northeast group, llc Central & Eastern Europe Smart Grid: Market Forecast ( ) April group.com

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1 northeast group, llc Central & Eastern Europe Smart Grid: Market Forecast ( ) April group.com

2 Central & Eastern Europe Smart Grid: Market Forecast ( ) Countries in the Central & Eastern Europe (CEE) region are leaders for their smart grid and smart metering potential among emerging market nations. By 2023, nine of the ten countries in this study (all except for Lithuania) will have largely completed smart meter deployments and many will have deployed other advanced smart grid applications such as home area networks, distribution automation, distributed renewable sources of generation, and electric vehicle charging infrastructure. The smart metering market alone will reach $10.3 billion by 2023, with further billions spent on additional smart grid infrastructure.,-./0%1/023%4567%!"#$%!"#&%!"#'%!"#$%&'()*+,$-.$)&/0,'.$!"#(%!"#)%!"#*%!"#+%!"!"%!"!#%!"!!%!"!$%,-./0%869%:3.3;<%467% This study covers the ten countries in Central & Eastern Europe that are now part of the European Union but until the early 1990s were Communist states. These countries have all undergone radical industry restructurings over the past two decades, and in some cases are still in the process of full liberalization. In most countries, the state still plays a role in one or more segments of the electricity industry. Overall power infrastructure is in many cases outdated and not compatible with a fully integrated European power market. The CEE electricity market is therefore undergoing changes, which present utilities with opportunities to invest in smart grid infrastructure in the process of upgrading the grid. These countries also must meet EU regulations. Most specifically, EU Directive 2009/72/EC requires that all EU states conduct a cost- benefit analysis for smart metering and that, when the result is positive, countries deploy smart meters to 80% of households and businesses by Almost all Western European countries have found or are expected to find net positive benefits from smart metering, and must meet the EU target. The case is less clear in the CEE region, and most countries missed a 2012 deadline to complete their cost- benefit analyses. But in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cases where an analysis was completed, the results pointed to net positive benefits in CEE countries. Therefore, most CEE countries are expected to eventually adopt the EU regulations into their national framework, imposing a smart meter mandate. The reason for these positive findings is that the CEE region s core market conditions support smart meter deployments. Per- capita consumption is lower than in Western Europe, but much higher than in most other emerging markets. Economic growth rates are higher In CEE than in Western Europe, and countries are eager to maintain energy security by helping

3 to manage the growth of electricity demand. Meanwhile, distribution losses and power outages are a much larger concern in the CEE region than in Western Europe. In some CEE countries, utilities can justify smart meter deployments through immediate loss- reduction benefits, with other benefits an added bonus.!"#$%&'()*+',&%-&./01".2'345%2'4&2&%'6132'&37452&3' -#"<&((8"/'.) B83%)&(>?'$&) The CEE region also benefits from knowledge spillovers from Western Europe. Many utilities in CEE are owned by French, German, and Italian utilities that already have experience in deploying smart grid infrastructure. Almost all of the major smart grid vendors already have!"#$%&'($)*#"+,) -".'/0)12/&#3'4) -".'/0)1#&3+.'$"#4) 5."6'78'9:;) C"D)&(>?'$&) a presence in CEE countries, giving them a better grasp of regulatory conditions. EU- based vendors in particular face few barriers due to the common market. Additionally, many local vendors are already active across the CEE region, which will helps in particular to drive new market segments. Most CEE countries have not yet transposed EU smart metering regulations into national law or accepted the EU smart meter mandate. Until they do, some uncertainty will remain in the market. The EU s ongoing financial crisis casts some further doubt on new investments. Only three of the countries covered in this report are part of the euro currency, but all are susceptible to further financial market volatility. But overall, CEE countries have conditions that support smart grid, willing stakeholders, and well- developed pilot projects including large- scale rollouts in some cases. The CEE smart grid market is poised for significant near- term growth. Northeast Group s Central & Eastern Europe Smart Grid: Market Forecast ( ) study is approximately 150 pages in length. It includes a 10- page stand- alone executive summary for a quick synthesis, full regional and country- by- country forecasts including analysis of regulatory frameworks, drivers, and utility and vendor activity. It also includes an extensive appendix including full EU regulations, examples of CEE cost- benefit analyses, details on electric vehicle and renewable energy metrics, and other dynamics driving the smart grid market in the region. Key questions answered in this report: How large will the smart meter market in Central & Eastern Europe become over the next decade? What are the results of cost- benefit analyses conducted in CEE countries? Which utilities already have large- scale smart meter rollouts planned and when will they be complete? Which countries have the most complete incentives for electric vehicles and distributed generation? Who are the local vendors already active in the CEE smart grid market?

4 Table of Contents i. Executive Summary 1 ii. Methodology Introduction What is smart grid? Smart grid s role in regional interconnection How has smart grid been used elsewhere in the world? Central & Eastern Europe smart grid snapshot The region in comparison Regional drivers Regional challenges Most recent developments Regional market forecast Poland Electricity industry structure Smart metering regulatory environment Market forecast Utility activity Estonia Electricity industry structure Smart metering regulatory environment Market forecast Utility activity Slovenia Electricity industry structure Smart metering regulatory environment Market forecast Utility activity Romania Electricity industry structure Smart metering regulatory environment Market forecast 84

5 Table of Contents (cont.) 7.4 Utility activity Hungary Electricity industry structure Smart metering regulatory environment Market forecast Utility activity Czech Republic Electricity industry structure Smart metering regulatory environment Market forecast Utility activity Slovakia Electricity industry structure Smart metering regulatory environment Market forecast Utility activity Bulgaria Electricity industry structure Smart metering regulatory environment Market forecast Utility activity Latvia Electricity industry structure Smart metering regulatory environment Market forecast Utility activity Lithuania Electricity industry structure Smart metering regulatory environment Market forecast Utility activity 136

6 Table of Contents (cont.) 14. The rest of the region Vendor activity CEE- based vendors International vendors active in smart grid in Central & Eastern Europe Conclusion Appendix List of companies covered in this report List of acronyms Renewable energy incentives in CEE Electric vehicle metrics in CEE Payback on smart metering from loss reduction in CEE Cost- benefit analysis examples in CEE Select EU smart grid regulations 164 List of Figures, Boxes, and Tables Central & Eastern Europe smart grid: key takeaways 3 EU smart grid- related regulations targets for CEE countries 4 Smart grid drivers and barriers in Central & Eastern Europe 5 Renewable energy potential and incentives in CEE 6 Distribution losses and power outages in CEE 6 Smart metering cost- benefit analyses completed in CEE 7 Announced smart meter deployment plans in CEE 7 Leading smart metering vendors in CEE 8 CEE- based smart grid vendors 8 AMI forecast by country 9 CEE smart meter penetration rate 9 AMI forecast data by country 10 Figure 1.1: Smart grid value chain 17

7 List of Figures, Boxes, and Tables (cont.) Figure 1.2: Smart grid model 18 Table 1.1: Benefits of AMI in Central & Eastern Europe 20 Table 1.2: Electric vehicle subsidies in CEE 21 Table 1.3: Demand response options 22 Figure 1.3: Transmission interconnections in CEE 24 Figure 1.4: Smart grid activity in emerging markets 26 Figure 2.1: Emerging markets smart meter potential 31 Figure 2.2: Per- capita electricity consumption 32 Figure 2.3: Per- capita CO 2 emissions 32 Figure 2.4: Projected GDP growth 33 Box 2.1: EU Directive 2009/EC/72 34 Figure 2.5: CEE compliance with EU smart meter regulations 35 Table 2.1: European Commission recommendations for smart meter requirements 36 Figure 2.6: Electricity prices in emerging markets 36 Figure 2.7: Electricity prices in the EU 37 Table 2.2: targets for CEE countries 37 Figure 2.8: Renewable sources of energy in CEE 38 Figure 2.9: Distribution losses in CEE 39 Figure 2.10: Annual minutes lost to power outages 39 Table 2.11 Smart grid market drivers and barriers in CEE 40 Figure 2.12: Average annual GDP growth in CEE 41 Figure 2.13: Status of planned smart meter rollouts in CEE 43 Figure 3.1: Timeline of smart grid developments in CEE 45 Figure 3.2: AMI forecast by country 46 Table 3.1: AMI forecast data by country 46 Figure 3.3: CEE smart meter penetration rate 47 Figure 3.4: Annual AMI deployments in CEE 47 Figure 3.5: Planned, forecasted, and targeted smart meter deployments in CEE 47 Figure 3.6: AMI cost breakdown 48 Figure 3.7 Per- endpoint smart meter cost estimates 48 Figure 3.8: AMI forecast by segment 49 Figure 3.9: AMI forecast data by segment 49 Table 4.1: Poland key data 50 Figure 4.1: Poland AMI penetration rate 50

8 List of Figures, Boxes, and Tables (cont.) Table 4.2: Smart grid indicators in Poland 51 Figure 4.2: New and decommissioned generation in Poland 52 Box 4.1: Political risk in Poland 53 Table 4.3: Poland s 2011 smart grid roadmap 55 Figure 4.3: Poland AMI forecast 58 Table 4.4: Poland AMI forecast data 58 Table 4.5: Smart meter deployments in Polish utilities 59 Figure 4.4: Energa s planned deployments 60 Table 5.1: Estonia key data 62 Figure 5.1: Estonia AMI penetration rate 62 Table 5.2: Smart grid indicators in Estonia 63 Box 5.1: Political risk in Estonia 65 Figure 5.3: Estonia s E- mobility operating model 67 Figure 5.2: Estonia AMI forecast 69 Table 5.3: Estonia AMI forecast data 69 Table 6.1: Slovenia key data 71 Figure 6.1: Slovenia AMI penetration rate 71 Table 6.2: Smart grid indicators in Slovenia 72 Box 6.1: Political risk in Slovenia 74 Figure 6.2: Estimated monthly power bills in CEE 76 Figure 6.3: Slovenia AMI forecast 77 Table 6.3: Slovenia AMI forecast data 77 Table 7.1: Romania key data 79 Figure 7.1: Romania AMI penetration rate 79 Table 7.2: Smart grid indicators in Romania 80 Box 7.1: Political risk in Romania 82 Table 7.3: Romania s smart grid roadmap 83 Figure 7.2: Romania AMI forecast 84 Table 7.4: Romania AMI forecast data 85 Figure 7.3: Enel AMI deployments in Romania 86 Table 8.1: Hungary key data 88 Figure 8.1: Hungary AMI penetration rate 88 Table 8.2: Smart grid indicators in Hungary 89 Box 8.1: Political risk in Hungary 91

9 List of Figures, Boxes, and Tables (cont.) Figure 8.2: Hungary s smart meter deployment plan 88 Table 8.3: Modified regulations for Hungary s smart meter rollout 93 Figure 8.3: Public support for smart metering in Hungary 94 Figure 8.4: Hungary AMI forecast 95 Table 8.4: Hungary AMI forecast data 95 Table 9.1: Czech Republic key data 97 Figure 9.1: Czech Republic AMI penetration rate 97 Table 9.2: Smart grid indicators in Czech Republic 98 Box 9.1: Political risk in Czech Republic 100 Table 9.3: Wind and solar feed- in tariffs in CEE 101 Figure 9.2: Planned renewable energy development in the Czech Republic 102 Figure 9.3: Czech Republic AMI forecast 103 Table 9.3: Czech Republic AMI forecast data 103 Table 10.1: Slovakia key data 106 Figure 10.1: Slovakia AMI penetration rate 106 Table 10.2: Smart grid indicators in Slovakia 107 Box 10.1: Political risk in Slovakia 109 Figure 10.2: Slovakia AMI forecast 112 Table 10.3: Slovakia AMI forecast data 112 Figure 10.3: Slovakia s positive smart metering cost- benefit analysis 113 Table 11.1: Bulgaria key data 115 Figure 11.1: Bulgaria AMI penetration rate 115 Table 11.2: Smart grid indicators in Bulgaria 116 Box 11.1: Political risk in Bulgaria 118 Table 11.3: Ease of business rankings 119 Figure 1.2: Bulgaria AMI forecast 120 Table 11.3: Bulgaria AMI forecast data 121 Table 12.1: Latvia key data 123 Figure 12.1: Latvia AMI penetration rate 123 Table 12.2: Smart grid indicators in Latvia 124 Box 12.1: Political risk in Latvia 126 Figure 12.2: Latvia AMI forecast 128 Table 12.3: Latvia AMI forecast data 128 Table 13.1: Lithuania key data 130

10 List of Figures, Boxes, and Tables (cont.) Figure 13.1: Lithuania AMI penetration rate 130 Table 13.2: Smart grid indicators in Lithuania 131 Box 13.1: Political risk in Lithuania 133 Figure 13.2: Renewable energy goals in Lithuania 134 Figure 13.3: Lithuania AMI forecast 135 Table 13.3: Lithuania AMI forecast data 135 Table 14.1: Key indicators from other CEE countries 137 Table 14.1: EBRD smart grid loans to former Yugoslav countries 139 Figure 15.1: Leading smart grid vendors in CEE 142 Figure 15.2: Leading emerging market- based smart grid vendors 143 Figure 15.3: Cities with leading smart grid vendors in CEE 144 Figure 15.4: Number of CEE- based vendors by size and segment 145 Table 15.1: Additional smart grid vendors based in CEE 149 Table 16.1: Next steps and necessary actions 154

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