Interest and investment in energy transmission and distribution is strong and growing. That’s particularly true with regard to substation protection and controls, as well as with technologies that can help utilities manage increasingly complicated power generation and distribution. High levels of fragmentation add to the momentum, creating opportunities to create differentiated platforms of scale.

Those are the key takeaways for Matt White, a managing director in Harris Williams' Energy, Power & Infrastructure (EPI) Group, who recently attended the Institute of Electrical and Electronic Engineers (IEEE) PES Transmission and Distribution (T&D) Conference and Exposition in Denver.

In this report, you will gain White’s insights on:

• Growing interest in the substation protections and controls market
• Opportunities created by increasingly decentralized and intermittent power generation
• Factors supporting the sector’s robust M&A environment

Age and Oversight Driving Investment

“Energy is so central to our lives that there is zero margin of error for utilities,” says White. Past large-scale blackouts have demonstrated the societal impacts of an extended loss of power, from economic losses to crippled communities.

In light of such risks, the Federal Energy Regulatory Commission (FERC), North American Electricity Reliability Council (NERC) and other regulatory agencies are tightly focused on ensuring that utilities always function properly. White says, “There are decades of spend ahead to make sure that the system is upgraded.”

The grid’s approximately 16,000 transmission substations and 60,000 distribution substations are essential to this mission, supporting strong growth in substation protection and controls (P&C). In addition, technology changes and advancements, including updated communication requirements, have changed the P&C standards for all electric utility substations and increased the need for utility customers to undertake highly technical P&C work. 

“Major spending is happening right now by the utilities to upgrade and harden their substations,” says White. “Ensuring that they are running properly is a big theme.”

In particular, specialized technicians are needed to “go out and test all of the equipment to make sure it’s working correctly, to upgrade equipment that is past its useful life and to help commission and install new equipment as change-outs are being made,” explains White. He adds that P&C spending is expected to grow as utilities shift their focus from power transmission substations to the more numerous power distribution substations over the next decade.

Growing Complexity Making Remote Management a Priority

In the past, power was generated primarily by large plants and distributed to users via a system of lines and substations. While the backbone of that system remains, the grid has undergone significant decentralization and diversification, with new power sources such as natural gas, wind and solar playing a more important role.

Many of these newer power sources are intermittent and widely distributed. In particular, renewable energy sources such as solar and wind vary with weather conditions and can originate at many different points within the grid, leading to an exponential increase in complexity.

“The wind stops blowing or the sun stops shining, and these systems cycle on and off. But when they are running, the utilities have to add that power into the grid. It’s critical to have the systems and controls in place to handle that flow and keep it balanced,” explains White.

As such, there is growing demand for technologies that can monitor and manage the transmission and distribution of electricity coming from an ever-wider and more dynamic array of sources.

“There’s a lot of attention focused on technologies for remote monitoring and control of the grid, especially those that can help utilities toggle power supplies on and off, balance the load on the grid and stay ahead of maintenance and repair needs,” says White. Specific offerings in the space range from software to equipment to services, making the segment relevant to acquirers with many different areas of expertise.

Investment Plus Fragmentation Leading to Opportunities

The activity and investment in the sector, paired with its fragmentation, are creating an opportunity for consolidation.

“The fragmentation of some of these niche markets within the utility landscape is getting a lot of attention,” says White. “That’s the case with substation protection and controls, remote monitoring software and equipment, overhead line maintenance and repair and others. Together, they create tremendous growth opportunity in this field.”

That potential has not gone unnoticed by investors. “Over the last three years, we’ve seen the creation of several platforms of scale focused largely on substations, as well as electrical power distribution maintenance and repair. There is still great potential to be one of the first movers in a sector of tremendous growth,” according to White.

Importantly, adds White, the growth trend appears to be sustainable: “It's a long-term opportunity, spurred by the growing importance of power and the age and increasing complexity of the grid.”

Conclusion

Aging infrastructure, increased regulatory oversight and the growing complexity of the grid are leading to heavy spending by utilities on energy transmission and distribution. With high levels of fragmentation in key subsectors, opportunities abound for those looking to build differentiated platforms of scale with strong growth prospects.

For further information, please contact Matt White.

Published May 2018