Smart Grid Opportunities Draw Attention of SPs

Martin Travers, president, telecommunications division, Black & Veatch

Martin Travers, president, telecommunications division, Black & Veatch

November 30, 2009 – It might not have gotten the attention in telecom circles that the broadband stimulus package did, but in late October the U.S. Department of Energy (DoE) awarded $3.4 billion to help improve energy efficiency with more than half the money earmarked for building and expanding smart utility grids.

As those projects take shape over the next couple of years, utility companies and their customers will start pumping out more data, which means more business for MSOs, telcos and wireless carriers. Smart utility grids are all about collecting information – lots of it – about the electrical infrastructure, from long-haul transmission systems down through distribution lines to meters and energy-consuming equipment inside homes and businesses. That data requires a network to get back to the utility and, in some cases, to third parties, such as Google and Microsoft, that are looking to make a business out of helping consumers manage their consumption.

A network also is required to send out commands that, for example, throttle back a thermostat or air conditioner when usage is high, thus reducing the utility’s need to buy expensive power on the spot market. Many electric utilities already have that capability, but it would become even more common as smart grid infrastructure is built out.

“I think there are significant opportunities for cable operators, telcos and wireless carriers in providing connectivity to the electric utility distribution network,” says Martin Travers, president of the telecommunications division at Black %26 Veatch, an engineering firm that also has business units serving the utilities industry. “It’s everything from the meter upstream.”

Smart grids also bear watching because of how they complement and compete with service providers’ home-network initiatives. For example, if a utility or a company such as Google offers to put a homeowner’s major appliances and HVAC system on a network to help manage energy costs, that infrastructure sets the stage for those companies to offer other, non-utility services, such as home security, telephony and broadband.

Some service providers already see a camel’s nose under the tent and have begun plotting their options. Thomson Connect says that over the past few months it has received several RFIs from operators about apps and services such as home energy management and home surveillance.

“The operators realized that since some people were using their broadband access to provide some home control and home automation services, it was obvious for them to enter the game and bring a managed offering under their own brand,” says Benoit Joly, product line manager for Thomson Connect. “That’s the trend driving service providers’ utility initiatives. They don’t want to become some cheap, fat pipe.”

Cutting the Cord

The DoE’s $3.4 billion is being matched by private investments, pushing the total amount for smart grids and related initiatives to more than $8 billion. Many, if not most, of the projects require a local- or wide-area network, or both.

One example of the DoE-funded projects is a nationwide mesh of sensors that will monitor the entire U.S. electric grid. Another is 345,000 load-control devices, such as smart thermostats, that will manage networked appliances such as water heaters. And Miami alone will get more than one million smart meters, connecting virtually every business and residence in the metro area. (A list of funded projects is available at www.energy.gov/recovery/smartgrid_maps/SGIGSelections_State.pdf.)

Wireless carriers such as Sprint have been selling into the utilities market for well over a decade, mainly by providing connectivity for automated meter reading (AMR). That opportunity will grow, partly because the cost of AMR modules keeps declining and partly because more wireless carriers are looking for fresh growth in the overall machine-to-machine (M2M) market.

For example, over the past few years, more carriers have begun offering data rate plans that are a better financial fit for low-usage applications such as pulling usage data from an electric or gas meter a couple of times a month. That trend means more utilities can make a business case for going wireless.

“The larger cellular carriers now see the opportunity,” says Mike Ueland, vice president and general manager at Telit Wireless, an M2M module vendor. “They’ve been stuck in the past with applying inappropriate costing models to this market.”

“They’ve been used to ARPUs in the $50s and $60s, and they just couldn’t get their arms around how to sell to a utility meter. They’re doing a much better job now than in the past.”

Scaling Up

Although a low-usage application such as AMR might not sound like a major revenue opportunity, it can be when there are hundreds of thousands of meters sending data in a single metro area. Over the next few years, additional data traffic – both upstream and downstream – will come from energy-management applications.

One example is Consert, which installs a gateway-like device outside a home or business that then communicates with networked devices inside, such as air conditioners and water heaters. The system lets customers remotely manage those devices via a Web interface, and utilities also could use the system to adjust appliance settings during peak-consumption periods.

Many utilities already offer discounts for such control, frequently using cellular-based systems. The Fayetteville, N.C., municipal utility was one of the first to trial Consert’s system, with savings of $15-$18 on an average bill of $90 – numbers compelling enough to interest many consumers and utilities.

Consert’s system has a per-message payload of only about 80 bytes. But multiplied by tens or hundreds of thousands of customers in a metro area, the traffic scales up dramatically: 400 to 800 kilobits per second per node, depending on how many homes and businesses are served by each node.

The company prefers technologies and networks that can support an average of 600 kbps. It has a strategic relationship with Verizon, including for wireless, but Consert says it would work with a WiMAX operator or MSO if its network met the service’s needs. For example, utilities typically prefer a dedicated connection to ensure that they always have uninterrupted access to managed devices – a must-have in a future where power is micro-managed to minimize costs as much as possible.

Such requirements are noteworthy because they affect which networks – public or private – can target this segment of the market.

“For example, you could leverage a DSL connection in a home, but that’s a connection that a consumer could interrupt,” says Roy Moore, Consert’s chief development officer. “Therefore, they don’t consider it very reliable for advanced metering infrastructure purposes.”

Utilities as Telecom Providers

Many utilities have their own networks, which could be used in addition to or in lieu of public nets for smart grids and other applications.

“Electric utilities typically have private telecom networks throughout their service territory,” says Black %26 Veatch’s Travers.

However, most of their capacity and connectivity is along their transmission lines.

“As you get closer to the home, they tend to have less connectivity,” Travers says.

That footprint is driven by cost: When the networks were originally built, it was prohibitively expensive to build out last-mile connections. That’s why for years utilities have turned to cellular and private networks to enable applications such as AMR. They’ll probably continue that strategy for next-gen smart grid apps rather than trying to own the last mile.

“Our perspective is that the best solution for utilities is to integrate a combination of public and private networks to optimize their combination of cost, reliability and speed needs,” Travers says. “We see most utilities not going with either-or, but some combination.”

In states that allow it, some utilities have for-profit telecom divisions. A decade ago, some of them expanded beyond leasing long-haul capacity to service providers and, after building last-mile connections, began selling telecom services directly to consumers and enterprises.

The telecom implosion early this decade scuttled many of those initiatives. One question is whether they could be resurrected to support not just smart-grid applications, but also value-added services, such as home security and telephony. In the case of electric utilities, one possibility is broadband-over-powerline (BPL) technology, which has electric lines double as broadband conduits.

“What’s been a challenge is that typically it has required a pretty fiber-rich network to get near the house and near the last transformer before you can get on the copper to handle the last-mile connection,” Travers says. “Typically that cost is not so much cheaper than other technologies, and its bandwidth capacity is typically less than, say, what a cable operator can provide.”

As a result, although an electric utility could use BPL to deliver voice and data, it might not be able to provide video, too, making it difficult to compete against triple plays from telcos and MSOs.

“It’s not such a good deal for the consumer, considering the other options they have that aren’t that much expensive and have more functionality,” Travers says.

Partnering Up

Meanwhile, a host of companies also are vying to deliver residential energy-management services. But except for Google and Microsoft, most are small companies that aren’t household names. As a result, they could try to partner with utility companies and service providers in order to leverage their brands, as well as to bundle their offerings with those of their partners.

“That’s why you see more partnerships between service providers and utility companies to bring a complete solution to users,” says Thomson Connect’s Joly. “Most of the service providers in the U.S. – DSL and cable – are working on plans to launch managed remote surveillance, home automation and energy management services. It’s clearly a trend.”

The regulatory environment in each state affects what a utility can do on its own, such as using the same pipe for smart grid and value-added apps.

“The regulatory structure will play a key role in terms of the opportunity to leverage these assets for shared purposes,” says Chris O’Connor, vice president of industry solutions engineering at IBM, which works with Consert in the smart grid market. “I think you’ll see some creative companies come up with ways to share that pipe.”

In some states, one option could be to isolate each service from the others to comply with regulations.

“You might still have separate back-end companies, but the piping is economized to use the same thing,” O’Connor says.

Service providers also could offer their partners access to existing devices. For example, a residential gateway could use a short-range wireless technology such as Wi-Fi or ZigBee to communicate with energy-management devices around the home. One hurdle: So far, no wired or wireless technology dominates, making it expensive to create a hub that supports multiple ones.

“This is still very fragmented,” Joly says.

If the residential gateway also has a cellular femtocell, it could communicate with the cellular module on the home’s gas, water or electric meter, eliminating the cost of running that traffic over the macro network.

Manufacturers of appliances and other major energy-consuming devices also must get on board by building networking and management capabilities into their products. The other part of the equation – the smart grid infrastructure – is already being deployed in California, Texas and other states that have specific requirements. Projects funded by DoE grants could roll out as early as 2010.

“Most of the companies that are successful in negotiating with the DoE and getting that stimulus finding will be deploying that equipment in 2010, 2011 and 2012,” says Black %26 Veatch’s Travers. “It’s here. Money is being spent today.”