Courtesy of Earth2Tech, an interesting analysis of utilities’ motivations to installing smart meters. As the article notes, utilities may not really have had consumers in mind during these infrastructure deployments:
“…Two recent smart grid surveys stand in sharp contrast to each other. Respondents to T&D’s global survey believe that the purpose of smart grid investments should be to enhance electric grid reliability, and that investments in smart meters will not necessarily lead to that vision of the automated smart grid. In contrast, a Greentech Media study, published around the same time reports that the majority of the near term investments in the smart grid will be in smart meter infrastructure.
Why would utilities make investments that they themselves report will not further the goals of the smart grid? The purpose of smart meter infrastructure investment is to put in place an asset which can be amortized over a 40 year time frame. To support this commitment, utilities are making smart meter infrastructure the cornerstone of their grid-wide intelligent automation.
The Appeal of Meters
By and large vertically-integrated utilities need to go through lengthy regulatory approval processes to add generation capacity and have been facing even longer approval times as the buying and selling of power has come under scrutiny. Part of the reason that it has been difficult to add generation capacity, is because they have historically been unable to report on the how and when electricity is consumed. So it follows that they will respond to these regulators by proposing investments to measure such usage. Hence the preponderance of smart meter infrastructure projects around the world.
If there’s one thing to remember it’s this: a utility is paid to own assets. Every utility’s gross income is a function of the regulated return on an asset added to every KwH regardless of what it cost to generate it. The higher the total capital expenditure approved by the regulators, the higher the regulated rate of return permitted during the effective life of that investment. This approval is also sought only periodically.
Thus the utility naturally wants to maximize its operating flexibility by seeking to install the hardware with the broadest functionality, regardless of whether or not the economic return is necessarily well understood, and then wants to be able to use those assets to sell more electricity when the cost to generate the energy is lowest. This, in theory, will protect the utilities’ rate of return while reducing the absolute size of the rate increase required to pay for smart grid hardware.
This has created the situation of utilities making large and potentially speculative investments. Choosing the costlier solution that promises a broad range of performance enhancements i.e. automation based on meter infrastructure (AMI) rather than a previously proven (and cheap) use of technology to automate the reading of meters (AMR). The investments are speculative because there are only a handful of utilities that have applied an AMI metering solution for real time pricing for energy; outage detection; utility directed load reduction; distributed generation and line loss reduction for any significant period of time.
The path most traveled is absent, and the bulk of attention is being focused on the myriad of ongoing pilot smart grid deployments, especially in the U.S.
What Does the Emphasis on AMI Mean to Residential Subscribers?
Utilities’ decisions to make one of these AMI investments could actually lead to higher prices for customers. The ability to measure current usage can quickly be used to introduce pricing on a real-time basis, which would change the price of power throughout the day to reflect its approximate true cost. In this scenario utilities would create a way to show customers the change in pricing and the customer could choose to change their energy consumption. Consumers that ignore real-time pricing signals could end up paying more.
The second outcome of the AMI investment will be that it will improve the utility’s key quality of service and reliability. Utilities with poor reliability and quality often face considerable more public scrutiny and repeated failure to show improvement in reliability can lead to direct public utility commission oversight. AMI will enable a utility to detect if a service has been interrupted rather than waiting for a customer to call in to complain. That will lead to better outage detection and shorter outage times.
It should not then come as a surprise that the recently published Oracle survey of utility executives’ vision of the future found that the top priorities for the next decade would be a focus on system reliability and operational efficiency. And, the preponderance of business models that reward the utility to own things as well as focus on quality measurements would drive those executives to emphasize the deployment of smart meters.
However, the need to justify the size of the investment to the public and regulators has been driving utilities to emphasize use of that investment for energy efficient and demand response programs. These are green and environmental reasons that are good for the planet, but in actuality the vast majority of electricity customers have no notion of the actual impact smart metering will have.
Selling the Smart Grid!
As this Harris Poll found 63 percent of respondents were not familiar with the meaning or purpose of a smart meter. And, of the approximately 30 percent of the respondents familiar with the smart grid, half believed the result will be an increase in the cost of power.
Why then have utilities not achieved a better appreciation of the purpose of the investment and what the customer benefits from its successful deployment will be? Here, again, the Oracle survey is instructive. Few of these same surveyed executives ascribe much importance to switching to real time pricing (17 percent). Rather they anticipate the investment will give them greater control over demand (37 percent). Furthermore, few of the surveyed executives know what service improvement innovations their AMI investment will facilitate. Only 21 percent have begun a system wide deployment.
The benefits have not been communicated to the consumer because the utility does not necessarily know what the benefits will be to the consumer. This Greentech Media survey shows that 90 percent of surveyed utilities are committed to a smart grid strategy but for the most part are still in the planning to piloting phase of mostly AMI projects. This leaves little doubt there is a commitment to intelligent grid investments, but this is still in the early phases of development.”
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