Smart Grid: The SOA of the Utility Industry

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The energy utilities industry may be one of the last great technological frontiers of North America. This industry has experienced little innovation over its 100-year lifespan.

But now the utility industry is about to embark on a revolutionary journey: the Smart Grid. Utilities and information technology companies will be surrounding the nation's electric grid with a digital grid that will provide consumers and businesses with many value propositions.

One of the key components to this "smart" electric grid is the upgrade of conventional mechanical electric meters at homes and businesses to new digital "smart meters" armed with wireless two-way communications technology.

This technology -- partially fueled by the Obama administration's $3.4 billion in stimulus dollars supporting the "modernization" of the nation's electric grid -- requires one of the largest IT "upgrades" that the nation will see in decades, and provides new product, service and market opportunities for utilities, generators, power traders and information technology companies.

So the big question is, "When will the Smart Grid be available?" Smart meter implementations have already been underway across the United States for the past two years, led largely by the efforts of California and Texas.

Consider these programs now underway:

  • Dallas-based Oncor Energy, with a meter base of roughly two million, expects 600,000 smart meters in place by the end of this year.
  • Houston-based CenterPoint Energy will have 145,000 smart meters deployed by the end of 2009, and all 2.4 million meters in CenterPoint's region will be upgraded by 2014.
  • Austin Energy, the city-owned utility based in the Texas capital, completed all 410,000 smart meter upgrades before the end of 2009.
  • Pacific Gas & Electric (PG&E) of California has received approval from the California Public Utilities commission for a $2.4 billion smart meter upgrade. PG&E estimates by the end of 2011, 5.2 million electricity meters in California will be "smart."
  • Five New England states have also received $226 million from the federal stimulus bill to implement 832,000 smart meters in their regions.

Installing smart meters in offices and homes will enable power usage readings at least once an hour. If you compare that with the current manual usage reading schedule of once per month, you will find a more than 700 data-point increase. Utilities will soon have the opportunity to optimize power distribution, monitor meter health and incentivize customer usage behavior through time-of-day pricing.

In addition, many smart meters include a protocol that will communicate with Home Area Network (HAN) devices. In theory, utilities or consumers could remotely control and monitor their power devices at home or purchase management devices that optimize home power usage.

It sounds exciting, but how long until the Smart Grid infrastructure allows utilities and entrepreneurs to provide value-added services and products to the businesses and consumer who pay the bills? The answer lies in the rate of implementation and the rate of adoption -- similar to another technological revolution called the Internet.

Generally, utilities control the rate of hardware implementation and the leading states should have the majority of their meters upgraded by 2014. Software implementation will closely follow as utilities and power companies upgrade their back office systems to handle the 700-fold data increase.

With the Internet, the implementation consisted of Internet Service Providers (ISPs) building a first-user base through modem lines followed by a larger consumer adoption through broad band. From the consumer perspective, Smart Grid adoption will follow a similar paradigm as the Internet.

Consumers considered "first adopters" will jump at HAN devices and services that provide insight to daily usage, while such applications will receive smiling yawns from the general consumer base. Whereas Internet first-adopters said "Hey, I can send an email to a handful of people who also have an email and Internet connection," Smart Grid first-adopters may say, "Hey, I know how many kilowatts I used today." Interesting, but not powerful.

As more powerful real-time applications are developed, consumers will understand usage trends, suppliers will price more strategically and generators will provide new power block products. From that, the rate of adoption will begin to grow rapidly as the value proposition to consumers builds.

A third-party software service company may not only analyze your hourly usage for the past year, which is tied to all your home power devices, but they could also pair your power usage behavior with the optimal time-of-day pricing plan in the market. At this point, consumer behavior doesn't have to change greatly because the software does the thinking and recommending, consumer peer pressure provides the initiative and adoption accelerates.

And just as Internet late-adopters said "I need an email address because most everyone is communicating that way," Smart Grid late-adopters may say, "I've got to choose a pricing plan that saves me the most money given the way I use my power."

The Smart Grid is a new frontier for IT pioneers and venture capitalists who are already lining up to invest in the next "killer app." Nonetheless, just like the Internet, the adoption cycle for the coming revolution in the energy utilities industry will be fraught with badly timed product launches and early-adopter-only products that will challenge the best skills of many projects and companies alike.