Because of their capability to save energy and to improve the efficiency of electrical grids, power utilities are expected to rapidly adopt smart electricity meters, causing global shipments to triple from 2011 to 2016-and spurring the doubling of the associated semiconductor market during the same period.

Worldwide smart meter shipments are set to rise to 62 million units in 2016, up from 20.5 million in 2011, according to the IHS iSuppli Industrial Electronics Service at information and analysis provider IHS.

Global sales of semiconductors used in these smart meters are projected to grow to $1.1 billion in 2016, up from $505.6 million in 2011.

"The original motivation for replacing conventional meters with smart meters was energy savings," said Jacobo Carrasco Heres, industrial electronics research analyst for IHS.

"However, a more compelling incentive is the instrumentation of the grid. With the use of smart meters, utilities finally will have a well-mapped grid that will enable them to plan electrical generation and manage their resources more efficiently."

The rollout of smart meters is being propelled by government support and regulations. For example, in the United States, stimulus money from the Smart Grid Investment Grant (SGIG) program is driving the replacement of conventional meters with new smart models. Meanwhile, the European Union is targeting an 80 percent conversion to smart meters by 2020, representing shipments of 180 million units.

Smart promotion of smart meters
Despite these efforts and the rapid growth of smart meter shipments in the coming years, deployments actually are progressing more slowly than had been expected from a few years ago.

One factor slowing market growth is a lack of money. Amid current economic conditions, investments in smart grids and smart meters are falling short of expectations in many cases.

Another factor is consumer acceptance: The deployment of smart meters alone may not be sufficient to convince consumers that these devices are desirable.

Instead, smart meters should be paired with services that deliver more value to consumers, such as a dashboard that shows the electricity consumption of appliances and other devices.

Combining smart meters with smart home features could represent a great opportunity for telecommunications companies. Sales of devices supporting these features will drive additional sales of semiconductors.

Smart chips for smart meters
The burgeoning smart meter market will drive the rise of a large associated semiconductor business, with logic integrated circuits (ICs)-mainly metrology ICs and communications ICs-contributing most to the cost of smart meters. The next biggest contributors are microcomponents, such as microcontrollers, digital signal processors and microprocessors.

Smart meters also are making greater use of system on chip (SOC) devices, which will integrate most of the functionality of the product into a single device.

Both smart meter shipments and the market for smart meter semiconductors will continue to expand in the coming years. Revenue in both areas, however, will flatten starting in 2015.

Learn more about this topic with the upcoming IHS iSuppli report, entitled: "Industrial Electronics Q4 2011 Market Tracker."