What role will electric utilities play in the coming smart energy world?


By Harvey Michaels

“Smart energy” refers to systems for optimising consumers’ end-use needs (especially air conditioning, heat, hot water) based on weather, schedules, and time differentiated costs. Smart energy holds great potential for displacing the need for other energy resources. But what will be the ultimate delivery model: utility or marketplace? And who will control the “smarts”: utility or customer?

The US electric utility industry, regulators, and policy makers are forming a consensus on a resource strategy of smarter energy use in homes and businesses, expecting energy efficiency and demand response to create most of the new supply needed over the next 20 years with the lowest resource cost, in a manner that has inherently less risk, less lead time, and yet is more environmentally benign than other resource options.

As a key part of that strategy, there is now consensus as well for industry-wide deployment of advanced metering infrastructure (AMI), which when combined with information displays, controllable devices and time-based pricing, is posited to increase energy efficiency by providing smart energy systems for residential energy consumers. Early smart energy trials (dynamic rates with devices for control) indicate nearly 35% peak impact potential, certainly qualifying this approach as a significant resource opportunity.

However, trends point to market-based solutions eventually capturing most in-home technologies. ZigBee and Internet 0 home networks will interface with thermostats, water heaters, and pool pumps. Google, Microsoft, Blackberry and other ubiquitous applications for PCs, cellular, and home networking will bring segment specific information and controls to energy consumers.

What then, are the potential roles for utilities in the marketplace for smart energy systems, and what are the implications of these choices to the utility’s AMI system?

HAN – today’s pilots vs tomorrow’s full scale
Home area network (HAN) components are now viewed as an important element of achieving the highest peak demand savings. In the 2004 California Dynamic Pricing pilot, average peak savings were 34.5% on households with control devices such as communicating thermostats, cycling devices, and displays, well above the 12.5% achieved by pricing alone. However, technologies chosen today for pilots, as well as their customer interfaces and optimisation methods, may be quite different in a few years, and substantially more effective or inexpensive. These pilots should be viewed as simulations of the future, but not necessarily the ultimate model of the relationship between AMI, utility, and customer.

While companies in the utility HAN segment provide the convenience of a bundled solution of hardware and software, and/or a general contractor role, longer term scalable solutions will need to consider several strategic issues and market trends.

Home network gateway and/or meter network gateway?
A key question is whether home control devices will communicate with utility price and control options via public internet or through the utility’s proprietary meter network.

With the meter network gateway approach, the utility provides the meter-to-display and meter-to-control devices, and in most models subsidises them substantially. Displays are typically installed or plugged in to an outlet in the kitchen, providing basic information on metered electric use and price in real time. If the meter network is going to manage the devices, it needs to have greater bandwidth, two-way capability, and upgradeability than systems installed to date to service these needs over the next 20 years, a typical meter network system life. As a result, a meter network gateway system may have $50-200 per home additional costs for these system capabilities and devices.

The home network approach requires that utilities provide web-based services that are accessible to the customer, and if the customer chooses, directly to home devices. With this approach, the customer chooses and purchases devices over time from the electronics/appliance market. Home network components communicate through a home network router with the public internet, as do other devices like printers and computers on a home network today. The customer’s display of choice can be a home computer, or a log-in from a computer at work, or web-enabled cell phone. Programmable communicating thermostats as well as end-point controls for water heaters, pool pumps, and lights, can have a web control panel as an alternative to on-device controls.

Communication protocols being tested such a 6 LowPAN and ZigBee will use the IEEE 802.15.4 low power home network communication standard, making possible near-term adoption of the enabling technology in home wireless routers.

The primary drawback of the home network approach is that the system’s benefits are limited for the noninternet- enabled households, and as a result options under consideration today often include both home and meter network elements.

AMI must have hourly read capability but need not have two-way communications
Providing AMI to meet this objective is uniquely the distribution utility’s responsibility and opportunity. Due to the other business benefits (automated reading, outage management, remote turn on/off, revenue protection, etc.) the incremental cost for hourly read capability is small. And, the opportunity to create an effective process of customer response to price cannot occur without it.

However, because with the home network approach, appliance modulation is customer managed, there is no need for control capabilities to be built into the AMI network itself. Modulation systems only need price and weather data, and non-real time customer use information histories, which can be supplied over the internet (plus local customersuppliedeinputs and preferences). As a result, if AMI system costs are substantially higher for high bandwidth two-way capabilities (devices, head-end, MDM), these may not be justifiable costs based on efficiency and demand response considerations, considering that:

  • Meter reads, while hourly in interval, do not need to be communicated more frequently than in daily batches
  • Communications from utility-to-meter may not be justifiable based on energy efficiency and demand response (but may be justifiable for outage management and remote connect/ disconnect, and from the transformer for SCADA purposes).

AMI should have meter-to-home network communications Many AMI systems offer the option of broadcasting short interval reads directly into the home for use by consumers and their web workspaces. These short interval reads ondemand are a key ingredient for measuring differential energy use, making possible the measurement of load, and cost, of any switchable device in the home. With short interval meter data available to the home router, and then routed to a webbased application, a web audit on a cell phone display could make consumers much smarter about their energy use: the consumer walks around the home, switches loads (like lights) on and off, and sees instantly the impact of the switched load – costs per hour during peak or off peak periods, carbon footprint, etc. Then, in a manner typical of web audits, the phone display offers options for cost reduction including equipment replacements.

At the low marginal cost of $10 or less per meter often cited, it should be cost-justifiable for AMI meters to have a one-way communication capability to the consumer’s 802.15.4-based router.

Utilities should focus on web workspaces vs in-home displays
Utility internet dashboards
Many utilities have rebuilt their web customer service and call centre systems to meet key customer needs to understand and manage their energy bills. Supported by advanced modeling, these internet dashboards provide the customer with actionable information including benchmarks and personalised bill reducing strategies.

As an example, over 30% of customers are using these dashboards each year at Puget Sound Energy, with an average of 4 visits per customer, and these use rates are growing rapidly.

In a 2005 survey of 400 California dynamic pricing pilot participants, while 90% of customers reported that they understood dynamic rates, 70% of residential customers and 81% of commercial customers reported that they would benefit from additional information. Over 50% of residential customers were interested in a customised energy analysis by the utility to help them manage their costs.

The future of web vs in-home display
It can be anticipated in the future that the customer’s display of choice will connect with the internet. Web systems are low cost, flexible, and easily upgraded, promoting open, non obsolescent customer connectivity. The success being seen today by utilities with internet dashboards bodes well for the potential of web workspaces to become regularly used by a majority of customers. From today’s use rates of 30% and higher, further growth can be expected when the current information and transaction-based websites are improved generally and enhanced with control capabilities. Therefore, one can view an investment in a quality energy management web workspace today as a long term opportunity for resource efficiency, as well as a cost reducing and effective customer service platform for utilities.

Examples of utility provided web applications
With device data and control available on the web, low cost and easily upgradable web applications can perform diagnostics and provide modulation of devices based on consumer preferences, weather, and rate information. Utilities may be an early and common source for web workspace applications, but others are likely to find value in creating web systems to serve their customers, including the thermostat or device manufacturers, traffic hungry portals such as Google and Yahoo, and mobile computing for cell phones such as Palm or Blackberry.

It is hard to imagine all of the effective methods of serving the consumer, but some are obvious or already in trial:

  • Make my AC, water heater, pool pump, refrigerator use pattern smarter: A few questions in a software dialogue will help consumers choose comfort in relation to cost, and modulate equipment to better respond to time-based pricing.
  • Send me alerts: On particularly expensive days, the consumer can receive a signal and choose to pay the higher price, or for example, go out to dinner and let the home remain uncomfortable. Or, the consumer can receive notice of high bill-to-date costs, and make choices.
  • Find out what anything costs to run: With short interval meter data available to the home router and then routed to a web-based application, a web audit on a cell phone could support the consumer walking around the home, switching loads on and off, and seeing what the impact of that switched load is – costs per hour during peak or off peak periods, carbon footprint, etc. Then, in a manner typical of web audits, options for cost reduction including equipment replacements can be offered.
  • Choose the best rate for me: Rate complexity is no longer an issue with the availability of data and analysis on demand. Even if there are thousands of rates, the web routines can easily determine the likely costs and benefits, rank the options, and help the consumer choose, or choose for the consumer.
  • Make me sustainable: Most consumers are unlikely to conduct detailed analysis. Similar to the power management on notebook computers, consumers will be able to choose a theme and get a summary of the consequences: lowest cost, smallest carbon footprint, comfortable but not wasteful, etc.
  • Ok – you can shut off my water heater sometimes: The smart grid load management/demand response options can be offered as options to the network enabled consumer, and can be implemented by the utility with practically no marketing or equipment cost. In effect, the utility is offering to buy a load reduction option. The price paid to the consumer can be quoted automatically, and if the consumer is interested, they choose it.

Utilities need to prove additionality
Additionality is a term gaining prominence in the greenhouse gas policy community. As applied to AMI, additionality refers to proving resource value from a smart energy programme, as compared with what would have happened otherwise. In other words, utilities will need to show that their activities are responsible for quantifiable reductions in energy use and demand as compared with a future benchmark use, which includes impacts of price and technology changes.

If the utility’s AMI business case needs efficiency and demand response incentives to succeed, proving additionality will be key to determining the regulatory benefit. It is possible, but difficult, to construct an evaluation process that will prove that the utility’s activities were necessary to accelerate the market’s movement towards a smart energy future. Therefore, the strategy for how additionality will be measured is critical to the programme’s ultimate design. Difficult utility and regulatory agreements will need to be reached, especially if utilities move forward with approaches that work with the market.

As a result, a key objective of pilots needs to be to measure the impact and project the long term impacts. This will require rigour in research planning of treatment and control groups, measurement, and ongoing process and impact evaluations, which would not be possible with an open, unconstrained program.

Conclusion – working with market forces is best
Today, within efficiency and demand response planning, the paths forward need to be considered. The industry’s interest in considering AMI and meaningful information to customers as a resource alternative is on the right track, and should be applauded and supported.

To gain experience, without question utilities need to experiment with HAN systems that are fully deployed by the utility, but these are simulations of the future and not a good model of the actual relationship between AMI, utility, and customer.

The best case approach to a smart energy strategy recognises the need to be working with market forces as part of an AMI business case, anticipating connectivity with market-provided devices and handshaking on customer request with third party websites and customer displays.

A long term smart energy strategy of a closed meter network system and “energy desk”, although it may be easier to defend its additionality, by comparison, positions the utility industry as working against market forces, deterring the development of market-based systems. Further, while savings may be more measurable, competing with leading manufacturers, websites, and communications companies is a hard battle to win.