Smart Grid & The New Utility

June
1

Smart Grids and the New Utility
A Maravedis Study in Conjunction with the University of Maryland University College

Authors:
Eric Ashie Leanne McAfee
Joseph Feilinger Joseph Maceira
David Gleason Paul Obi
Lucas Kimanzi Heather Samuel

Advisor:
Mead Alexander Eblan

410 rue des Recollets, Suite 301, Montreal, Quebec H2Y 1W2,

Table of Contents

I. EXECUTIVE SUMMARY ....................................................................................................... 7
 OBJECTIVE OF THE STUDY ................................................................................................... 7
 BACKGROUND ...................................................................................................................... 7
 SELECT FINDINGS ................................................................................................................ 9

II. INTRODUCTION ................................................................................................................. 12

III. WHAT’S DRIVING THE SMART GRID......................................................................... 15
 GOVERNMENT POLICIES..................................................................................................... 15
 Agency Research Projects – Energy (ARPA-E) ............................................................ 15
 Energy Independence and Security Act of 2007 (EISA) ............................................... 15
 American Clean Energy and Security (ACES) Act of 2009 .......................................... 15
 American Recovery and Reinvestment Act of 2009 (ARRA) ......................................... 16
 GROWING ENERGY DEMAND ............................................................................................. 19
 ENERGY INDEPENDENCE AND SECURITY............................................................................ 19
 REDUCING THE CARBON FOOTPRINT ................................................................................. 20
 ECONOMIC GROWTH .......................................................................................................... 20
 TECHNOLOGICAL ADVANCEMENT ..................................................................................... 21
 GRID EFFICIENCY............................................................................................................... 21
 CONSUMER EMPOWERMENT .............................................................................................. 21
 GRID DEPENDABILITY........................................................................................................ 22

IV. GETTING INSIDE THE GRID .......................................................................................... 23
 NO SMART METER, NO SMART GRID ................................................................................. 23
 OPERATING COMPONENTS ................................................................................................. 24
 SMART GRID TECHNOLOGIES............................................................................................. 25

2 Copyright Maravedis © Inc 2010 – All Rights Reserved

 COMMUNICATIONS TECHNOLOGIES ENABLING THE SMART GRID ..................................... 27
 SMART GRID COMMUNICATIONS ....................................................................................... 29
 A NEED FOR NEW STANDARDS .......................................................................................... 31
 BRAINS BEHIND THE GRID.................................................................................................. 31
 PRIVACY & SECURITY IMPLICATIONS ................................................................................ 33

V. BEYOND THE GRID............................................................................................................ 34
 APPLICATION AND THE SECURITY IMPLICATIONS .............................................................. 34
 STANDARDIZING STANDARDS ............................................................................................ 35
 TRANSITION WITHOUT DISRUPTION ................................................................................... 35
 SMART GRID AND THE CONSUMER .................................................................................... 36
 UTILITIES LEADING THE CHARGE ...................................................................................... 37

A SNAPSHOT OF SMART GRID ACTIVITIES .............................................................................. 38
 Austin Energy ................................................................................................................ 38
 Duke Energy.................................................................................................................. 39
 Dominion....................................................................................................................... 39
 Pacific Gas and Electric Company (PG&E) ................................................................ 40
 San Diego Gas and Electric Company (SDG&E) ........................................................ 40
 Xcel Energy ................................................................................................................... 41

VII. FROM HOMEFRONT TO CITYSCAPE ........................................................................ 42
 RATE PLANS ...................................................................................................................... 42
 ASSOCIATION OF HOME APPLIANCE MANUFACTURERS (AHAM) ..................................... 44
 SMART APPLIANCES AND INNOVATIONS ............................................................................ 45
 PROGRESSIVE CITIES.......................................................................................................... 45
 Austin, Texas ................................................................................................................. 45
 Boulder, Colorado ........................................................................................................ 46


VIII. SMART GRID CHALLENGES AND OPPORTUNITIES........................................... 47
 INTEROPERABILITY STANDARDS ........................................................................................ 47
 FUTURE PROOFING UTILITY SYSTEMS ARCHITECTURE ...................................................... 47
 RE-DEFINING UTILITIES BUSINESS MODELS AND INCENTIVES ........................................... 48

IX. THE NEW BUSINESS OF UTILITIES ............................................................................. 49
 OPEN PLATFORM ............................................................................................................... 49
 OPEN SOURCE .................................................................................................................... 50
 REAL-TIME ENERGY DATA ................................................................................................ 50

X. THE GRID AS A COMMUNICATIONS NETWORK ..................................................... 52
 APPLICATION AND SOLUTIONS DEVELOPMENT .................................................................. 52
 HOW ARE CARRIERS REACTING? ........................................................................................ 54
 AT&T............................................................................................................................. 54
 Verizon Wireless ........................................................................................................... 55
 Sprint ............................................................................................................................. 56
 WIMAX AND THE SMART GRID ........................................................................................ 57
 COMMUNICATIONS VENDORS GIRDING THE GRID ............................................................. 59
 Airspan .......................................................................................................................... 59
 Alcatel-Lucent ............................................................................................................... 59
 Alvarion......................................................................................................................... 59
 Cisco ............................................................................................................................. 59
 Motorola ....................................................................................................................... 59
 OPPORTUNITIES AND THREATS ........................................................................................... 60


XI. CONCLUSIONS & RECOMMENDATIONS................................................................... 62
o M2M Transaction & Billing processing ....................................................................... 62
o Monitoring facilities, outages ....................................................................................... 62
o Work order management inventory .............................................................................. 62
o Customer information relay .......................................................................................... 62
o Transmitting data/information sharing ........................................................................ 62
o Communications platforms ........................................................................................... 62
o Data aggregation backhaul .......................................................................................... 62
o Customer connectivity ................................................................................................... 62
o Meter connectivity ......................................................................................................... 62
o Back-up / redundant connectivity ................................................................................. 62
 ROLE OF THE AMERICAN RECOVERY & REINVESTMENT ACT OF 2009 .............................. 63
 RECOMMENDATION: CONSUMER EDUCATION ................................................................... 65
 RECOMMENDATION: STANDARDIZATION HARMONIZATION ............................................... 65
 RECOMMENDATION: BUILD ON SUCCESS, LEARN FROM FAILURE ...................................... 65

XII. REFERENCES .................................................................................................................... 67


“We need a new industrial revolution.”
• Steven Chu, U.S. Secretary of Energy.

Copyright © Maravedis Inc. 2010

Select Questions Answered In “Smart Grid & the New Utility”
1. What does the ‘Smart Grid’ mean and how is it defined to different stakeholders?

2. Why is a ‘Smart Grid’ important, and what are its key drivers, trends, opportunities and
obstacles?

3. What government policies, agencies, and regulations are helping drive Smart Grid efforts?

4. What AARA funding programs are available?

5. Who are the key operatives behind Grid policy today?

6. What makes the grid ‘smart’? Maravedis peels back all the components, from AMI to ADO,
ADM and AAM.

7. What technologies are important for deploying Smart Grid infrastructure and solutions?

8. Where do communication technologies and wireless come into play?

9. Which utilities are most progressive in their Smart Grid strategies, and why?

10. What do Smart Grid solutions look like, today and tomorrow?

11. Who are the key players leading the charge in grid intelligence?

12. How are communication and wireless carriers engaging the Smart Grid marketplace, and
what value can they bring, notably in 4G, WiMAX, and LTE developments?

13. How will electricity pricing look in the wake of smart metering, and to what extent can
utilities learn from mobile communication operators?

14. What are the privacy and security implications, and how are they being addressed?

15. Can the Grid ever become the new communications network, cutting a swath between the
Cable versus Telco duopoly feeding Internet, TV and telephony to today’s households?


Executive Summary

The American Recovery &
Reinvestment Act of 2009
(ARRA) allotted $11 Billion for
upgrading the U.S. electrical
infrastructure ‐ and the first
down payment of $3.4B was
announced in October 2009 to
equip electrical systems with
smart meters and sensors.

This study analyzes how new advances in digital, wireless and information technology
can spear‐head improved services and efficiencies in the electrical grid, and provides an analysis
of key drivers, leading players, emerging applications, new devices, and the role of the
regulatory arena.  A key focus will be how telecommunications carriers and wireless
technologies can both benefit from and help enable Smart Grid initiatives ‐ with a particular
spotlight on the implications for Electric Utilities and their consumers.

 Background
We are collectively encumbered by an electrical grid based on century‐old technology
and a 50‐year old infrastructure.   Over the past couple of years, Maravedis has witnessed an
increasing number of its customers peeking under the utility hood to get better involved in
emerging Smart Grid initiatives.  Hence, we’ve joined up with graduate students at the
University of Maryland University College to canvas the Smart Grid landscape, talk to industry
leaders and essentially study “Smart Grids and the New Utility” to get a clear understanding of
what ‘Smart Grid’ means to its growing community of interested parties – particularly carriers
and telecom vendors.


Where does the ‘Smart Grid’ rest among company priorities? What are the key drivers,
technologies, obstacles and trends impacting its deployment?  Where does wireless and
WiMAX have a play – and who are the utilities, telecommunication operators, solutions
providers, and vendors leading the charge?

Moreover, how is the ‘consumer sphere’ reacting and what can they expect regarding
new features, functionalities, services, and pricing models as intelligence gets baked into the
Grid from generation to transmission, and distribution to the home?

What we’re finding is electricity is indeed seeking a ‘new normal’ – a Smart Grid that will
transform electricity as a commodity and fully realize the Grid’s real capacity as a modern
infrastructure.  Vendors that can provide solutions for real‐time monitoring, data aggregation
and consumer feedback get to the front of the line, because the New Grid will reward
conservation versus consumption.

Today’s electrical power grid currently provides 99.7 percent reliability. Unfortunately,
the remaining 0.03% of the time outages occur costs the economy an estimated $150 billion
per year, according to the U.S. Department of Energy. This fact, along with the need to meet
growing energy demands, mitigate carbon emissions, achieve energy independence,
accommodate renewable energy sources, and shift consumer behavior towards conservation,
have all contributed to a sense of urgency for building intelligence into electricity grids
everywhere. In the U.S, the federal government has kicked this effort into gear starting with the
introduction the Energy Independence Act of 2007 (EISA), the American Clean Energy and
Security (ACES) Act of 2009, and the American Recovery and Reinvestment Act of 2009 (ARRA)
stimulus.  It’s important to note, though, that California’s Assembly Bill 32 (AB‐32) more
formally known as the California Global Warming Solutions Act of 2006, aimed at reducing
greenhouse gas emissions  included the introduction of residential Smart Meters in the 73
different line‐items of its scoping plan.  And thirty years prior to AB‐32, Amory Lovin’s seminal
1976 article on “Energy Strategy: The Road Not Taken” had explored the need to upgrade our
electrical system to increase energy efficiencies.

The Smart Grid changes the electrical industry’s entire business model, and introduces a
decentralized model with greater consumer‐utility interaction. It brings the philosophies,
concepts, and technologies that made the Internet possible to the electric grid, providing a new
platform enabling two‐way digital communication and plug‐and‐play capabilities.

Cities across the nation will undoubtedly endure the brunt of the changes; however two
in particular, Austin, Texas and Boulder, Colorado, have taken a lead in the implementation of
Smart Grids. Additionally, with truly innovative techniques and key initiatives to ensure
adherence to government regulations, utilities such as Austin Energy, Duke Energy, Dominion,


Pacific Gas and Electric Company (PG&E), San Diego Gas and Electric (SDG&E), and Xcel, have
begun to pave a path for other utilities to follow with regard to Smart Grid installations.

This transformation will not occur in a one simple upgrade, but instead a total revamp
with 21st century infrastructure, to include metering and communications technologies. It is a
promise of a new way of reliably delivering the energy at the lowest possible cost and more
efficiently. Fostering the grid is not only one of industry's largest opportunities, but it will be the
most important turning page in the history of household energy since the U.S. Civil War forced
a switch from whale oil to coal in lighting the night sky 150 years ago.

 Select Findings
A major ingredient of any Smart Grid effort is efficient communications between the
various stakeholders involved in the generation and delivery of electric power – power plants,
power marketers, transmission systems, local power companies, and ultimately the end‐user.
Open standards and interoperability ‐ rather than proprietary technologies ‐ will be crucial to
effective, widespread use of the Smart Grid, and better enable the Grid to integrate new and
innovative devices and energy applications we simply can’t imagine today.

What Maravedis has learned from interviewing network equipment manufacturers,
utilities companies, wireless vendors and carriers?

 Standards. New levels of standards protocols need to be agreed on, from device to
network, and especially across utilities (IOU, Muni and Coops, all who are regulated
differently) – driving the need for ‘utility‐agnostic’ devices

 New Modes of Management. While most of the Smart Grid focus is on 'micro‐energy
management' within the household, the onslaught of Plug‐in Hybrid Electric Vehicles (PHEV)
will require new macro‐energy levels of management

 Spectrum. Use of licensed spectrum is preferred over unlicensed, placing WiMAX at an
advantage for wireless smart meter communication and the backhauling of aggregated
usage data

 M2M.  Wireless carriers see Smart Grid initiatives helping drive machine‐to‐machine (M2M)
services.  Like the Kindle and the iPAD, smart meters offer new opportunities in monetizing
3G wireless services


 Carrier Services. Will utilities ultimately emerge as a new breed of carrier after embracing IP
technologies, wireless access and intelligent 2‐way devices?  The consensus is ‘no’ – but we
uncovered some interesting examples of electricity coops rolling out triple play services that
include Internet access, television and wireless solutions.

 Government. The government’s role is paramount in moving Smart Grid initiatives forward,
due to the enormous costs, complexity, standards, and regulation needed. The $3.4 billion
in stimulus funds announced in October 2009 targets adding 1.8 million smart meters and
200,000 advanced transformers across the U.S.

Challenges
The universe of interested stake‐holders circling the Grid makes for an eclectic array of
seemingly non‐related challenges.  Key challenges discussed in the report include:

 Interoperability Standards:  New devices coupled with new applications and an upgrade to
two‐way, IP‐enabled metering opens a Pandora’s box of issues regarding communication,
encryption, security, privacy and the transmission of usage‐related data. Will an open‐
platform and open source applications render our Grid less secure?

 Infrastructure:  How to future‐proof the next‐generation of utility systems architecture,
when you’re tethered to the Net and deploying meters that operate only in certain
spectrum, using wireless technologies that may be surpassed at speeds utilities have yet to
experience?  Will we need to change our electricity meters at the same rate as we replace
our mobile phones someday?  The most revealing thing about ‘infrastructure’ is human –
the U.S. has a dearth of capable IT and engineering talent.

 Smart Meter acceptance:  The major challenge for utilities will be how to best position
smart meter deployments in the marketplace.

 New Business Models: Energy rates will need to change to encourage conservation, and
one of the capabilities smart metering provides is the ability to ‘time‐shift’ electricity usage
to take advantage of non‐peak hours. Maravedis clearly expects electricity bills to go down
– yet energy rates to rise.

 Marginalizing the Grid:  Smart meters are an extension of net‐meters.  While not all net‐
meters are ‘smart’, all smart‐meters will have net‐metering capabilities – wherein homes


taking advantage of alternative energy sources are able to ‘run their meter forward’.
Growing awareness of this, coupled with newer, less expensive options for ‘going off the
grid’ (e.g. Nanosolar panels, Bloom boxes, backyard windmills), will create pockets of utopia
where any upgrading of the Grid at the distribution point is simply not as significant.
Indeed, despite all the chatter about ‘smart meters’ being phase one of a more intelligent
grid, the real challenge is not at the household ‐ but along the transmission lines. So much
power is lost in transit that investment is more urgently needed for infrastructure efficiency
than for replacing household meters.

 Communication Technologies.  Smart Grid initiatives are lighting the fire under carrier
machine‐to‐machine (M2M) sales, yet the jury is still out on which wireless technology will
reign supreme.  Moreover, most smart meter roll‐outs have been in secondary markets
involving small clusters of trial users.  Meanwhile, broadband‐over‐power line (BPL) claws
back out of the grave, mesh networks battle it out with WiMAX, and LTE lurks in the future.
The Grid will need to embrace open‐standards and a homogenized communications
infrastructure for it to truly be ‘smart’, but the marketplace remains a cacophony of
competing communication technologies.

 Consumers. A Smarter Grid will turn the utility business model inside‐out, but will smart
meters create smarter consumers?  Do consumers really care to micro‐manage their
electricity usage?  There is a populist back‐lash against smart metering trumpeted by
notions of higher rates, horribly‐managed roll‐outs, ideas of big brother hovering, and who
will own (and get to utilize) the volumes of near real‐time usage data.  Smart metering is
only the start to the Smart Grid transformation, and if its value isn’t properly communicated
then household, township, state‐wide and nationwide economies will end up being the
largest challenge to Smart Grid initiatives.

Research Methodology
Maravedis teamed up with graduate students in the Telecommunications Management
program (TLMN) at the University of Maryland University College for two capstone studies on
Smart Grids and their impact on Utilities and communications Carriers/Vendors.  Student
research included surveying and interviewing a number of key players in the equipment vendor,
electrical utility, state and federal regulatory, and telecommunication carrier space.


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