Setting the stage for smart grids

(Part one in a series on smart grids)

The smart grid market, evolving from advanced meter infrastructure (AMI), is experiencing a perfect storm of industry forces that combined make it one of the biggest opportunities for telecom service providers working with utilities and a host of other new and existing players.

Contributing to the storm are regulatory issues, public policy, market dynamics, technology drivers, rising energy demands, climate change, increasing import dependence, aging infrastructure and higher energy prices, according to analyst firm BroadbandTrends. With so many drivers, the number of key stakeholders is also steep and ranges from regulators and standards bodies to equipment vendors and technology providers to systems integrators to consumers and, of course, network operators and the more than 2,000 US-based utilities ripe for partnership.

While some utilities – especially in Europe – have been involved in the smart grid space for several years now, the movement in North America began to attract the most attention after the Energy Independence and Security Act was passed in 2007. When the government also passed the American Recovery and Reinvestment Act, offering up $4.5 billion in stimulus funding for utilities going smart, the space became financially appealing as well. Finally, when heavyweight IT companies Google, Microsoft and Cisco announced their intentions, smart grids became the hot space no company could afford to ignore.

“There is no one that will tell you that there hasn’t been awareness that utilities and the grid needs to be modernized, but certainly what’s happening with the stimulus money has helped to accelerate utilities’ decisions to implement these projects,” said BroadbandTrends principal analyst Teresa Mastrangelo.  

Venture capitalists are also seeing the promise of smart grids, with investment in energy efficiency startups growing by 168% during the second quarter of 2009, according to Ernst & Young. Cisco, which plans to launch its own end-to-end smart grid infrastructure, has predicted the communications infrastructure market will reach $20 billion annually over the next five years, eclipsing that of the Internet, while fellow network infrastructure provider and alternative-energy proponent Alcatel-Lucent believes the investment will be more like $25 billion in telecom infrastructure. This is money that will be split between vendors like Cisco and Alcatel-Lucent and the telecom network operators, according to Arthur Locke, regional vice president of utilities for Alcatel-Lucent.

“We think that the largest IOUs [investor-owned utilities] and the top five or six IOUs in the country will eventually build and own networks that are as complex and as big as some of the smaller CLECs in this country,” Locke said. “That is the scope of what they are talking about. There will be a lot of investment. We are working now on what is the size of the market, the addressable market, how fast is it growing?”

These are the questions that are driving investment by most companies today and for the utilities outside of the top five, smart grids are largely being examined as a partnership scenario. Utilities must have a communications backbone to enable any two-way communication or meter data collection, but they have the choice of building their own network, using a backhaul aggregator or working with an existing network operator to provide the infrastructure. Telcos are already making moves to be the partner of choice, often as part of a larger machine-to-machine (M2M) push. AT&T, Verizon, Sprint, Qwest and T-Mobile are among the carriers that have committed resources to studying the burgeoning market and formed partnerships with several technology providers and utilities, but they are still at the early stages of what is possible.

WHY SMART IS SYNONYMOUS WITH GREEN
Qwest-partner the Current Group provides its broadband-over-powerline technology infrastructure to utilities looking to make a smart grid play without building their own network.  Using this infrastructure, combined with Qwest’s DSL, could bring a fairly large sized utility $1 to $3 billion in benefits, according to Mae Squier-Dow, senior vice president of business solutions at the Current Group. This spans a broad range of different services and applications, but all comes back to making the grid more efficient.