EXECUTIVE SUMMARY:

Smart Water Meters

Advanced Metering Infrastructure for Water Utilities:
Market Drivers, Technology Issues, Deployment Case
Studies, Key Industry Players, and Market Forecasts
NOTE: This document is a free excerpt of a larger research report.
If you are interested in purchasing the full report, please contact
Pike Research at sales@pikeresearch.com

Published 3Q 2010

Betsy Loeff
Industry Analyst

Jevan Fox
Research Analyst
 Smart Water Meters

Section 1
EXECUTIVE SUMMARY

Smart water metering will grow significantly in North America over the next 5 years.
Defined as water meters equipped with radios that deliver hourly consumption data via a
fixed-network communications system, smart water metering now accounts for 8% of the
39 million water meters read remotely through communications technology in the United
States and Canada. By 2016, that percentage will grow to 26%. As a percentage of
annual meter shipments, smart meters will represent nearly half. Since North America
comprises more than 80% of the market for fixed-network meter reading systems in 2010,
the forecast indicates a dramatic growth in smart water metering worldwide.

Chart 1.1 Smart Meter Module and Traditional Meter Shipments, North America: 2009-2016
8,000

Smart Meters
7,000
Total Meters Shipped
6,000
Shipments (Thousands)

5,000

4,000

3,000

2,000

1,000

0
2009 2010 2011 2012 2013 2014 2015 2016

(Source: Pike Research)

The primary driver for this dramatic growth is conservation. Some 36 U.S. states will face
water shortages by 2013, according to government projections. Yet, North America is not
alone facing this challenge. Nearly half of the worlds population will face freshwater stress
by 2030, a condition described as a water withdrawal level that exceeds the renewable
water supply by 10% or more.

Note, though, that population growth is only one factor leading to impending water
shortages. Irrigation makes up around 70% of water use in most nations, and more than
40% of the worlds food crops are grown using irrigation. Consider that the amount of
water needed to produce one cup of coffee equals 37 gallons. Producing a pound of beef
requires 1,857 gallons.

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 Smart Water Meters

Water metering alone has a powerful conservation impact. Studies show that using water
meters to bill customers based on their actual consumption cuts water use by 15% or
more. When water suppliers add meter reading automation to the mix, the conservation
impact is even more significant.

With a fixed-network system or advanced metering infrastructure (AMI), utilities can see
leaks in customer premises because the hourly reading data will demonstrate where water
consumption never ceases, indicating a leak. The data also enable utilities to easily
balance water produced against water billed. Where differences exist, so do what utilities
call non-revenue water (NRW). Non-revenue water hovers around the 20% mark in many
developed nations. In the developing world, about 50% of water pumped, treated, and
distributed is lost without being billed because of distribution system problems, theft, or
non-meter uses (e.g., line flushing).

Not surprisingly, smart water metering is gaining attention and some ground outside
North America, though the term generally refers to different technology. In other parts of
the world, utilities are deploying water metering systems through which meter readers walk
or drive by the radio-equipped meters and capture the consumption data. This is called
automatic meter reading (AMR). Many of these systems, such as those being deployed in
France, England, Brazil, and India, have the capability to migrate to fixed-network
technology without changing radio equipment. Pike Research calls theses systems smart-
enabled meters.

Some newer AMR systems have data-logging capability, which means the utility can
view hourly usage that can be used in system planning, customer leak detection,
responding to billing inquiries, and theft detection. Even without data logging,
remote meter reading delivers customer service improvements by making sure customers
receive bills that reflect actual usage. The technology also eliminates the need for meter
readers to gain access to customer premises.

Drivers for remote meter reading in Europe include the European Unions
Water Framework Directive. This directive requires water providers to adopt pricing
policies that provide cost recovery for water service and motivate consumers to use water
wisely. It calls for policies to be in place by the end of 2010.

Impediments to fixed-network systems are many. Regulators limit the radio transmission
power of the systems, and there is congestion in available frequency bands. In many
areas, meters are read once per year or less. Alternatively, customers read their own
meters, so there is little labor savings to help justify the cost of AMR.

Despite these impediments, we forecast that remote water meter reading growth will occur
in Europe, as well as other world regions. The European market will experience a
compound annual growth rate (CAGR) of 6% between 2010 and 2016. Latin America, with
very few units now deployed, will see a CAGR of 27% as one or two larger utilities, most
likely in Brazil, deploy the technology. Similar circumstances and growth will occur in the
Asia Pacific region, where Mumbai now plans to install 300,000 units and may increase the
deployment to 1.2 million units. Elsewhere, smart water metering will grow only slightly.
Automated water meters in Africa will probably be of the pre-paid variety, and most Middle
Eastern nations, with the exceptions of Israel, Kuwait, and Abu Dhabi, have not made
significant moves to add water meter reading automation.

2010 Pike Research LLC.

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 Smart Water Meters

Chart 1.2 Smart Meter Module Shipments by Region, World Markets: 2009-2016

7,000
Middle East/Africa
6,000 Asia Pacific
Europe
Shipments (Thousands)

5,000 Latin America

North America

4,000

3,000

2,000

1,000

0
2009 2010 2011 2012 2013 2014 2015 2016

(Source: Pike Research)

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express written permission of Pike Research LLC.

3
 Smart Water Meters

Section 9
TABLE OF CONTENTS

Section 1 ...................................................................................................................................................... 1
Executive Summary .................................................................................................................................... 1
Section 2 ...................................................................................................................................................... 4
Market Issues .............................................................................................................................................. 4
2.1 Market Fragmentation ................................................................................................................... 4
2.1.1 Water Provider Governance .................................................................................................... 6
2.2 Drivers Overview ........................................................................................................................... 6
2.2.1 Industry Drivers ....................................................................................................................... 6
2.2.1.1 Water Scarcity ................................................................................................................ 6
2.2.1.2 Conservation Impact of Metering.................................................................................... 7
2.2.1.3 Non-Revenue Water ....................................................................................................... 8
2.2.1.4 Utility Operations Savings............................................................................................. 10
2.2.1.5 Energy Use and Climate Concerns .............................................................................. 10
2.2.1.6 Bandwagon Effect......................................................................................................... 11
2.2.1.7 Cost: The Top Concern ................................................................................................ 11
2.2.2 Market Drivers ....................................................................................................................... 11
2.2.2.1 Significant Water Metering Legislation and Policy ....................................................... 12
2.2.2.2 U.S. Federal Funding.................................................................................................... 13
2.2.2.3 Privatization, a European Motivator for AMI ................................................................. 13
2.3 Impediments to AMI in Europe .................................................................................................... 14
2.3.1 Infrequent Meter Reading...................................................................................................... 14
2.3.2 Labor Issues .......................................................................................................................... 14
2.3.3 Technology Challenges ......................................................................................................... 14
Section 3 .................................................................................................................................................... 15
Technology Issues .................................................................................................................................... 15
3.1 Definition of Smart Water Metering ............................................................................................. 15
3.2 Components of Smart Water Metering ....................................................................................... 15
3.2.1 Mechanical Water Meters...................................................................................................... 16
3.2.2 Static or Solid-State Meters................................................................................................... 17
3.2.3 Meter Registers ..................................................................................................................... 18
3.2.4 Meter Encoders ..................................................................................................................... 19
3.2.5 AMI Modules.......................................................................................................................... 20
3.2.6 The Communications Network .............................................................................................. 21
3.2.6.1 Characteristics of RF Communications ........................................................................ 21
3.2.6.2 Network Topologies ...................................................................................................... 21
3.2.7 Backhaul or WAN Communications ...................................................................................... 24
3.2.7.1 ZigBee........................................................................................................................... 24
3.2.8 Automated Meter Reading .................................................................................................... 24
3.2.9 Fly-By Technology ................................................................................................................. 25
3.2.10 Head-End Software ........................................................................................................... 25
3.3 Online Access to Consumption Data for Customers................................................................... 26
3.4 Ancillary Devices ......................................................................................................................... 26
3.4.1 Remote Shut-Off Valves........................................................................................................ 27
3.4.2 In-Home Consumption Displays ............................................................................................ 27
3.4.3 Acoustic Sensors ................................................................................................................... 28
3.4.4 Composite Pit Lids ................................................................................................................ 29
3.4.5 In-Line Connectors ................................................................................................................ 30

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 Smart Water Meters

3.5 Standards .................................................................................................................................... 30

Section 4 .................................................................................................................................................... 31
Key Industry Players................................................................................................................................. 31
4.1 Aclara (ESCO Technologies) ...................................................................................................... 31
4.2 Arad/Master Meter ...................................................................................................................... 32
4.3 Badger Meter............................................................................................................................... 33
4.4 Datamatic .................................................................................................................................... 34
4.5 Diehl Metering Group .................................................................................................................. 35
4.6 Elster Group ................................................................................................................................ 36
4.7 Itron ............................................................................................................................................. 37
4.8 Neptune Technology Group ........................................................................................................ 38
4.9 Sensus ........................................................................................................................................ 39
4.10 Ancillary Equipment Providers .................................................................................................... 40
4.10.1 DFW Plastics..................................................................................................................... 40
4.10.2 Fluid Conservation Systems ............................................................................................. 40
4.10.3 Nicor, Inc. .......................................................................................................................... 41
Section 5 .................................................................................................................................................... 42
Case Studies .............................................................................................................................................. 42
5.1 The District of Columbia Water and Sewer Authority.................................................................. 42
5.2 East Bay Municipal Utility District ................................................................................................ 43
5.3 City of Ann Arbor, Michigan ........................................................................................................ 45
5.4 City of Fresno, California............................................................................................................. 47
5.5 Israel............................................................................................................................................ 48
Section 6 .................................................................................................................................................... 49
Market Forecasts....................................................................................................................................... 49
6.1 The World Water Meter Market ................................................................................................... 49
6.2 Smart Water Metering in North America ..................................................................................... 50
6.3 Water Meter Automation Around the World ................................................................................ 53
6.4 Revenue ...................................................................................................................................... 56
Section 7 .................................................................................................................................................... 59
Company Directory ................................................................................................................................... 59
Section 8 .................................................................................................................................................... 60
Acronym and Abbreviation List ............................................................................................................... 60
Section 9 .................................................................................................................................................... 62
Table of Contents ...................................................................................................................................... 62
Section 10 .................................................................................................................................................. 64
Table of Charts and Figures..................................................................................................................... 64
Section 11 .................................................................................................................................................. 65
Scope of Study .......................................................................................................................................... 65
Sources and Methodology ....................................................................................................................... 65
Notes .......................................................................................................................................................... 66

2010 Pike Research LLC.

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express written permission of Pike Research LLC.

63
 Smart Water Meters

Section 10
TABLE OF CHARTS AND FIGURES

Chart 1.1 Smart Meter Module and Traditional Meter Shipments, North America: 2009-2016 ............. 1
Chart 1.2 Smart Meter Module Shipments by Region, World Markets: 2009-2016 ............................... 3
Chart 2.1 Meter Penetration in Select Countries .................................................................................. 12
Chart 6.1 Water Meter Shipments by Region, World Markets: 2009-2016.......................................... 50
Chart 6.2 AMR/AMI Vendor Market Share, North America: 2009 ....................................................... 51
Chart 6.3 Installed Smart vs. Automated Water Meters, North America: 2009-2016 .......................... 52
Chart 6.4 Smart Meter Module and Traditional Meter Shipments, North America: 2009-2016 ........... 53
Chart 6.5 Smart or Smart-Enabled Module Shipments by Region, World Markets: 2009-2016.......... 54
Chart 6.6 Smart Meter Shipments as a Percentage of All Water Meter Shipments,
World Markets: 2009-2016 ................................................................................................... 55
Chart 6.7 Smart Meter Penetration Rate (of All Water Meters), World Markets: 2009-2016 ............... 56
Chart 6.8 Meter and Communications Devices Revenue, World Markets: 2009-2016 ....................... 57
Chart 6.9 Meter and Communications Devices Revenue, North America: 2009-2016 ....................... 58

Figure 2.1 Number of Community Water Systems, United States ........................................................... 4

Figure 2.2 Community Water Systems by Size and Population Served, United States .......................... 5
Figure 2.3 World Population Living with Water Stress ............................................................................. 7
Figure 2.4 Shower Meter .......................................................................................................................... 8
Figure 2.5 Non-Revenue Water from Self-Reporting Utilities................................................................... 9
Figure 3.1 Diagram of a Nutating Disc Water Meter .............................................................................. 16
Figure 3.2 Typical North American Water Meter .................................................................................... 17
Figure 3.3 Solid-State Meter by Sensus ................................................................................................. 18
Figure 3.4 Meter Register ....................................................................................................................... 19
Figure 3.5 Diagram of a Contact Closure in an Encoder ........................................................................ 19
Figure 3.6 Mesh Network Diagram ......................................................................................................... 22
Figure 3.7 Star Network Diagram ........................................................................................................... 23
Figure 3.8 The Drone from Arad/Master Meter ...................................................................................... 25
Figure 3.9 City of Ann Arbor, Michigan Customer Usage Data .............................................................. 26
Figure 3.10 Badger Meters In-Home Water-Consumption Display ..................................................... 27
Figure 3.11 Diagram of Acoustic Sensor Placement ........................................................................... 29
Figure 5.1 DC WASA, Reductions in Off-Cycle Meter Reading Costs: 2005-2009 .............................. 43
Figure 5.2 AMI Data Reveal a Households Leaks ................................................................................. 44
Figure 5.3 How AMI Data Demonstrates the Effectiveness of an ET Controller .................................... 45
Figure 5.4 Ann Arbor Consumption Drop after Rate Changes ............................................................... 46

Table 4.1 Aclara SWOT......................................................................................................................... 31

Table 4.2 Arad/Master Meter SWOT ..................................................................................................... 32
Table 4.3 Badger Meter SWOT ............................................................................................................. 34
Table 4.4 Datamatic SWOT .................................................................................................................. 35
Table 4.5 Diehl Metering Group SWOT ................................................................................................ 35
Table 4.6 Elster Group SWOT .............................................................................................................. 36
Table 4.7 Itron SWOT............................................................................................................................ 37
Table 4.8 Neptune Technology Group SWOT ...................................................................................... 39
Table 4.9 Sensus SWOT ....................................................................................................................... 40

2010 Pike Research LLC.

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 Smart Water Meters

Section 11
SCOPE OF STUDY
Pike Research has prepared this overview of the smart water metering industry as a resource for
market participants such as meter manufacturers and suppliers, communications vendors, water utilities,
regulators, investors, and other interested parties. This report focuses on the communications technology
that makes water meters smart, as well as on the meters themselves. Its major objective is to identify and
evaluate opportunities and challenges facing the industry and to forecast likely growth. Pike Research
also provides a review of demand drivers, technologies, key players within the competitive landscape,
and noteworthy deployments.

The reports purpose is not to provide an exhaustive technical assessment of the technologies and
markets covered, but rather a strategic examination from an overall business perspective. Pike Research
strives to identify and examine new market segments to aid readers in the development of their business
models. All major global regions are included, and the forecast period extends through 2016.

SOURCES AND METHODOLOGY

Pike Researchs industry analysts utilize a variety of research sources in preparing Research Reports.
The key component of Pike Researchs analysis is primary research gained from phone and in-person
interviews with industry leaders, including executives, engineers, and marketing professionals. Analysts
are diligent in ensuring that they speak with representatives from every part of the value chain, including
but not limited to technology companies, utilities and other service providers, industry associations,
government agencies, and the investment community.

Additional analysis includes secondary research conducted by Pike Researchs analysts and the firms
staff of research assistants. Where applicable, all secondary research sources are appropriately cited
within this report.

These primary and secondary research sources, combined with the analysts industry expertise, are
synthesized into the qualitative and quantitative analysis presented in Pike Researchs reports. Great
care is taken in making sure that all analysis is well supported by facts, but where the facts are unknown
and assumptions must be made, analysts document their assumptions and are prepared to explain their
methodology, both within the body of a report and in direct conversations with clients.

Pike Research is an independent market research firm whose goal is to present an objective, unbiased
view of market opportunities within its coverage areas. The firm is not beholden to any special interests
and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by
technology hype, political agendas, or emotional factors that are inherent in cleantech markets.

2010 Pike Research LLC.

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express written permission of Pike Research LLC.

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 Smart Water Meters

NOTES
CAGR refers to compound average annual growth rate, using the formula:

CAGR = (End Year Value Start Year Value)(1/steps) 1.

CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are
given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be
given as well.

Figures are based on the best estimates available at the time of calculation. Annual revenues,
shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed
in year 2010 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding.

2010 Pike Research LLC.

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express written permission of Pike Research LLC.

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 Smart Water Meters

Published 3Q 2010

2010 Pike Research LLC

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This publication is provided by Pike Research LLC (Pike). This publication may be used only as
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in this publication). If you do not have a license from Pike covering this publication, please refrain from
accessing or using this publication. Please contact Pike to obtain a license to this publication.

2010 Pike Research LLC.

All Rights Reserved. This publication may be used only as expressly permitted by license from Pike Research LLC and may not otherwise be accessed or used, without the
express written permission of Pike Research LLC.

67