 27 4.1 Systems Integrators... 27 4.1.1 Atos... 27 4.1.2 Accenture... 27 4.1.3 British Gas... 27 4.1.4 Capgemini... 28 4.1.5 Computer Sciences Corp. (CSC)... 28 4.1.6 HCL AXON... 29 4.1.7 Hewlett-Packard (HP)... 29 4.1.8 IBM Global Services... 29 4.1.9 Infosys... 30 4.1.10 Logica... 30 4.1.11 Science Applications International Corp. (SAIC)... 31 4.1.12 Tata Consultancy Services (TCS)... 31 4.1.13 Wipro... 31 4.2 AMI Vendors... 32 4.2.1 Aclara... 32 4.2.2 Echelon... 32 4.2.3 Elster... 32 4.2.4 Glen Canyon... 33 4.2.5 Itron... 33 4.2.6 Landis+Gyr... 34 4.2.7 Sensus... 35 4.2.8 Telvent... 36 4.2.9 Trilliant... 36 4.3 Telecommunications Providers... 37 4.3.1 AT&T... 37 4.3.2 BT Global Services... 37 4.3.3 Orange... 37 4.3.4 T-Mobile (including T-Systems)... 37 4.3.5 Verizon... 37 4.3.6 Vodafone... 38 Section 5... 39 Market Forecasts... 39 5.1 Introduction... 39 5.2 Market Forecast Methodology... 40 5.3 AMS Deployments by Region... 41 5.3.1 AMS Annual Deployments by Region... 41 5.3.2 AMS Installed Base by Region... 42 5.3.3 Percentage Year-to-Year Deployments Change... 43 5.4 AMS Revenue by Region... 43 5.4.1 Annual AMS Revenue by Region with Average Price per Meter... 44 5.4.2 Cumulative AMS Revenue by Region... 45 5.4.3 Year-to-Year AMS Revenue Change, Percentage... 46 64

5.4.4 Year-to-Year AMS Service Price per Meter Change, Percentage... 47 5.5 AMS Forecast: North America... 48 5.6 AMS Revenue by Utility Type, United States... 48 5.6.1 Annual Revenue by Utility Type... 49 5.6.2 Cumulative Revenue by Utility Type... 50 5.6.3 Year-to-Year Market Change, Revenue by Utility Type... 51 5.7 AMS Forecast: Western Europe... 52 5.8 AMS Forecast: Eastern Europe... 53 5.9 AMI Managed Service Forecast: Asia Pacific... 54 5.10 AMI Managed Service Forecast: China... 54 5.11 AMS Forecast: Latin America... 55 5.12 AMS Forecast: Middle East and Africa... 56 Section 6... 57 Company Directory... 57 Section 7... 59 Acronym and Abbreviation List... 59 Section 8... 63 Table of Contents... 63 Section 9... 66 Table of Charts and Figures... 66 Section 10... 67 Scope of Study... 67 Sources and Methodology... 67 Notes... 68 65

Section 9 TABLE OF CHARTS AND FIGURES Chart 1.1 AMS Revenue with Service Price per Meter by Region, World Markets: 2012-2020... 3 Chart 5.1 AMS Meters by Region, World Markets: 2012-2020... 41 Chart 5.2 Cumulative AMS Meters by Region, World Markets: 2012-2020... 42 Chart 5.3 Year-to-Year Change, AMS Meters by Region, World Markets: 2013-2020... 43 Chart 5.4 AMS Revenue with Service Price per Meter by Region, World Markets: 2012-2020... 44 Chart 5.5 Cumulative AMS Revenue by Region, World Markets: 2012-2020... 45 Chart 5.6 Year-to-Year Change, AMS Revenue by Region, World Markets: 2013-2020... 46 Chart 5.7 Year-to-Year Change, AMS Price per Meter by Region, World Markets: 2013-2020... 47 Chart 5.8 AMS Revenue with Service Price per Meter, North America: 2012-2020... 48 Chart 5.9 AMS Revenue by Utility Type, United States: 2012-2020... 49 Chart 5.10 Cumulative AMS Revenue by Utility Type, United States: 2012-2020... 50 Chart 5.11 Year-to-Year Change, AMS Revenue by Utility Type, United States: 2013-2020... 51 Chart 5.12 AMS Revenue with Service Price per Meter, Western Europe: 2012-2020... 52 Chart 5.13 AMS Revenue with Service Price per Meter, Eastern Europe: 2012-2020... 53 Chart 5.14 AMS Revenue with Service Price per Meter, Asia Pacific except China: 2012-2020... 54 Chart 5.15 AMS Revenue with Service Price per Meter, Latin America: 2012-2020... 55 Chart 5.16 AMS Revenue with Service Price per Meter, Middle East and Africa: 2012-2020... 56 Table 2.1 Smart Meter Installations, North America: 4Q 2011... 14 Table 2.2 Receptivity to AMS in Selected Countries, Europe... 15 Table 2.3 Receptivity to AMS in Selected Countries, Asia Pacific... 17 Table 2.4 Smart Metering Installation Plans, China: 2009-2020... 18 Table 2.5 Receptivity to Managed AMI in Selected Countries, Middle East and Africa... 19 Table 3.1 Cloud Computing: Essential Characteristics... 21 Table 3.2 Cloud Computing: Service Models... 22 Table 3.3 Cloud Computing: Deployment Models... 23 66

Section 10 SCOPE OF STUDY This report explores a subset of the advanced metering infrastructure (AMI) market, namely AMI managed services (AMS). Pike Research defines AMS as repeatable offerings that are managed by the AMS vendor and require little or no variance. That scope excludes managed services that are highly customized, such as those provided to large utilities or state-owned monopolies. The purpose of this report is to enable current and prospective AMS market participants to understand the market for a standard offering that can be built in advance and then offered for sale to many clients, possibly in many regions of the world. Once again, this precludes offerings that must be built from scratch or are highly customized for each client. This study also excludes discussion of activities such as staff augmentation that do not constitute a repeatable AMS offering. Note that in this report, Pike Research does not consider where the service is managed as long as a third party (i.e., not the utility itself) manages the services on an ongoing basis. Even an AMS system at the utility s location can fall within Pike Research s definition of AMI managed services if it is managed by a third party. In some cases, the utility will purchase the infrastructure as well as the AMS system. In other cases, the utility will not purchase the infrastructure. This study considers both scenarios, but models them differently. The forecasts cover the years 2012 to 2020, although previous installed base up to December 31, 2011 is included in cumulative market forecasts. The forecasts are also broken out by six regions: North America, Western Europe, Eastern Europe, Asia Pacific, Latin America, and Middle East and Africa. 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. 67

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 2012 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding. 68

Published 2Q 2012 2012 Pike Research LLC 1320 Pearl Street, Suite 300 Boulder, CO 80302 USA Tel: +1 303.997.7609 http://www.pikeresearch.com 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. 69