Moving Into Substation Networking, Cisco Seizes Smart Grid’s Low-Hanging Fruit

1Executive Summary

Cisco has long spoken of the commercial potential of the smart grid. Its executives have said the market for smart grid communications infrastructure might be worth $20 billion annually in five years and that the overall smart grid market opportunity could eventually be 1,000 times bigger than the Internet.

Until recently, however, the company had done little more than talk about the smart grid. Yes, it took a notable stake in GridNet earlier this year, and it’s been involved in some smart grid projects and trials. But those efforts didn’t see Cisco releasing new products specifically built for utility customers’ smart grid upgrades.

That changed, however, at the end of May, when Cisco introduced hardened networking gear for utility substations. Like competing products from the likes of current market leader RuggedCom, and from GarrettCom, Cisco’s smart grid switches and routers adhere to IEEE 1613 and IEC61850-3 standards for utility substation environments. That means the gear can withstand extreme temperatures and protect against electrical surges and electromagnetic interference.

Substation Automation Set for Robust Growth

Smart meters and advanced metering infrastructure (AMI) receive the lion’s share of media coverage, but smart grid products and technologies required to automate utilities’ electricity-distribution networks might be more likely to achieve near-term commercial success. To be sure, many utility watchers contend that distributed automation, encompassing substation networking, represents the smart grid’s succulent, low-hanging fruit because many utilities understand the addition of sensors, management software and IP-based network infrastructure will result in immediate efficiency gains and long-term cost savings in their distribution-automation systems.

John D. McDonald, general manager of marketing for GE Energy, recently said less than 20 percent of approximately 48,000 distribution substations in the U.S were automated. Other figures suggest there are 270,000 electrical substations globally, 70,000 of which are in North America. Automation is coming to all of them, and the market for hardened substation switches and routers is destined to experience robust growth over the next several years.

And while no one is sure that consumers will want to fiddle with smart meters and home-energy management systems to derive potentially modest savings on their electricity bills — and consumers’ willingness to subject themselves to demand-response initiatives also remains unknown — utilities are nonetheless motivated to upgrade their electricity-distribution systems with two-way communication networks. Those upgraded networks will provide efficiency savings by capturing and transmitting data from sensors and multiple intelligent electronic devices (IEDs) in the substation back to utility data centers for analysis.

By making their distribution networks smart, utilities will be able to quickly and accurately identify, isolate, diagnose and perhaps even automatically repair network faults. They’ll also be able to reconfigure networks on the fly to circumvent trouble spots and keep electrons flowing.

Cisco Aims for Dominance

For Cisco, a market leader in switching and routing, hardened networking gear represents a logical entry point into the smart grid marketplace. To get into that space, all the company had to do was adapt existing products to meet the environmental requirements of substation deployment.

Cisco hopes to benefit from the inherent conservatism of the utility sector. Utilities prize reliability above all else. They prefer the tried-and-true to the innovative-but-unproven. They also tend to favor established, well-known vendors over startups, and Cisco is hoping its Internet market leadership, in both enterprises and service providers, will carry over to the utility industry.

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But Cisco shouldn’t simply assume success against vendors that have a track record of selling into utility substations. While the company may be the top dog of enterprise networking, it’s nonetheless a relative newcomer to utilities. To ensure its own success, Cisco must cultivate relationships and establish intimacy with its customers. It also needs to refrain from talking down to those utilities (some of which, along with their IT departments, feel Cisco has been patronizing) that, while slower to modernize than other industries that have wholeheartedly embraced the Internet, are not necessarily luddites. As the growing revenue and installed base at RuggedCom can attest, utilities are certainly not unfamiliar with IP or Ethernet switches.

Forrester analyst Doug Washburn is among those who believe Cisco must partner closely with smart grid solution providers, companies like ABB and Accenture, for example, that have a track record of working with utilities on strategic and business planes, not just on the operational IT level. To Cisco’s credit, that’s exactly what it is attempting to do.

RuggedCom Holds Wide Market Share Lead

The vendors that preceded Cisco into this space include RuggedComGarrettCom, Moxa, GE Multilin (a division of GE Energy), Hirschmann (a unit of Belden) and Kyland. Many of these companies continue to sell their products into military, industrial and transportation markets, and into the electric-power segment. Cisco’s presence could cause some of these vendors to retrench into the more industrial markets, but others are less likely to retreat.

According to numbers from market researchers Global Data and ARC Advisory Group, RuggedCom has more than 50 percent market share in smart grid networking, and the company isn’t backing away from Cisco’s challenge. It has partnerships with industry leaders Siemens and Itron, and remains confident that its hardened substation gear, based on many years of customer interaction and deployment, holds an edge over the Cisco gear in durability and reliability.

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One interesting vendor in the mix is China’s Kyland. Founded in 2004, the company bills itself as a “government-supported high-tech company.” If true, that could be bad news, at least in China, for competitors. The company specializes in optical transceivers and Ethernet switching, and it wants to be a major player in the industrial-Ethernet segment.

Until now, Kyland has been active primarily in its home market, where its switches have found their way into substations throughout China’s national electrical grid, including the South China Power Grid in Jiangsu Province. Playing only at home, however, might not be a severe disadvantage. According to General Electric’s own estimates, China will spend $60 billion over the next decade to upgrade outdated power-grid infrastructure. Other estimates put China’s smart grid expenditures as high as $100 billion over 10 years.

Taiwan-based Moxa also has scored wins in China, even as Cisco and GE will strike partnerships with indigenous Chinese companies to get their share of the spoils.

Still, when pitted against these competitors, Cisco remains a vendor of singular means, and with unique credentials as the leading vendor of Internet network infrastructure, it should be able to leverage its reputation and achievements for positive results in utility substations worldwide.

Cisco has gone beyond talking about its plans for the smart grid. The first step was a natural one, into a space where, to have a seat at the table, the company merely had to adapt products already in its portfolio. But competing for space in utility substations will involve more than hardening some routers and switches.

As noted earlier, however, Cisco has been sending all the right signals, showing an eagerness to listen to customers and to work closely with the domain-expert partners already serving them. If Cisco can avoid falling victim to complacency, and if it can refrain from underestimating its smaller rivals, it stands an excellent chance of filling a large number of electrical substations with its hardened switches and routers.

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