Not the Lead Dog? Get Used to the View

"Audentis Fortuna iuvat"

(Fortune favors the bold)

-Virgil

Last week Andy led with his thoughts on the risks to the organizations who are acting as the sharp end of the stick as the Smart Grid begins to expand and mature. There is a long tradition of danger for these early movers, whether the front row of sarissa carrying soldiers in Alexander's army, or the unhappy few searching for new titles on their Discovision LaserDisc players.

That said, some upfront thinking and informed planning with built-in checkpoints can make "early mover" a winning proposition, not a eulogy. Not all pioneers take the arrows. Some get the land.Andy notes that the SGIG winners may find themselves regretting their good fortune, as the influx of Government funding for shovel-ready projects is driving the installation of tens of thousands of meters, none of which can possibly have met the federal standards for such meters, since those standards don't really exist yet. Last Wednesday (January 20, 2010) NIST released the first non-draft version of their Interoperability Guide, and which tried to make more manageable the release of a wide variety of standards with which it was charged:

Some are needed more urgently than others. To prioritize its work, NIST chose to focus initially on standards needed to address the priorities identified in the Federal Energy Regulatory Commission (FERC) Policy

Statement, plus additional areas identified by NIST. The eight priority areas are:

• Demand Response and Consumer Energy Efficiency
• Wide-Area Situational Awareness
• Energy Storage
• Electric Transportation
• Advanced Metering Infrastructure
• Distribution Grid Management
• Cyber Security
• Network Communications

These guidelines are providing adopters with plenty of direction for the likely coming regulations, and every syllable (there are many and we will do some more overviewing for this audience soon), is articulating the siren song of reduced likelihood of stranded hardware, incompatible systems, and inappropriate security.

So much of this early growth within the Smart Grid community was already foreseen and planned, I think that the idea of waiting interminably for more data is an overly conservative strategy. To my viewpoint, much of the SGIG funding is the government writing checks to get out in front of a parade that is already moving. Looking for "Shovel-ready" projects is a way for the government to locate initiatives that had already been thought through, that were likely already justifiable from simple cost-savings on labor and system downtime, and which were unlikely to be anything particularly ground-breaking or risky. No bureaucrat is ever looking for the headline, "SGIG Tax Dollars Burnt to Heat Up Smart Grid Market".

For those who have intentionally hung back, I would encourage a little more briskness in their steps. There are risks, as well, to being overly cautious:

• There truly is a land grab ongoing in the leadership space for Smart Grid adoption, and/or
• There are appreciable cost-savings one can see today with AMR/AMI implementations, and/or
• The standards to come will likely be generated from the experiences of those actually moving the Smart Grid forward, therefore naturally favoring them

Waiting for the decisions to be made and for the risk to be gone may be comfortable, but it is unlikely to spell success for organizations and leaders who take the easy way out.

img thanks to letmakerobots.com

Smart Meters as Rough Yardsticks

In reading through the successful Grant recipients from the Smart Grid Investment Grant Program, it was interesting to make a couple of notes:

1. Smart Meter Roll-out
   

   In the FERC's Demand-Response Paper from September of 2009, the number of Smart Meters currently implemented is roughly 8 million. Looking at the total of the specifically identified smart meters implemented as a result of successful SGIG requests, that number is now funded to get to a total of 18 million with the SGIG funding. That means that the SGIG will carry smart meter deployment to more than 20% of the FERC demand response projection of 80 million meters by 2019. Let's hope that the meters are chosen correctly.

   Per-Meter Costs
   There is enormous variability in the costs of the smart-meter roll-outs as described by the various grants. This is understandable in that the number of meters is only one criteria of many of these proposals. For some, these are an initial effort, for others they are scaling existing investment up. The meters, though, do loosely equate to the public involvement (connected by meters) that the SGIG is attempting to accelerate. As such the range and variety are worth noting.

   • 79% of grants expect associated costs of < $500/meter
   • 18% of grants expect associated costs of $500-$1000/meter
     
   • 2% of grants expect associated costs of $1000-$2000/meter
     
   • 1% of grants expect associated costs of >$2000/meter

So what does this tell us?
The information is pretty scant in the released SGIG award documents, but there are some insights, if not actual conclusions, that can be drawn from it.

1. Its about Usage
   According to the rudimentary data that is provided, Smart Meter-related projects are consuming by far the largest section of SGIG funding, and at least 85% of the total investment (SGIG and Utility/Vendor) expected for these projects. There are mentions of accommodating other energy sources, but the projects seem pretty focused on how power is consumed, and how that consumption is measured, as opposed to how it will be generated and distributed.


2. There is No Clear Standardization of Direction
   While these grants are providing the impetus for some organizations to begin work on Smart Grid infrastructure, the sheer size of them make the investment much more about rapidly scaling that adoption. Given that, and given the need to maintain stability in power, the projects themselves seem to be surprisingly one-off's, each intending to validate or optimize one organization's view of the new generation of Grid. As an example of this, take a look at the wording provided for two projects in North Carolina, from Duke Energy and Progress Energy, respectively
   

   [Duke Energy] Comprehensive grid modernization for Duke Energy’s Midwest electric system encompassing Ohio, Indiana, and Kentucky. Includes installing open, interoperable, two-way communications networks, deploying smart meters for 1.4 million customers, automating advanced distribution applications, developing dynamic pricing programs, and supporting the deployment of plug-in electric vehicles. Will also benefit customers in IN and OH. ($200,000,000 SGIG/$851,700,000 Total)

   and
   

   [Progress Energy]Build a green Smart Grid virtual power plant through conservation, efficiency and advanced load shaping technologies, including installation of over 160,000 meters across its multi-state service area. Will also benefit customers in SC. ($200,000,000 SGIG/$520,000,000 Total)

   It is hard to think of projects of this magnitude as test beds


3. Ready or Not, Here We Come
   From a security perspective, this is a massive investment in expanding the exposed surface of the grid, and it will impact a new generation of underlying communications infrastructure. Most of the synopsis data includes things like two-way communications, interactivity, new networking infrastructure, etc. That is a wholesale shift for millions of customers, and we continue to hope that people are putting hard thought into it, because those dollars will be spent, and we will need to reconcile the security one way or another.
   

I guess that last conclusion that I draw is that this program also tells us that even in these small-ish numbers, the costs are huge. Through either market forces or another wave of government investment, getting to the FERC's "partial adoption" could easily cost another $15B of government funding on this route, and another $20-30B in private investment. The numbers to get to a fuller adoption are far higher. From a security perspective, all of this continues to point back to understanding what is necessary within the new infrastructure, and what acquisition guidelines should drive these enormous purchases, because it will be impossible to unwind this once it gets moving.

The SGIG has put fuel into a very powerful and creative technical engine within the energy industry, and like an automobile, that power is generating speed. As that speed builds up, we need to see similar emphasis on keeping the headlights on so we don't crash on these unfamiliar roads.