Turning the smart metering and smart grid dreams into reality


Howard A. Scott,
Managing Director,
Cognyst Advisors
Changes in the metering industry are happening so fast that most industry observers are having difficulty keeping up with the rapid evolution. In January, the new Obama administration introduced a huge economic Stimulus Plan (1), which included massive investments in a smart grid. Just two months earlier, the State Power Grid Corp. of China had decided to deploy AMR/AMI to 170 million electricity end users, and to replace all electromechanical meters with smart meters within five years. When this news is coupled with the large project announcements from Europe for AMR/AMI, we see that the shift to smart metering has become a worldwide phenomenon.

From an industry perspective, the focus has swung from “the future” to the challenges of now doing what has already been announced. The U.S. government expects to see US$9 billion spent over the next two years in smart grid projects. The Chinese government expects to spend US$9.7 billion over the next five years on its version of smart metering. These funds have been made available with an expectation that hundreds of millions of new meters will be deployed starting now. Regulators, vendors, utilities and end-users are pushing to get their share of the new equipment before the funding disappears. We are now faced with the challenge of turning our dreams into reality, and doing it quickly.

Of course, the installation of smart meters doesn’t in itself make the grid smart. A truly smart system requires flexible new software that can collect all of this new data, couple it with a large number of other new sensors and devices throughout the grid, and extract useful information that enables a utility to operate “smart.” It is widely believed that this integration task (including the development of several new utility information systems) will be at least as expensive as the smart meter systems.

Though this discussion focuses on meters, we have not ignored the other components that have to be installed to address grid issues. However, the vast majority of these early projects will likely be on metering because a grid cannot be smart if it does not have smart endpoints.

Before these new funding announcements, a key focus of most advanced metering projects in the U.S. was on justifying the new technology in a business case. This focus has become much less important because the U.S. Stimulus Plan (1) will provide 50 percent of the funding for the units installed during the two-year funding period.

The key differentiator in a new business case is the date when a project starts. Realistically, deployment projects are rarely performed at the same rate throughout the project. If large amounts of the equipment were already sitting in warehouses, the installers still need to be trained. Typically, a team of trainers will produce new installers at a steady rate over the training period. So if five new trainees are trained each week, the utility would have five installers after one week, 10 after two weeks, 15 after three weeks, etc. Thus, the population of installers would gradually grow, and the project would ramp up until enough installers are trained, and then proceed at a steady rate thereafter. If funding is tied to installation rate, then the utilities must start their projects as soon as possible because the funding will eventually cease. Also, it is unrealistic for a utility to buy massive numbers of smart meters in advance because the unused meters must be stored, and the physical space needed for a large project can be prohibitively high.  

So the challenge now facing the electric utilities in the U.S. is to logistically manage the rapid growth of the deployments so they can get their fair share of the funding. In 2008, 9.1 million electric AMR units were installed (this author considers all remotely read meters to be AMR). Of these, only approximately 40 percent were smart meters, or approximately 3.6 million. To meet the deployment levels needed by the U.S. legislation, this number must rapidly grow to 30 million units per year.

Despite these challenges, smart metering projects are expected to rapidly get started. Regulators, utilities, vendors and ratepayers all want the utilities to get their fair share of these funds while the money is still available. The pressure will be on the utilities to ramp-up quickly. The simplification of business cases will greatly speed up these projects. Also, many of the trials that are underway will be skipped or significantly shortened – it makes no sense to trial a product that is already successfully working in several other utilities. The greatest unknown will be how to integrate the new smart metering systems with other existing systems. That work will probably be done in parallel with the meter installations so that the projects can start immediately.

(1)  The author advised The Obama Transition Team on the amount of funding to provide for smart metering in the U.S., and his recommendations were used in the Stimulus Plan.