Focus on Industries and Markets: Electric Power Transmission and Distribution Equipment
Petina, David A., Murphy, Michael, Gross, Andrew C., Business Economics
The U.S. electrical grid must he upgraded, and there is a strong debate about the characteristics of the next-generation electrical network. However, slow growth of electricity usage, among other factors, means that the demand for transmission and distribution (T&D) equipment is growing slowly also. Within the T&D equipment sector, switchgear and transformers are still the dominant segments, but sales of meters are growing rapidly in response to increased demands for security, safety, and connectivity. Six firms hold about 40 percent of the T&D equipment market share, selling to electric utilities, nonutility Industrial firms, commercial firms, and residential customers. Foreign trade is also important in this industry, with the United States running a substantial trade deficit.
Business Economics (2011) 46, 249-259.
Keywords: electric power, transmission & distribittion (T&D) equipment, electricity demand and supply, product lines, end users, industry structure, U.S. market commercial market, is highlighted. We conclude with an analysis of industry structure, marketing, collaboration, and merger activities.
The U.S. electrical grid is in dire need of upgrading, but as is the case with infrastructure in general the process is slow. Beyond the debate over energy sources for generating power, there is also a strong debate about the development of the next-generation electrical transmission and distribution (T&D) network.
In this paper, we analyze the U.S. market for electric T&D equipment. Electric energy in the current macro setting is discussed first, followed by a brief look at electricity supply and demand. Key regulations and technical developments that pose both restraints and opportunities are profiled. This is followed by a discussion of T&D equipment supply in terms of major product lines and T&D equipment demand by major end-use sectors. Then a specific sector, the
1. Electric Power and the Macro Environment
Modern economies run on electricity; about one-third of the world energy is used for electric power. In the United States, electricity is integral and indispensable for homes, factories, and all types of commercial establishments. Any interruption in the steady supply of electric power is unwanted and can result in much economic loss. The nation's electric grid is a complex network of generation plants, transmission lines, and distribution systems. The North American grid consists of three major networks (Eastern, Western, and Texas) with 200,000 miles of high voltage transmission lines (110 kv to 765 kv) and million miles of distribution lines.
The federal government is currently pushing policies to upgrade the nation's aging electrical network. In mid-June 2011, Secretary of Energy Steven Chu called for a speed-up in the development of the next-generation electrical network [Vastag 2011]. This so-called smart grid would deliver power more efficiently, coordinate traditional and renewable sources, reduce consumption, and alleviate the number and length of outages. T&D equipment should then be able to respond immediately to demand, yet maintain an instant response system to connectivity and other operating variables. At present, the nation's current electric grid is so creaky, according to Chu, that "Edison would feel at home with most of today's power system." Per U.S. Department of Energy (DoE) figures, there were 349 blackouts in 2005 2009 vs. 149 in 2000-2004.
According to the article just cited, the new policies immediately drew skepticism, in part because the Electric Power Research Institute (EPRI), an independent institute funded by the electric utility industry, estimates the cost of implementation to be in the $338 to $476 billion range. Nonetheless, the federal government is determined to push the electric power companies to invest in new technologies, provide loans to upgrade the transmission lines in rural areas, and fund "smart grid" R&D activities from a DoE research hub. …