Grid IT – where energy meets communications


By Paul Budde

In September 2008, the author spoke on behalf of Smart Grid Australia at Gridweek, the world’s biggest smart grid conference which was attended by over 700 delegates. The conference was organised by Gridwise USA, the big sister of Smart Grid Australia, and was co-sponsored by the US Federal Government. There was widespread agreement at the conference of the need for smart grids; however the regulatory system and the risk adverse electricity distribution structure were seen as hampering a more rapid deployment. This is creating opportunities for other telcos and companies such as Google and Microsoft to enter this market. Energy and comms technologies offer a powerful coalition that could lead to an energy/comms revolution, resulting in unprecedented new opportunities that will benefit the planet, save energy and thus lower costs and create new business opportunities.

In both Europe and the US there is increased awareness of the importance of smart grids. While some initiatives predate the emergence of climate change issues, it is fair to say that environmental issues are now driving these developments.

People worldwide are noticing the effects of climate change, as each new report paints a gloomier picture – even the sceptics agree that there is no harm in addressing the issue.

Environmental economist Jeremy Rifkin, advisor to several European governments, also addressed the conference. Mr Rifkin stressed that, apart from energy reduction for environmental reasons, we are also facing a decrease in the fossil fuels that are currently driving our economy. This in turn will necessitate the world being more efficient in their usage of the remaining fossil resources.

The full implementation of an alternative system could take 50 years or longer – depending on the various environmental and economic developments over that period – however, there was little argument at the conference that we do need to start now.

The European 20-20-20 rule makes a lot of sense. They aim to simultaneously:

  • Increase renewable resources by 20%
  • Reduce carbon emissions by 20%
  • All by 2020
Year Investments US$ (billion)
2006 $90
2007 $150
2020 (e) $250
2030 (e) $460

Table 1 – European Investments in renewable energy – 2006 – 2007; 2020; 2030
(Source: UK and German Government sources)

Smart grids can provide the all important energy infrastructure backbone and distribution network that is required to facilitate a total new set of processes and systems needed to underpin this massive energy restructuring development.

While fossil fuels might be available to us for quite some time, prices have been rising and the product becoming scarcer at a time when there is unprecedented new demand from emerging markets. It is therefore highly unlikely that in the long term these prices will drop. This indicates that these fossil energy resources will become increasingly unattainable by people in less developed countries, and the gap between demand and affordability will only increase. A third of the global population has no access to electricity.

Therefore, as energy is such an important factor to the economy, these developments will cause severe problems.

We have already noticed how the increase in the price of energy has had a significant impact on food prices. If we don’t start using alternative energy sources we will begin to see either environmental battles to protect the already vulnerable natural fossil resource, or political instability even leading to military intervention. It is clear that for several reasons we need to urgently include alternative energy products in the total energy mix.

The good thing is that energy and comms technologies offer a powerful solution to these issues. If pressure is applied there are also plenty of business opportunities which could result because clearly there is great interest in energy – “energy is sexy”, as the Gridwise chairman put it.

As fossil energy sources are increasingly restricting new social and economic developments, a whole new economy can be built around a combined energy/comms revolution.

From the many discussions Paul had with representatives from the US, Canada and Europe, it was clear that the structure governing the regional electricity distribution network is failing. People are now requesting changes to this rather outdated structure which are increasingly being supported by politicians (especially in Europe and the USA) who are jumping on the ‘energy revolution’ bandwagon.

It will be these energy customers who will be required to pay for the inevitable increase in the price of energy, so therefore they should have some say in these developments. Their active participation in the energy process can be facilitated through the development of smart grids.

The regional energy distribution companies who dominate this market do not have national responsibilities and are only one link in the chain. So the current lack of action is caused partly because by the regional nature of their activities – they are not driven by national issues such as climate change and CO2 footprints. However, while they do have an interest in energy savings when they experience peak demand disasters, leading to severe outages, their involvement is driven by kilowatts problems and not by carbon footprints issues.

Many of these energy companies attended the conference and also made presentations on their activities, but on closer examination most of them remain stuck in pilots and trials and very few have any firm plans for a total overhaul of their network. Nevertheless there is widespread acceptance and recognition in the industry that smart grids are essential. There is no discussion about if they are needed – only discussion about how to make it work.

One of the main problems so far has been that there is little regulatory incentive for distributors to go beyond smart meters (often – especially in Europe – rather dumb meters!). Because of regulatory constraints and their risk averse nature, their interest is more in remote meter reading and remotely activating energy controls to limit energy use or to switch off certain appliances in the event of a peak demand crisis.

The sheer size and complexity of the bureaucracy involved can be rather overwhelming. There are 51 regulators covering the electricity market in the USA, and 24 in India. They all need to be convinced that the spending on smart grids can be justified.

Developments in Europe, especially in relation to ENTEL, Italy and EDF in France are covered in a separate report, see: Europe – Smart Grid Developments – 2008

The wireless Zigbee technology seems to be the most favoured communications element of the first generation of smart grid applications. This makes a lot of sense as this technology provides an “air-gap” between the electrical systems and the electronic network, and therefore minimises many safety issues that are always a major part of any electricity infrastructure deployment.

However, it does not take into account the effects of an energy revolution, and once this is unleashed many more end-user energy control and management applications will be developed. This will almost certainly lead to an increased demand in comms capacity, very similar to the increase in demand of processing power in the IT industry, and for broadband in the telecoms industry.

Perhaps the biggest revolution will be that of distributed energy generation. This is needed both from an environmental aspect as well as from a fossil fuel saving angle. This development will totally change the nature of the distribution companies and their networks.

Part of the energy revolution will require a modernisation of the industry jargon. BuddeComm prefer to start using new terms such as “User Generated Energy” rather that distributed energy. On that topic we also would like to introduce EX (Energy Exchanges), similar to Internet Exchanges (IX), highlighting the change in nature of the distribution networks.

Overall, people understand very well the need for energy reduction and efficiency. Wherever alternative energy schemes are developed (mainly wind generators and solar panels), we see that the end users who are becoming part of the production process are rapidly exceeding the targets set for these new forms of energy generation. Europe is clearly leading the way here. The public is very aware that we do need alternative energy sources and a significant part of the population is willing to participate in generating this energy. In Germany alone the renewable energy industry is already worth more than €25 billion per annum, employing over 200,000 people.

There is also rapid growth in businesses deploying alternative energy sources, for example by installing solar panels on factory roofs, distribution centres, shopping centres, etc. Europe and California are the most advanced in this respect and have many life projects – in contrast to the pilot mania that is happening in the electricity industry.

Another element of UGE is the increasing availability of ‘plug in’ electric cars. With smarter materials cars will become significant energy generators and this energy can also be fed back into the grid.

It is worth noting that once affordable UGE systems are developed, they can be deployed in emerging market as well as in developed markets. This will greatly assist the economies and the lifestyles of the people in these nations; all in a far more sustainable way than is possible with the ‘elite’ fossil sources, which are only affordable by the ‘elite’ nations.

When this movement begins to happen, we will see a globalisation process which starts from the bottom up, and as such will therefore be far more sustainable.

Exhibit 1 – Masdar City – Abu Dhabi

This new city on the Gulf will accommodate 40,000 people and provide work for another 50,000 commuters. Over US$24 billion over 8 years will be invested to create a carbon neutral, waste neutral and energy positive community. It includes intelligent buildings that generate wind and solar energy. This energy will also ‘fuel’ a revolutionary public transport system – cars will not be allowed in the new city. Because of the desert environment, 78% of all energy will be based on photo voltaic energy (rooftop panels). The other 22% will be provided by five other renewable sources. Through building design alone 70% of energy savings are expected to be realised. All waste will be recycled into energy.

The city will be built in four phases and each one of them will have its own mini smart grid. The grids will all be interconnected during the course of the project.

The city is asking for international collaboration. It will also host a university and R&D institute dedicated to the new sciences that are involved in its establishment, and they also aim to become a net supplier of scientists in this field.

Interestingly this leading world initiative is being taken by an oil state (60% of national income is derived from oil).

The developments will be supported more and more by people who want to see faster action than what the energy companies are delivering. Once the people are empowered we only have to look at the Internet to see what can happen and how quickly developments can move.

For this to be achieved it is essential that an energy democratisation process based on open networks is established that allows for affordable user participation.

Obviously the network needs to be able to manage and monitor these activities. UGE will be generated on mini grids and they need to be connected into the national and increasingly regional/ international grids. End users will also want to share energy with others, make selections about their energy sources within the grid, etc. Interconnection becomes critical and we only have to look at the telecoms industry to see what happens if this is not properly (self) regulated.

Smart meters will be the critical gateways in this process.

The only way to handle such a large number of transactions will be to have a smart grid that operates more like an Energy Exchange (EX).

These issues need to be incorporated when designing smart grids, and this might require a higher level of comms and intelligence that is currently planned for the first generation of smart grid concepts.

Because a total transformation of the energy business process will be required to maximise the full potential of smart grid, it is essential that direction is provided at a higher industry level, as well as at a national government level. Reoccurring figures at the conference included:

  • The electricity industry accounts for 35-40% of national CO2 emissions
  • Smart grids can save energy by 15-25%
  • Buildings consume up to 30-40% of all energy.

It is highly likely that without clear government direction, processes will be slow and the smart grids developed might not necessarily be the most efficient and effective. Individual energy companies are notorious for finding reasons why their deployment needs to be different from others; mainly because of – unlike in the IT and comms industries – there never have been international standards that applied to the electricity industry. This is probably the key reason where there are so many pilots all testing the same from slightly different angles.

Exhibit 2 – Is this a case of market failure?

  • Current developments are not very efficient in relation to standards, pilots and regulations
  • Solutions currently pursued might lead to higher than necessary costs in both comms and electricity network management
  • Innovation and evolution is hampered in the current environment
  • There is very little consideration for the needs of the end-user.

In the USA there certainly is more government awareness and support for smart grids. It has become a term that is now widely used by politicians – even if they do not necessarily know exactly what it means.

The Gridwise Alliance calls itself a ‘movement’ and that is an indication of its mission. Smart grids are mentioned in legislation, funding, and R&D projects. While there is still a long way to go, the ‘movement’ is certainly catching on.

There was also strong consensus that a smart grid would provide benefits well beyond smart meters. New applications can be made available to consumers either for free, or for a fee for energy monitoring, use of alternative energy, generation of alternative energy and feeding back into the grid.

During Gridweek Cisco and Sun Microsystems launched their Smart Object Alliance, aimed at stimulating and facilitating developments that will see that devices that will be linked to the comms and energy grids will be IP enabled. Also Google and GE Power launched their smart grid plans.

A smart grid based on a visionary approach, with support from regulators and government, could easily be development and funded from the cost savings which can be achieved.

Both in the USA and Canada, deregulation of energy and telecoms have resulted in bundled offers. In Ottawa, Canada, a test will commence combining fibre-to-the-home networks (FttH) with smart grid applications, and energy saving generated by consumers could be rewarded by a lower price for their broadband use. BuddeComm remember such a plan was floated some time ago by Bill St. Arnaud, director of CANARIE project – using the carrot rather than the stick approach.

Belgacom, the incumbent telco operator in Belgium, is also looking at becoming a smart grid player.

Verizon Wireless in the USA is offering an ‘open network’ facility for machine to machine (M2M) applications, mainly targeted at the utility applications. They are certifying products, including smart grid devices that can be used for monitoring and management. All these initiatives could of course potentially undermine the opportunities utilities have to offer those services over their smart grids.

So while more innovation can be expected from energy retailers, there was at the same time a rather gloomy view at the conference on any proactive involvement from them in smart grids. Nevertheless there was a lot of discussion about their role in all of this – in the USA and Canada many of these companies are involved in bundling gas, water, electricity and telecoms, but successes are mixed.

Smart Grids could certainly assist these retailers to improve their sales and marketing opportunities. But it is a chicken and the egg situation here. Without smart grids there is nothing they can offer, and they are totally dependent on the regional distribution companies for the deployment of this smart grid infrastructure.

Nevertheless, in the USA some 600,000 customers are already selecting alternative energy products from their retailers, made possible by some ‘version 1’ smart grid roll-outs.

There were also suggestions that smart grids would not necessarily be in the interests of the distribution companies, as this could potentially mean a hand over of certain controls to other parties. This attitude was very similar to the vertical integrated telcos protecting their vested interests in their traditional business. This resulted in them trying to stop the Internet, which in turn gave rise to the 20,000+ ISPs that are now operating around the globe, in direct competition with the 200 or so incumbent telcos.

It was argued by some presenters at Gridweek that a similar level of competition is needed to get smart grids moving forward.

Australia is one of the global leaders in structurally separated energy infrastructure. However many countries still operate large vertically integrated utilities from generation to retail.

Exhibit 3 – Energy market deregulation in Australia

Branch Privatisation Characteristics Issues
Generation 50/50 govt/private 81% coal – no nuclear peak power capacity issues
Transmission govt owned – regulated east coast connected limited interconnectivity
Distribution 50/50 govt/private largest 1.5 million customers some more rationalisation to occur
Retail 70/30 private/govt largest 3 million customers – national 10 years open competition
Gas private ownership national network  

The other sister organisation – Smart Grid Europe – presented their views on other industries who are encroaching on what has traditionally been a utilities market. We have mentioned some of the telcos above, as well as companies such as Google and Cisco. Microsoft is also active in this field.

The smart grid movement certainly opens the way for involvement by the consumer electronics and the computer, software and applications industries, and there is no doubt that this will start driving innovations.

Canadian representatives also suggested that telcos could offer energy applications by using a reverse smart grid option. Through broadband power line applications such as Homeplug, they could offer home energy management and monitoring services linked to the Internet. Some software companies argued that legislation could be required to ensure that the distribution companies would not misuse their vertically integrated powers to stop others from offering smart grid applications.

Using traditional telecoms networks for smart grids is complicated. Special safety devices and isolators are required if the two networks are to be interconnected. Specialised (and often unionised) staff would also be required to enable any interconnection between the two systems, and this would then drive up costs.

The most likely outcome will be that over the next five to ten years smart grids will comprise many of the elements mentioned above, with a range of participants also contributing. Towards the end of that period rationalisation and consolidation will slowly result in more standardised smart grids, and by that time we also will have figured out what can and can’t be done with these networks.

As somebody mentioned, it is no longer a question of infrastructure, but rather one of interstructure; requiring a system of interdependency. Within that framework, “telecom” versus “gas” versus “water”, “electricity” etc, seems small-minded. It is obvious that this period of transition will require cross-industry cooperation and collaboration. That is what organisations such as Gridwise, Smart Grid Europe and Smart Grid Australia are all about.

For more information, see separate reports: 

  • Australia – Smart Grid Australia;
  • Europe – Structural Separation Developments – 2008; 
  • Global – Broadband – Regulating Fibre Access;
  • Global – Infrastructure – Strategies for the Digital Economy;
  • Global – Investing in the Communications Revolution; 
  • Global – Smart Grids – Energy & Environmental Issues – 2008; 
  • Global – Smart Grids – Overview 2008; 
  • Global – Smart Grids and the communications revolution; 
  • Global – Utilities Broadband – HomePlug and Demand Side Management; 
  • Global – Utilities Broadband – Trends & Analyses.

For information relating to: 

  • Global Overviews; 
  • Technical information relating to the telecommunications industry, see: Telecommunications Technologies Library.

For more information, see the following separate reports on