China’s AMR Application Market
Smart Grids and AMR Systems
The power distribution sector in China (except for middle and western Inner Mongolia) is controlled by State Grid and Southern Grid, the two state-owned enterprises established both in 2002 in connection with the reform of China’s power system to separate power generation from power transmission and distribution.
State Grid is the largest power grid company in China which invests in, constructs and operates power grids in 26 provinces2, covering approximately 85% of electric power users in China as of December 31, 2016, while Southern Grid is responsible for the five provinces in Southern China, namely, Guangdong, Guangxi, Yunnan, Guizhou and Hainan.
These two power grid companies implement power grids investment and development plans and policies promulgated by China government, including the State Council, the NDRC and the NEA, from time to time. State Grid has led in promoting and implementing China government’s plan of building a modern smart grid system. State Grid launched its pilot PLC-based AMR projects in 2008 and commenced commercial deployment of AMR systems in 2010. Pursuant to its White Paper on Green Development (《绿色发展白皮书》) issued in 2010, State Grid targets to roll out a reliable, effective, clean and environmentally friendly nationwide smart grid system by 2020.
A smart grid system differs from a conventional power grid system in a number of ways, including, among others, the use of communications technologies to transmit electric power usage data more efficiently and reliably. This is enabled at the power distribution and utilization end of the power grid value chain by the deployment of an AMR system, which is designed to automatically collect, process and monitor data related to power distribution and consumption, as well as to enable the remote control of the local components in a power grid system.
China’s annual power grid investment reached CNY 542.6 billion in 2016 while the total sales value of smart meters in China was CNY 26.6 billion in 2016. The majority of China’s power grid investment goes to the construction of ultra-high voltage power grids which are deployed in the midstream power transmission stage of the power grid value chain. In recent years, China government has been extensively promoting the utilization of ultra-high voltage transmission systems for long-distance power transmission due to reduced power loss. Electricity transmitted by ultra-high voltage transmission needs to be transformed and sent to power distribution networks with power voltage reduced to under 10kV and further transformed to the low-voltage of 220V/380V for electricity consumption to be metered by AMR systems which, as opposed to ultra-high voltage power systems, fall under the downstream last-mile power utilization stage of the power grid value chain.
As ultra-high voltage transmission systems are utilized in the midstream stage of the power grid value chain while AMR systems are utilized in the downstream stage of the power grid value chain, there is generally no compatibility issue between the shift to ultra-high voltage technology and the continuous adoption and evolvement of the PLC technology under China’s power grid value chain. Rather, the advancements and evolvements of technologies in these two components of the power grid value chain together could further enhance the efficiency and effectiveness of China’s power grid value chain.
The shift to ultra-high voltage in power transmission is unlikely to impact the application of PLC technologies in AMR systems. Although the amount of investment for the deployment and upgrade of AMR systems accounts for a relatively small portion of the total power grid investment in China, there has been an increase in investment by China government on the AMR systems in recent years underlined by the shift in China to smart grid infrastructure and power distribution and power utilization for end-users.
In particular, State Grid has commercially deployed AMR systems since 2010 in all of the 26 provinces it covers with an average smart meters penetration rate of approximately 80% as of the end of 2016, prior to 2016, Southern Grid was only engaged in pilot AMR projects and it commenced commercial deployment of AMR systems in its five provinces in March 2016. As Southern Grid plans to achieve full deployment of AMR systems by 2020, it is estimated to fuel the demand for more than 80 million units of smart meters from 2017 to 2021.
Market Size for the AMR Application
The major AMR devices are smart meters, concentrators and collectors, each of which, when deployed in an AMR system adopting PLC as its communications technology, is in general embedded with one PLC module containing one PLC IC. In a typical PLC AMR system, each concentrator is connected, directly or indirectly, with up to around 100 smart terminals (i.e. smart meters or collectors). Collectors are only used in semi-PLC AMR systems, which have a lower penetration in China than the full PLC AMR systems. As such, the vast majority of PLC ICs produced for the AMR application in China are used for the assembly of smart meters, and the sales of smart meters also accounts for the vast majority of AMR devices sold in China.
Total sales value of smart meters in China grew from CNY 13.5 billion in 2010 to CNY26.6 billion in 2016, representing a CAGR of 12.0%. This general increase was mainly driven by the massive procurement of smart meters by State Grid in connection with its commercial deployment of AMR systems since 2010. China is also a major exporter of smart meters in the world.
As a number of overseas markets such as Asia-Pacific, Africa and Latin America are also promoting the deployment of AMR systems, the global demand for smart meters and consequently the export demand for smart meters from China are expected to grow in the next few years. Research estimates that total sales value of smart meters in China will grow at a CAGR of 12.1% from CNY 27.7 billion in 2017 to CNY 43.8 billion in 2021.
From the demand side, State Grid and Southern Grid are the largest purchasers of smart meters in China and they generally procure smart meters through bidding process. State Grid commenced commercial deployment of AMR systems in 2010, as a result, State Grid’s annual bidding volume of smart meters increased at a CAGR of 6.5% from 45.4 million units in 2010 to 65.7 million units in 2016 and is expected to grow at a CAGR of 15.2% from 2017 to 2021.
State Grid’s bidding volume of smart meters decreased from 91.0 million units in 2015 to 65.7 million units in 2016 and is expected to further decrease to 43.0 million units by 2018, partly as penetration of smart meters under State Grid’s first-round commercial deployment is reaching saturation, and also as State Grid has exhibited a trend of slow-down in its procurement of smart meters in anticipation of a new industry standard for broadband PLC which is expected to be formally adopted in 2017. Such bidding volume is expected to pick up and increase to 87.7 million units by 2021 as smart meters in China are expected to enter into a new phase of upgrades from 2018 onward. Southern Grid commenced commercial deployment of AMR systems in 2016 and its bidding volume of smart meters reached 13.9 million units in the same year. Southern Grid’s first-round commercial deployment of AMR systems is expected to cover all of its current 75 million users by 2020 with bidding volume of smart meters expected to increase from 14.6 million units in 2017 to 16.9 million units in 2020 and decrease to 11.8 million units in 2021. In addition to smart meters, concentrators are also an important type of AMR device which serves as a critical link between the host station located at the power grid companies and other on-site terminals of an AMR system.
To ensure seamless communications between concentrators and downstream AMR devices, such as collectors and smart meters, power grid companies are usually more inclined to adopt the same or the most compatible communications protocols for collectors and smart meters as is adopted for the concentrator in an AMR system. We believe supplying concentrators in an AMR system enables PLC technology companies to better secure their market share for other AMR system components. the sales volume of concentrators in China adopting the PLC technology increased at a CAGR of 7.0% from 2010 to 2016, and is expected to grow at a CAGR of 6.8% from 2017 to 2021, reaching 1.5 million units in 2021.