Electronic meters set to dominate utilities

The Eur 415.1 million European electricity meters market is in the midst of a dramatic, structural transformation.

The Eur 415.1 million European electricity meters market is in the midst of a dramatic, structural transformation.

Electronic meters are poised to expand their share of overall market revenues from current estimates of 57% to 76% by 2010, further marginalising the established electromechanical meters segment.

Applications in the high volume residential sector, the traditional preserve of electromechanical meters, will constitute a key battleground where electronic meters are ultimately expected to prevail.

A new study analysing the European electricity meters market, commissioned by Eutilia and conducted by Frost and Sullivan, notes that competition is raging the most at the residential/household level.

This is compounded by the mounting pressure for manufacturers to supply ever more intelligent and networked meters at continuously decreasing prices.

In contrast to electromechanical meters, which have not exhibited much technological progress in the last decade, electronic meters have improved considerably in terms of functionality and design.

This has underlined their ascendancy among commercial users and industrial consumers.

The rising demand for more "intelligent" meters has boosted the uptake of electronic meters that allow for multitariff applications and are able to "communicate" with each other and with remote meter reading devices.

Based on their ability to support different pricing methods through the measurement of peak usage, hourly usage, or critical peak usage, advanced AMR (automated meter reading) systems are fulfilling the needs of the newly deregulated electricity supply industry.

Such superior functionality is reinforcing the popularity of electronic meters over electromechanical alternatives.

Currently, the most basic electronic meters cost barely 20 to 25% more than electromechanical counterparts.

As unit prices continue to tumble, adoption rates of electronic meters are set to pick up momentum.

Propelled by these trends, the European electronic meters market, which generated Eur 234.9 million in 2002, is forecast to reach Eur 321.6 million in 2010.

Large geographic markets in Scandinavia, the UK, France and now Italy have systematically sought to replace old meters with technologically advanced electronic meters.

In particular, Enel's decision to install more than 20 million electronic meters in Italian households between 2003 and 2005 is likely to herald an explosion in revenue and unit growth.

"Cumulated revenues over these three years are anticipated to be nearly Eur 2.6 billion for the whole of Europe, but more than 70% will be attributed to the Italian market.

This will not really benefit any of the current electronic meters manufacturers, as Enel decided to set up its own meters manufacturing centre to supply its national market", cautions Frost and Sullivan Research Analyst Anne-Corinne Barbier.

After peaking between 2003 and 2005 due to the Enel project, unit shipment growth is expected to settle into a pattern of steady growth.

Rising adoption of electronic meters by residential markets are set to boost unit shipments from 3.1 million in 2002 to 4.3 million in 2010.

Despite these upbeat projections, a fragmented market and intensifying competition constitute a source of anxiety for many electronic meters suppliers.

The emergence of new, non-European and Eastern European competitors as well as the extension of local/small companies beyond geographical borders has aggravated competitive pressures.

Increasing competition has, in turn, provoked price cuts and pressured margins.

This situation has precipitated the exit of several large multinationals such as Schlumberger, Siemens and ABB, causing further market fragmentation.

The electromechanical market faces similar challenges, albeit to a lesser degree.

Contracting unit shipments, falling revenues and shrinking margins have meant that the market is becoming less attractive for participants.

Market share, not surprisingly, has remained fairly static.

"The only reason that seems to motivate utilities to purchase electromechanical meters is that they are the cheapest and most robust meters available", notes Barbier.

"Despite the collapse in selling prices and the continuously narrowing price difference between traditional meters and more advanced digital meters, electromechanical meters are still 20 to 25% cheaper and more importantly, their lifetime is in the 30 to 40 years range, which is twice as long as electronic meters".

Based on attributes of accuracy, durability and lower power consumption patterns than electronic meters, electromechanical meters constituted 43% of all European electricity meter sales in 2002 while generating Eur 180.2 million.

However, by 2010, revenues are expected to decline to Eur 101.8 million or less than one-fourth of the total market, proof of its growing irrelevance in the face of advanced electronic meter technology.

Currently, first tier suppliers, active in both electronic and electromechanical market segments, such as Landis + Gyr, Actaris, Elster Metering and Iskraemeco, account for 64% of the overall European electricity meters market.

However, rising competition from second and third tier manufacturers is causing attrition in shares.

Smaller manufacturers including DZG and Ampy Automation in the electronic market segment and Enermet and Bruno-Janz in the electromechanical segment are becoming increasingly aggressive, necessitating a strategic rethink from first-line industry players.

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