Electricity industry still not sure about smart grid

The smart grid study from Logica, which was published in October 2009, reveals that the electricity industry is still extremely reluctant to embrace smart grids.

It was this reluctance that stopped the supporters of the concept from making any progress when we first opened the smart grid discussion in 2004. At that time, under the previous government, there was even a reluctance to take issues such as energy savings and environmental issues seriously.

Because of the electricity network breakdowns that had taken place around that time – in particular in Victoria and South Australia – the industry’s focus was on network efficiency and reliability. It wanted to improve this by getting more control over the use of energy by its customers and this was something that could be done through smart meters, which would allow the utilities to manage energy at people’s homes. By, for example, tariffing peak and off-peak usage they had a tool to influence customer behaviour. The hundred-year-old technology used for this is based on dozens of non-compatible proprietary pieces of equipment, and it had no serious communication component. The notion of the customer becoming more interactively and personally involved with their own energy management was simply not part of its plan.

From the industry’s viewpoint smart grids would erode their revenue – as energy savings of up to 30% can potentially be achieved distributed energy would also undermine their energy business. Furthermore, distribution companies are running a regulated business, so there is no incentive for them to innovate.

So large parts of the industry don’t see any need to look at these developments within the context of smart grids. This view was also supported by the Department of Energy.

Things began to change along with the change of government in 2007. Energy-saving and climate change were among the top issues of the new government and smart grid would have to play a leading role in the management of renewable energy within the grid. The Smart Grid Australia industry alliance was formed, which included the industry’s total ecosystem: distribution companies, renewable energy companies, telecoms operators, the IT industry, management consultants, the e-car players, governments, R&D institutions and universities.

The present Prime Minister had already shown an interest in smart grids while in opposition, and he became an ally in these developments. Only when he put smart grid on the political agenda did we start to see a change within the industry. Suddenly the term ‘smart grid’ was adopted by the industry and they became involved in the discussion. The Prime Minister was certainly also influenced by the leadership taken by President Obama in the USA, who had put $4.5 billion aside within his stimulus package for smart grids. Under the leadership of people like Obama and Rudd further government initiatives (legislation) could well follow from the Copenhagen Conference in December.

However, the Logica study shows that the involvement of the industry is still half-hearted. Most power distributors don’t have a smart grid strategy in place and are still reluctant to change. They believe that they could make any necessary changes in a slower, more evolutionary way. Rather than looking at the total picture they believe that incremental changes, over time, will do the job. The words ‘sexy’ and ‘buzzword’ was mentioned in the study, indicating that some aren’t taking the issue of smart grids very seriously at all.

Interestingly, however, the message differs depending on whom you speak to in the industry. There are many people within the industry who are very heavily involved in smart grids; who are great supporters of the concept; and who are beavering away within their respective organisations. However this has not yet turned into a corporate smart grid policy supported and championed by the top people of these organisations.

The Logica study, therefore, sends out a sobering message – that a lot still needs to be done to convince the industry that smart grids are important enough for them to start developing their smart grid strategies.

The truth is that smart grids will have an enormous transforming effect on the energy utilities; they are facing similar challenges to those faced by the incumbent telcos following the advent of the Internet. Whether they like it or not, smart grids will be the infrastructure of the future and the industry will have to choose whether to become involved and take a leadership role in this development, or to wait for the Googles and Facebooks, who are now eating the telcos’ lunches.

The telcos are now complaining bitterly as they face the very serious consequences of their initial denial of the importance of the Internet when it arrived some 15 years ago. At the moment organisations like Google, Microsoft, Cisco, IBM and many others are taking smart grids extremely seriously, as are governments around the world.

On the positive side, the electricity industry at least showed support for the government’s Smart Grid/Smart City project; nevertheless most were taking a wait-and-see approach.

The future scenario looks a like a 75%+ reduction in fossil fuel use for electricity generation by 2050. This has to happen progressively, from now, and the replacement is clean, renewable energy. Some renewable energy will be large wind and solar farms connected to the grid. Others will beCO₂neutral buildings and houses connected to the distribution network. Feed-in tariffs and rules for independent players to enter the market need to be created, or developed as a result of innovation.

The electricity distribution network will remain, but it has to become smarter to handle the two-way energy. By delaying involvement in smart grids energy companies may be succeeding in preserving their monopoly to supply energy, but they are not moving with the inevitable change that all governments around the globe will drive through Copenhagen this December.

Energy companies have two options – to wait and see (‘fast followers’) and be led by others, or to embrace the challenge and be part of it. Only the latter option gives job protection, creation and satisfaction, plus growth for Australia.

On the issue of using the NBN as the communication infrastructure for smart grids, there was, at a minimum, a neutral attitude, but here also we saw many reasons for the objections that were made.

Lack of a clear understanding of the NBN project might be a key reason for this. However those within the electricity industry who do understand the benefits of this approach – 25% of respondents do have a smart grid strategy in place – are already talking to NBN Co. That broadband infrastructure organisation has a can-do approach and will most certainly look seriously at how it can best align plans with the outcome of the Smart Grid/Smart City project. The timing could fit well, as the major start of the demo smart grid project rollout will take place over a 3-year period.

However the NBN is only one of many other comms solutions available to the utilities. Service provider AusNet recently chose to use the WiMAX solution by utilising spectrum made available to them by wireless broadband operator Unwired.

Paul Budde