Echelon eyes smart grid growth out of U.S.

Reuters

Smart grid infrastructure firm Echelon Corporation's (San Jose, Calif., U.S.A.) chief executive said he saw more opportunities in Europe and the rest of the world than at home, where there is little appetite to upgrade power networks.

"We have 20% more supply of electricity in the U.S. than there is demand, and no political will," says Ron Sege. "At least in Europe you have political will, the 2020 mandates, France reaffirming its commitment, and Germany moving slowly along."

Echelon made 70% of its revenue in Europe in the last quarter.

A drive to better track household energy use, smooth demand surges and curb overall power usage has driven a surge in demand for smart grids worldwide, although economic concerns have made investors wary about utilities cutting back investment.

Sege acknowledged this was a possibility but said there was no change to the company's guidance to investors and that Echelon would do well because it was focused on power markets where demand exceeded supply and demand management was needed.

In May Japanese electronics giant Toshiba forecasted that the global smart grid market would grow six fold to $75.6 billion over the next decade as it announced the $2.3 billion takeover of Swiss-based smart meter maker Landis+Gyr.

The European Commission expects 200 million smart meters to be installed by 2020 in the European Union, with an investment totaling $53 billion.

The U.S. has been reluctant to follow suit, struggling to justify the costs involved.

"The stimulus of 2008 was the last political statement that the government has made, and there are questions as to whether the government should be investing in, or mandating, this kind of energy efficiencies," says Sege.

Demand for smart grid will be tempered in the U.S. in the next few years, as opposed to Europe, where Scandinavian countries are leading the way, defying Europe's sovereign debt crisis, Sege added.

"Scandinavian countries generally continue to move aggressively to invest, with windmills everywhere; they have made a strong political decision to move to a green economy, and they have put their money where their mouth is," says Sege.

Outside Europe, Sege sees strong potential in China and Southeast Asia, Eastern Europe, South Africa and Latin American markets, particularly Brazil, Colombia, Peru, Argentina and Mexico.

"I was touring one of our factories in China, and the guy said we had to hurry up because the power was going out at 1 o'clock,” says Sege.  “The workers then were off to another factory up the street. Rationing is just a way of life in China, so they have tremendous need for demand-side management.”

Echelon, which boasts Honeywell and Siemens among its clients, is looking to replicate the model of striking partnerships to expand geographically, such as its deals with meter suppliers Holley Metering in China and ELO Sistemas Electronicos in Brazil, Sege said on Tuesday.

"Our labor costs in China have gone up, and we did indicate that this will cause some short-term problems from a profitability perspective, but commodity prices are coming down, and in general our manufacturing efficiency is going up," says Sege.

Echelon is targeting gross margin of 45% in the long term.

"We think we can get back to our historic margin levels over time," says Sege.

(Reporting By Greg Roumeliotis; Editing by Will Waterman)

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