Smart grid pilot and demonstration programs are under way in 33 states, according to a new report entitled Smart Grid Growing Pains from PricewaterhouseCoopers LLP. According to the report, utilities around the country face a number of challenges that need to be properly managed to ensure project costs are contained, cross-industry alliances are functional and customers are engaged.
"We're seeing signs in the utility and power generation industry that suggest regulator and customer interactions and technology and business alliances will rapidly evolve as these massive infrastructure projects are executed. These factors could, in some ways, redefine the way utilities will do business going forward," said David Etheridge, utilities and power generation industry leader at PricewaterhouseCoopers. "Rate cases are on the increase as utilities try to find ways to manage investments and project costs. Utilities are forming alliances with the auto and tech industries, adding several layers of operational complexity. And the biggest question of all is whether customers will embrace or reject Smart Grid technology."
Six key areas that highlight the growing pains associated with Smart Infrastructure deployment are:
Smart Infrastructure Capital Expenditure: 62 percent of utilities surveyed globally cited smart grid initiatives (advanced metering infrastructure, protection and control relays and substation automation) as the reason for increasing capital expenditure in 2010, and 64 percent forecasted increased capital expenditure for 2011.(1) Concerns over layering smart grid capital expenditures on top of already-expanding capital expenditure budgets are being raised, in areas such as communications systems and smart meter installation and maintenance. These concerns come as overall capital investment by the utilities industry is estimated to reach $75 billion in 2010, more than double that in 2004 ($36 billion).(2)
Utilities, Regulators & Customers: At the core of a fully optimized smart grid are customer adoption and satisfaction. In a recent study, sixty eight percent of Americans have never heard of the smart grid. Sixty three percent have never heard of the smart meter.(3) Additionally, in another survey, US utilities executives rated rate cases as the number one focus over the next year.(4) The number of rate cases filed by shareholder-owned electric utilities rose to 66 in 2009, the highest in two decades. Base rate increases among US electric utilities in all were $4.2 billion with 58 cases in 2009, up from $2.9 billion with 42 cases in 2008.(5) As of February 2010, some 83 major US electricity or gas retail rates cases were under consideration.(6)
The Smart Grid Cost-Benefit Equation: Estimating future costs and the benefits of AMI and smart grid technologies has proven to be a prickly endeavor. To date, there is no shortage of estimates of the savings that a fully integrated smart grid could bring. But as the smart grids move from theoretical projections into the nuts and bolts of deployment, real effectiveness and attendant savings will come to bear.
Securing Cyber Assets: As smart infrastructures expand, so too will the urgency to safeguard against cyberattacks--be they accidental and petty, or malicious and devastating. The number of successful cyberattacks against supervisory control and data acquisition (SCADA) systems at power generation, petroleum and nuclear plants and at water treatment facilities grew tenfold since 2000.(7)
The Data Quandary: Data management and optimization will likely present significant challenges to utilities sooner rather than later. As data from millions of smart meters streams in--and streams back out to customers--utilities will potentially have, at one end of the spectrum, an embarrassment of riches to optimize the grid--or, at the other, an underutilized and unleveraged data overload. Inevitably, ever more energy-use data will need to be managed as smart meter-enabled home appliances and devices equipped to send data become mainstreamed.
Managing new partners in the smart infrastructure space: Utilities will be thrust increasingly into the role as "clean energy systems integrator," charged with integrating legacy and emerging operations that have traditionally been siloed. In many cases utility companies are learning how to work with new partners and are adjusting vendor-management behavior. Five years ago, some technology vendors in the smart infrastructure space were willing to develop solutions with utilities at low cost or no cost to utilities on a "proof-of-concept" basis. Today, some of these same vendors are expecting to be compensated.
"Utilities will be challenged on many different fronts to get the equation right - from regulators, customers and technology partners to name a few," added Etheridge. "But the potential benefits and savings for both utilities and their customers are significant. Billions are being invested, and there is the possibility of billions in savings - not just in dollars, but also in emissions reductions. The utility industry is at an inflection point in its 100+ year history - the smart infrastructure is the driving force behind an industry transformation."
(1) The Newton-Evans Research Company, "Global CAPEX and O&M Expenditure Outlook for Electric Power & Investments: 2010-2011 Funding Outlook for Smart Grid Development", Newton-Evans Research Company press release, Feb, 25, 2010.
(2) "Capital Expenditure Update," SNL Energy, Financial Focus, March 25, 2010.
(3) The Harris Poll of 2,576 adults surveyed in January, 2010, Harris Interactive, Business Wire, March 2, 2010, 2010.
(4) Utilities Global Survey 2009, PricewaterhouseCoopers, 2010.
(5) SNL Energy "Financial Focus" RRA Utility Securities Monthly, 2009 -- Year in Review, January 15, 2010.
(6) SNL, Regulatory Focus: The rate Case Process: A Basic Guide, February 17, 2010.
(7) Cyber Attacks: Is your critical infrastructure safe? PricewaterhouseCoopers, 2010