Although a host of smart grid pilot projects have now been launched, several issues prevent these programmes from achieving optimal results.
Over the past 12 months there has been significant growth in the number of smart grid projects being undertaken; the prevailing industry estimate is that 90 smart grid pilots are currently in progress, with at least as many in the pipeline. The pilots have been predominantly focused in North America, Australia and Europe; however, considerable activity in South America, South Africa, China, India, Japan and South Korea is also being observed. The scope of these pilots shows the continued dominance of advanced meter reading — or smart metering. However, more smart grid projects are emerging which are focused on network optimisation.
In the past 12 months, the utility industry has witnessed smart-grid progress on two fronts: government recognition of the importance of fiscal stimulus in the transition to low-carbon and the centrality of smart grids as an enabler. Now, a new report has identified a number of issues that are preventing such pilots from reaching their full potential. Three broad trends industry have emerged:
• The rise of smart grid as an industrial imperative — Many governments are seeing smart grid and the broader low-carbon technology industry as critical to their manufacturing and knowledge economy. In East Asian economies, strategic investments are being made to develop intellectual property and manufacturing capabilities.
• The broadening of the smart grid concept to intelligent cities — the debate has also notably shifted from pure ‘smart grids’ to include intelligent infrastructure, whereby sensing and control capabilities are applied to multiple urban infrastructure systems.
• The emergence of new entrants in the utility value chain — A new breed of industry participants, such as consumer products, telecoms and retail companies, are exploring their potential roles within the industry. Disruptive business models are expected to emerge.
Are Pilots Finding Success?
The smart grid industry is expected to continue to grow, with 77% of industry respondents to a recent Microsoft survey expecting their budgets for smart grid technologies to increase over the next two to three years. However, while the industry has taken a significant step forward, it still faces a number of challenges that prevent the pilots from reaching their full potential:
• The challenge of creating strong smart grid business cases remains in environments where regulatory incentives are not reflective of the current policy agenda.
• Future legislation is uncertain and, in some cases, disaggregation of the utility value chain is increasing complexity.
• Challenges remain around security and standards.
• New technologies and pricing structures are rolled out in parallel and multiple variables lead to confusion over the pilot’s results.
• Pilots are encountering issues around consumer engagement, questions remain over how compelling the value proposition are and the quality of the customer interaction.
• A number of smart metering pilots have found difficulty in convincing the regulator and the consumer over the true benefit of their value propositions.
Although the first wave of pilots has been broadly consumer-centric, whether by choice or mandate, with some receiving negative reactions from the public, others have produced good results; in particular, those pilots that have invested significant effort in consumer engagement activities or those that have erred towards grid-centric solutions.
For example, in SmartGridCity in Boulder, Colorado, US, the grid-centric smart grid solutions have produced a 90% reduction in reactive power outages and voltage complaints and up to a 5% reduction in power demands. In conclusion, it seems that, although some pilots are on the right track and are going some way to producing the data/lessons required to reach scale-deployment, the majority still face a number of barriers that are reducing their ability to achieve their full potential.
Pilots serve a two-fold purpose in that they provide a mechanism for utilities and their partners to innovate in a lowered risk environment and gather data proving the value of such investments. They also help utilities field-test new technologies and generate capabilities that will support them in the full-scale roll-out. Lessons learned from existing pilots may be broadly grouped into four sections:
Political and Regulatory Context
Regulators and policy-makers need to create the right environment for private sector investment in innovation and capital assets. In liberalised markets, this is further complicated by the disaggregated nature of the value chain. Regulators should pay close attention to the allocation of risk and reward and develop regulatory frameworks that encourage investment and align incentives. Standards help provide certainty and increase interoperability. However, if they are applied too early or are too proprietary, they can stifle innovation.
Be clear about the test parameters. Most pilots will contain a mixture of consumer-facing and network-facing technologies. Consumer-facing pilots may confront additional challenges around acceptance and behavioural change, where proactive consumer engagement programmes can play a critical role. The creation of successful commercial consortia will become a point of competitive differentiation. Utilities will benefit from using pilots as a test bed but once technology is robust and interoperability is proven, there is an opportunity for pilots to help utilities understand what changes they will need to make to their operating and business models to maximise value. Segment consumers by behaviour, looking carefully at the three major groups: residential; small and medium enterprises; and commercial and industrial. By segmenting, utilities can develop product and service offerings that meet customer needs. Business customers are often more sensitive to price and open to innovative product and service offerings that help increase profitability.
Engage and educate consumers through outreach programmes. Utilities need to communicate messages in clear, common language; adopting new techniques, channels and incentive schemes to build trust and to explain the value proposition to consumers. The most successful pilots encourage collective problem solving in the field, eliciting and responding to consumer feedback and ensuring the skills and flexibility are in place to successfully re-engineer improvements in technology and the business process. This is particularly important in consumer-facing pilots.
Share lessons from the field. Today’s knowledge exchange remains limited. A larger, international data set with contextual data, such as customer demographics and network topology, may enable utilities to benchmark themselves more effectively and make stronger value cases. An opportunity exists for utilities to make the case for change in their own regulatory frameworks that align incentives and encourage private-sector investment.
Takeaways for Stakeholders
In the short term, lay the foundations for success. Policy-makers and regulators must create the right conditions for innovation and certainty over funding and regulatory treatment while driving alignment on standards. Utilities and their partners should develop broad-based consortia, focus on creating a stable technology platform and engage consumers.
In the medium term, stakeholders should reshape the agenda and roll-out proven technologies. Policy-makers and regulators should review the regulatory framework to align incentives and encourage private-sector investment, while the utilities should use initial data to help shape the regulatory agenda; pilot changes to the operating model and processes; share data and use simulation to make the case for roll-out of proven technologies.
Longer term, policy-makers and regulators must reward utility innovation and encourage participation of new entrants that may offer new business models. Utilities and their partners should position the value case for full-scale roll-out of technologies as the economics improve; innovate around the business model to offer customers greater value; and use behavioural segmentation data to target a greater proportion of customers with differentiated product and service offerings.
Janet Hill is the senior editing manager of the World Economic Forum, which collaborated with Accenture in authoring the smart grid report on which this article is based.