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Internet Consumption and Energy

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The Impact of the Internet on the Energy Industry

Table of Contents

Introduction

The Internet and energy consumption Top Energy Consuming Countries
Smart Energy and your Privacy
The Energy Industry and the Internet
Energy Industry Technology Made Possible by the Internet
Smart Meters
Smart Grids
Smart Cities
Managing Demand
Market Size Projections
Itron: A Smart Energy Industry Leader Consolidated Financial Data Analysts’ Projections

Conclusion

Introduction

Like so many other industries, the energy industry has been impacted by the internet in a multitude of ways. We see the evolution and efficiency of the energy industry in response to new technology and free flow of ideas and information. A revolution in smart meters, grids, and even smart cities has begun. We will explore a variety of issues related to the energy industry and the internet.
There are some common misconception about the impact of internet related energy consumption on the energy industry. Initially, some astronomical claims were being made about the amount of energy the internet actually requires. Equally misinformed projections unsettled consumers and environmental activists alike.

The Internet and Energy Consumption

When we think about the internet, generally we think of something that has aided humanity toward advancement. These days many companies have the option to “go green” or receive electronic notices instead of paper statements. Generally, this is considered a good thing. Just how “green” is the internet? It’s a question that has been asked before, but is important to understand the impact of the internet usage on energy consumption is low.
In 2011, Renzenbrink wrote “Data Centers Use 1.3 % of the World’s Total Electricity. A Decline in Growth.” In this article he discusses the effect of the 2008 financial crisis and the efforts the industry made to make servers more efficient (2011). In 2000, total worldwide energy consumption was 13238 Bkwh with 70.8 BkWh attributed to data centers. In that year that’s .53% of the world’s electricity consumption. In just five years we see that figure double to .97% with servers consuming 152.5 BkWh of a total 15747 BkWh. At this rate, 2012 data centers should have accounted for 2.2% of global energy consumption, however in actuality we see that figure at 1.3% in 2010. Jonathan Koomey, Staff Scientist at Lawrence Berkeley National Laboratory and Consulting Professor at Stanford University made similar predictions in his paper, “Estimating Total Power Consumption by Servers in the US and the World. (2007)”
The consumption of energy for the purpose of using the internet encompasses the energy it takes to run PCs on the individual side of the spectrum, but also the warehouses filled with servers and supercomputers used industrially and commercially. In the article, “How Much Energy Does the Internet Use?” Tessel Renzenbrink discusses energy consumption by our PCs and larger data centers. Our desktop PCs and notebooks run on about 200 and 70kWh per year, and tablets take about 12 kWh/year. As one may expect, data centers consume far more energy. According to Eric Masanet, Associate Professor at Northwestern University, Data centers consume 1-2 percent of the world’s electricity. As a side note Masanet advises that generally companies can reduce energy cost by as much as 87% by migrating locally hosted services to large datacenters and replacing older less efficient servers with fewer more efficient servers.

Top countries for internet Energy consumption

As one may expect, industrialized countries have more internet users. The top 20 countries using the internet accounts for the vast majority of all internet use in 2012 (See figure 1). As the most populated country in the world, China also has the most internet users. The United States is a distant second place in terms of users.
Figure [ 1 ] Top Internet Using Countries from www.internetworldstats.com/top20.htm
Figure [ 1 ] Top Internet Using Countries from www.internetworldstats.com/top20.htm
We have established thus far that in terms of consumption, the internet is not making a significant impact in the financials of any one company. Especially, since the global internet energy consumption is not increasing as much each year as experts expected, primarily due to more efficient technology. Energy consumption is increasing more due to population increases and a plethora of other variables. It was important to establish and answer to this question about the impact of energy consumption given the common misconception that they Internet was requiring too much energy globally.

Gavin Hudson explains in his article, “A 10-megawatt (MW) data center can use the energy of a small town at a cost of around $300,000 a month. Couple that with the fact that there are over 500,000 data centers in the world, according to Emerson Network Power and we’re talking about 2% of all electrical energy used globally. So, running the internet uses upwards of 406 terawatts per year, assuming 20.3 petawatt-hours as the world’s annual electrical energy consumption.” It is important to note this was 2012 data.

Smart Energy and Your Private Information

There may be a darker side to the M2M “Smart Meters.” A recent (2012) Federal Case examines the collection of personal information by the smart grid. In the United States, the American Recovery and Reinvestment Act of 2009 (ARRA) is increasing the use of smart meters by individuals and electric utilities alike. Smart Meters are expected to be in 65 million homes across the US by 2015. This is also assisted by the Department of Energy’s “Smart Grid” investment program (Freedman).
The utility company can see some very private details about your life. The utility infrastructures are becoming a decentralized network with two way communication. They will know your routine. For example when you wake and sleep, if you have an alarm on your house, and what type of appliances your use (including medical appliances). Your “electrical footprint” in the form of electricity use is referred to as consumer specific energy use data (CEUD). This information coupled with your personal identification information, is a windfall for marketers, insurers, and criminals.
The National Institute of Standards state, “The major benefit provided but the Smart Grid, i.e. the ability to get richer data and from customer meters and other electric devices, is also its Achilles’ heel.” (Freedman and Herstek). Can utility companies resist the obvious temptation to sell this private information? The Association of Regulatory Utility Commissioners (NARUC) urged state regulators to consider the implication of privacy and the smart grid.
In addition, the White House released “Consumer Data Privacy in a Networked World: A Framework for Protecting Privacy and Promoting Innovation in the Global Digital Economy” basically proposing a privacy bill that applies to the “commercial use of personal data.” We will have to continue new policy to ensure your privacy is protected in the future.

The Energy Industry and the Internet

Energy from coal and oil replaced human and animal labor and increased productivity astronomically. Fossil fuels made large scale metal production possible. In turn, this metal production allowed for advancement in machinery and that drove the industrial revolution and manufacturing we know today. 1
Like so many industries, the energy industry has changed and developed as a result of the internet. The energy industry is “getting smart”. Things were not always so integrated before the advent of the internet. Machine to Machine, or M2M, communication has led to this “smart” evolution. These advances have allowed for innovations in energy efficiency. These changes are driven by Big Data analytics and M2M Application platforms. Customers have an increased number of choices in meeting their energy requirements. Energy suppliers, utility providers, and consumers have much to gain from information that flows from computer to computer.

Figure 2 A Typical Value Chain

The energy industry’s computers and plants are communicating faster and cheaper than ever before using internet technology. This same technology is effecting the energy industry in other ways, as well. M2M technology enables buildings, who require an inordinate amount of energy to run, to control a variety of systems.
Smart building systems can control most aspects of the building’s environment. For example, security, climate, lighting, temperature, and more can be controlled and monitored by the system. The smart home market is also growing partially due to the popularity of energy conservation and the “Go Green” initiatives but also due to government incentives to support these ventures. We can expect to see more of this technology in our automobiles, also. This will improve fuel efficiency and reduce carbon emissions with the use of real-time data collection and analysis. The smart revolution continues to grow from individual smart meters, to smart, grids, and even smart cities.

Energy Industry Technology Made Possible by the Internet

Smart Meters
Smart meters are providing the groundwork for smart grids and even smart cities. Prabhu Ramachandran states in his article, “Powering the Energy Industry with the Internet of Things” that it is estimated that by 2020 there will be around 2.5 billion M2M communications in the utility business, the majority being Smart Meters. M2M technology can assist in important aspects of the business such as, security of the energy grid, issues with the distribution network, line losses, and overloading.
The use of the M2M systems are allowing the conservation of energy by communicating with enabled power utilities anywhere and anytime. Ramachandran continues to explain that the energy and utilities sector will depend on renewable resources. Renewable resources are expected to supply around 20 percent of the electricity in 2020.8 We expect to see a huge impact resulting from M2M technology on key issues like renewable energy installations, plant monitoring, fault management and performance monitoring.
In California, some people are claiming smart meters are harmful to their health. In Fairfax, California near San Francisco, Valerie Hood decided the smart meter was a danger to her. PG&E has installed 9 million smart meters in California. Part of a $2.2 Billion program. The claim is that the meters are giving off electromagnetic radiation. They insist this is the result of the wireless technology, which they wouldn’t get with the wired meters. Ms. Hood and her associates were successful and the use of the smart meters was banned in her area. The utility industry maintains that they use of their meters is completely safe.

The Smart Grid
There are state of the art developments in renewable energy allowing for the implementation of the smart grid. There is a combination of small innovations that, together have reached a critical mass:
Field Bus technologies which use proprietary protocols and standards have explored vertical domains, slowly these domains have overlapped to make a more complex network of operability. Still many field bus technologies do not collaborate. In the coming years we will see more communication between systems, likely through common networking. IP wasn’t a good candidate due to large overheads. However, 6LoWPAN has IP technology and comes with a state of the art IP level mesh networking protocol which makes networking these systems a reality. Today, local fieldbus networks use the HVAC2 regulation.
The use of sophisticated algorithms are still not as energy efficient as we would like. Many automation sectors, require the local fieldbus to communication with the centralized applications and data sources. The industry was missing a compelling business case to initiate the vast amount of

R&D required to integrate all these technologies. Firstly, the use of renewable energy sources is increasing and that brings a degree of randomness to the previously predictable supply of energy. Secondly, the use of rechargeable electric and hybrid vehicles is making the demand more complex.
The electric vehicles require authentication to the network, which means admission control protocols. The internet of things is evolving because of the way energy is distributed. Telecom operators and network based application developers will have in increasing impact on our lives (Hersent 2012).

The Smart Grid – There are several factors driving the smart grid. * The randomness of the energy supply resulting primarily from renewable energy sources

* Internet penetration in homes and businesses. Our confidence in smart networks for mission critical applications is increasing

* The gradual opening of electricity markets, new regulations, increased fluidity in electricity trade markets, and the quickly maturing regulatory framework for utility operators

* Increasing fluctuations in the price of electricity. This is chiefly the result of oil and natural gas price fluctuations For all electricity operators the marginal production cost gets higher and higher as the current production level increases beyond the “base demand” (2011). 9
Figure 3 The Marginal cost of power as a function of current demand/production level

Eventually the cost of each added MWh gets so expensive that is may surpass the final selling price of the MWh to the end consumer. The operator eventually sees that instead of producing more power and losing money, they should create energy saving incentives for their customers.

Smart Cities

We are all becoming more aware of our “foot print” on the environment. Now, cities are the center of the problem. We, as a global population, are shifting toward sustainability and resilience. Smart cities are a move in the direction of converting urban infrastructures into resilient support systems. Besides the obvious network of the aforementioned smart meters, and smart buildings, we will see in cities increasingly intelligent transportation solutions. We will likely see public transportation using modern mass rapid transit trains, congestion control using electronic rad pricing, electronic monitoring advisory system to guide and warn road users, computerized traffic signaling to streamline the throughput of autos in roadways, intelligent dispatch of taxis, and integrated ticketing systems to promote inter modal transfer. From the intelligent transportation network, all the way down to the intelligent planning of the city’s infrastructure. Smart technology is shaping the way we think of cities.

Managing Demand

The majority of operators measure total consumption based on simple customer consumption over time. They may reward a lower “peak demand” based on the time of day. More advanced counters measure consumption over time, as well, but this is insufficient. The randomness of power production requires real time adaptation of demand. 9 This is where the M2M technology comes into play. However, it must be accompanied by active energy management systems. Together they will be able to react in real time to network or production incidents which will reduce the cost associated with last minute energy purchases.

Market Size Projections

Figure [ 4 ] Estimated M2M revenues mapped to the different actors of the value chain. From Beecham Researc
Figure [ 4 ] Estimated M2M revenues mapped to the different actors of the value chain. From Beecham Researc
Market Size projections usually begin with an estimation of the number of M2M devices. Since these devices incorporate all facets of society it can be difficult to predict.
Mobile internet devices are expect to reach 415 million devices this year and 50 billion Internet connected devices by 2020. Smart meter deployments, in terms of the global market, contribute to the wireless communication modules value jumping from $532 million in 2012 to $1.3 billion in 2020 at a compound annual growth rate (CAGR) of 12%.12 Currently, North America is the dominant player in wireless communication modules market for smart meters, will be a key driver in the expected leap from $379 million in 2012 to $33.7 million in 2020.
Cellular and radio frequency (RF) communication modules are the two primary technologies used in the two way data communication we see in smart meters. Coverage area is a problem and major limitation in the market for cellular communication modules. An indoor electric meter with GPRS technology provides 80-85% coverage if the electric meter (or other device) is not moved. Additionally, high operating costs are unattractive to utility companies. For example, in the UK Baringa Partners estimated a $7.40 charge per household for a once a day, off peak meter reading each year while the cost of the cellular service in North America has been lowered to $5, still high compared to RF mesh technology for which operating cost are nil

If we take a moment to look at these projections we can clearly see an upward trend. We should continue to expect that trend past 2015 into 2020.

In this chart we see the industry leveling off a little bit in the US. Based on the projections increasing numbers of M2M devises. I suspect an upward trend through 2020. For the market size in terms of dollar value have divided the market size into four main categories10 * Internet establishment- referring to the modules and devices component of the value chain. This includes modems and gateways allowing internet connectivity * Network part of the market-referring to the value in transportation of bits from the M2M device to the location of the application * System applications- referring to middleware such as control and diagnostics, device management, location, status, and tracking information. * Value added services- all other components in the value change. For example, system

Here we see the market leveling off. Much like the expected energy consumption of the internet. They US smart grid market forecast isn’t growing as exponentially as previously expected.

Itron
Itron is the largest manufacturer of smart meters in the world. Itron stock is traded publicly on the Nasdaq Stock Exchange at the ticker symbol ITRI. They service 8000 utility customers, 9000 employees, and generated $2.26 billion in revenue in 2010.

Analysts’ Estimates Earnings Est | Current Qtr.
Jun 14 | Next Qtr.
Sep 14 | Current Year
Dec 14 | Next Year
Dec 15 | Avg. Estimate | 0.36 | 0.44 | 1.58 | 2.35 | No. of Analysts | 12.00 | 12.00 | 13.00 | 13.00 | Low Estimate | 0.30 | 0.39 | 1.46 | 1.85 | High Estimate | 0.41 | 0.56 | 1.67 | 2.70 | Year Ago EPS | 0.58 | 0.65 | 1.90 | 1.58 |

Revenue Est | Current Qtr.
Jun 14 | Next Qtr.
Sep 14 | Current Year
Dec 14 | Next Year
Dec 15 | Avg. Estimate | 465.61M | 480.81M | 1.91B | 2.01B | No. of Analysts | 10 | 10 | 11 | 11 | Low Estimate | 457.30M | 463.50M | 1.88B | 1.97B | High Estimate | 475.20M | 536.44M | 1.95B | 2.14B | Year Ago Sales | 482.18M | 495.49M | 1.95B | 1.91B | Sales Growth (year/est) | -3.40% | -3.00% | -2.10% | 5.50% | | | Earnings History | Jun 13 | Sep 13 | Dec 13 | Mar 14 | EPS Est | 0.58 | 0.66 | 0.74 | 0.26 | EPS Actual | 0.58 | 0.65 | 0.36 | 0.31 | Difference | 0.00 | -0.01 | -0.38 | 0.05 | Surprise % | 0.00% | -1.50% | -51.40% | 19.20% | | | EPS Trends | Current Qtr.
Jun 14 | Next Qtr.
Sep 14 | Current Year
Dec 14 | Next Year
Dec 15 | Current Estimate | 0.36 | 0.44 | 1.58 | 2.35 | 7 Days Ago | 0.36 | 0.44 | 1.58 | 2.35 | 30 Days Ago | 0.36 | 0.44 | 1.58 | 2.35 | 60 Days Ago | 0.37 | 0.43 | 1.57 | 2.32 | 90 Days Ago | 0.35 | 0.44 | 1.56 | 2.31 | | | EPS Revisions | Current Qtr.
Jun 14 | Next Qtr.
Sep 14 | Current Year
Dec 14 | Next Year
Dec 15 | Up Last 7 Days | 0 | 0 | 0 | 0 | Up Last 30 Days | 0 | 0 | 0 | 0 | Down Last 30 Days | 0 | 0 | 0 | 0 | Down Last 90 Days | N/A | N/A | N/A | N/A | | | Growth Est | ITRI | Industry | Sector | S&P 500 | Current Qtr. | -37.90% | 43.60% | N/A | 12.50% | Next Qtr. | -32.30% | 33.70% | 670.50% | 16.90% | This Year | -16.80% | 21.40% | 14.70% | 7.60% | Next Year | 48.70% | 38.30% | 25.00% | 12.20% | Past 5 Years (per annum) | -6.30% | N/A | N/A | N/A | Next 5 Years (per annum) | 15.50% | 14.98% | 17.52% | 9.71% | Price/Earnings (avg. for comparison categories) | 25.52 | -3.47 | 10.07 | 19.35 | PEG Ratio (avg. for comparison categories) | 1.65 | -0.78 | 1.24 | 3.82 | | |

These are solid projections based on the performance of the company in the past. Given the information research in this report I think it is safe to say that Itron is in a position to have continued success. However, although the earnings projections are extremely favorable, the projected revenue growth tells a slightly different story. Since the revenue is only projected to grow from 1.9B (2014) to 2.0 B in 2015 there is a possibility that this is coming from cost reduction rather than true growth. Also, in looking back to 2010 stock price three is volatility in growth.

As the energy industry evolves to suit the needs of the consumer, we will see more infiltration of smart devices. The trend of conservation and ethical responsibility is driving factor to the continued success of the industry.

http://financials.morningstar.com/competitors/industry-peer.action?t=ITRI When we look at the other industry leaders, Itron appears to be below the industry average. There is volatility in the numbers we see for Itron. Although, there will clearly be a demand for the smart meters and similar inventory and services they have to offer, it remains to be seen if the projections are correct.

Conclusion
The smart industry is in a revolution, all thanks to the internet. Computers are penetrating every aspect of our lives. Some will continue to question if this is as positive a change as it seems. Certainly there are some issues with privacy that will need to be addressed further. All in all, the internet is making the industry more efficient. I can’t help but believe that’s a good thing, in this finite world with finite resources.

Works Cited
Consumer Data Privacy in a Networked World: A Framework for Protecting Privacy and Promoting Innovation in the Global Digital Economy http://www.whitehouse.gov/sites/default/files/privacy-final.pdf Eroskun, Ozge Yalciner. “ Green and Ecological Technologies for Urban Planning: Creating Smart Cities. IGI Global. 2012.

Freedman, Linn Foster. “The Smart Grid: Privacy costs of the Information Jackpot.” Nixon Peabody. March 22, 2012.

Hin, Leo and Subramaniam. “Creating Smart Ciites with Intelligent Transportation Sollutions: Experience from Singapore. (Chapter 10 ) Hudson, Gavin. “How Much Energy Does the Internet Use?” June 1, 2012. http://cleantechnica.com/2012/06/01/how-much-energy-does-the-internet-use/

Itron 2013 Annual Report http://files.shareholder.com/downloads/ITRI/3297066892x0x734598/47740CC8-A35A-40BA-9DD4-8FD3AE46B714/658416_008_ITRON_INC_BMK2.pdf King, Mike. Global smart meter wireless communication modules market: $1.3 billion industry forecast by 2020. Wireless Communication Modules for Smart Meters, 2013 Update- Market Analysis and Forecasts to 2020.” http://www.companiesandmarkets.com/Market/Energy-and-Utilities/Market-Research/Wireless-Communication-Modules-for-Smart-Meters-2013-Update-Market-Analysis-and-Forecasts-to-2020/RPT1200992?aCode=b860166d-1022-455a-ba52-09304b8e5e40 Koomey, Jonathan. “Estimating Total Power Consumption by Servers in the US and the World” http://sites.amd.com/us/Documents/svrpwrusecompletefinal.pdf

Morning Star Financials- http://financials.morningstar.com/competitors/industry-peer.action?t=ITRI

Ramachandran, Prabhu. “Powering the Energy Industry with the Internet of Things” May 20, 2014. http://www.pcquest.com/pcquest/feature/214881/powering-energy-industry-the-internet-things Renzenbrink, Tessel. “How Much Electricity Does the Internet Use?” June 13, 2013. http://www.techthefuture.com/technology/how-much-electricity-does-the-internet-use/

Shah, Abhishek. “Smart Metering- List of Top Smart Energy Meter Manufacturers Growing Smaller as Consolidation gains pace.” May 10, 2011. http://www.greenworldinvestor.com/2011/05/10/smart-metering-list-of-top-smart-energy-meter-manufacturers-growing-smaller-as-consolidation-gains-pace/

Viswanathan, H. (2012) The Business of M2M, in M2M Communications: A Systems Approach (eds D. Boswarthick, O. Elloumi and O. Hersent), John Wiley & Sons, Ltd, Chichester, UK. doi: 10.1002/9781119974031.ch2

Yahoo Finance: http://finance.yahoo.com/q/ae?s=ITRI+Analyst+Estimates

--------------------------------------------
[ 2 ]. http://sites.amd.com/us/Documents/svrpwrusecompletefinal.pdf
[ 3 ]. Renzenbrink, Tessel. “How Much Electricity Does the Internet Use?” June 13, 2013. http://www.techthefuture.com/technology/how-much-electricity-does-the-internet-use/
[ 4 ]. Hudson, Gavin. “How Much Energy Does the Internet Use?” June 1, 2012. http://cleantechnica.com/2012/06/01/how-much-energy-does-the-internet-use/
[ 5 ]. Freedman, Linn Foster. “The Smart Grid: Privacy costs of the Information Jackpot.” Nixon Peabody. March 22, 2012.
[ 6 ]. Consumer Data Privacy in a Networked World: A Framework for Protecting Privacy and Promoting Innovation in the Global Digital Economy http://www.whitehouse.gov/sites/default/files/privacy-final.pdf [ 7 ]. Ramachandran, Prabhu. “Powering the Energy Industry with the Internet of Things” May 20, 2014. http://www.pcquest.com/pcquest/feature/214881/powering-energy-industry-the-internet-things [ 8 ]. "California Activists Claim Smart Meters Are Harmful to Health." Films On Demand. Films Media Group, 2012. Web. 3 July 2014. .
[ 9 ]. “The Internet of Things: Key Applications and Protocols Dec 18 2011
[ 10 ]. Olivier Hersent, David Boswarthick, Omar Elloumi. The internet of things: key applications and protocols Chichester, West Sussex: Wiley, 2012. |
[ 11 ]. Eroskun, Ozge Yalciner Green and Ecological Technologies for Urban Planning: Creating Smart Cities. IGI Global
Hin, Leo and Subramaniam. “ Creating Smart Ciites with Intelligent Transportation Sollutions: Experience from Singapore. (Chapter 10 )
[ 12 ]. Viswanathan, H. (2012) The Business of M2M, in M2M Communications: A Systems Approach (eds D. Boswarthick, O. Elloumi and O. Hersent), John Wiley & Sons, Ltd, Chichester, UK. doi: 10.1002/9781119974031.ch2
[ 13 ]. King, Mike. Global smart meter wireless communication modules market: $1.3 billion industry forecast by 2020.
[ 14 ]. “Wireless Communication Modules for Smart Meters, 2013 Update- Market Analysis and Forcasts to 2020.” http://www.companiesandmarkets.com/Market/Energy-and-Utilities/Market-Research/Wireless-Communication-Modules-for-Smart-Meters-2013-Update-Market-Analysis-and-Forecasts-to-2020/RPT1200992?aCode=b860166d-1022-455a-ba52-09304b8e5e40 [ 15 ]. Shah, Abhishek. “Smart Metering- List of Top Smart Energy Meter Manufacturers Growing Smaller as Consolidation gains pace.” May 10, 2011. http://www.greenworldinvestor.com/2011/05/10/smart-metering-list-of-top-smart-energy-meter-manufacturers-growing-smaller-as-consolidation-gains-pace/
[ 16 ]. Itron 2013 Annual Report http://files.shareholder.com/downloads/ITRI/3297066892x0x734598/47740CC8-A35A-40BA-9DD4-8FD3AE46B714/658416_008_ITRON_INC_BMK2.pdf
[ 17 ]. http://finance.yahoo.com/q/ae?s=ITRI+Analyst+Estimates
[ 18 ]. http://financials.morningstar.com/competitors/industry-peer.action?t=ITRI

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