Smart money

The worldwide financial meltdown has somewhat overshadowed the unprecedented global consensus on climate change that coalesced in 2007-08.

But energy production and consumption are still the era-defining issues of the early 21st century, and arguably the most significant drivers in technology, business and international politics.

And now, thanks to President Barack Obama, the credit crunch may turn out to be the catalyst for the most significant breakthrough in the energy industry since the invention of the electricity grid.

In his economic stimulus package, launched in February 2009 to resuscitate the US’s ailing economy, Obama earmarked $1 billion to fund so-called Smart Grid projects – a move that advocacy group the GridWise Alliance believes will create around 150,000 new jobs.

Smart Grid technology is often described as “the Internet for power”, so great is the expected impact on the way electricity is produced, bought and sold. The term describes a variety of tools, techniques and industry initiatives that allow energy suppliers to measure home and business consumption more accurately, to support more flexible pricing models and even, perhaps most significantly, to allow home-generating users to plug power back into the grid.

Its appeal rests on the fact that it is in the interest of both the consumer and the producer. For example, Smart Metering or Advanced Metering Infrastructure (AMI), which is the first step towards Smart Grids, helps utility providers to crack down on metering fraud, while simultaneously helping customers ensure their suppliers only charge for what they use, not what their ‘estimated’ consumption is.

With the information that AMI will provide, electricity providers will be able to build a far more sophisticated picture of demand fluctuations. This is of great value to utility providers, says Doug Hanson, director of global energy industries at HP.

“Energy companies spend an enormous amount on modelling demand,” he explains.

AMI also promises to regulate requirement fluctuations by allowing producers to increase pricing during peaks of demand. This, it is hoped, will encourage consumers to use electricity at cheaper times. “Most energy suppliers have run Smart Grid pilots, and they are finding savings of between 15% and 20% in demand that can be rolled back,” says Hanson.

According to Gaelle Le Roux, manager at Accenture’s Sophia Antipolis research labs, making demand more predictable will help energy providers make greater use of greener production methods. “If you have a flatter demand curve, you can combine clearer energy sources with dirty ones.”

Smart Grid pilots have found energy cost reductions for consumers of between 3% and 5% – hardly revolutionary. But as Joe Hill, CTO of HP’s global energies practice, explains, by providing greater visibility into demand and pricing, Smart Grids will accelerate competition in the energy sector: “Once you have the information, you can start to provide all kinds of different services. What succeeds will be decided by the customer.”

Information is power

As Hill’s comments suggest, the move to Smart Grids involves a significant information technology challenge, and IT vendors are salivating at the opportunity. In February 2009, Maltese utility provider Enemalta announced that it had selected IBM to design and deliver its five-year, E70 million Smart Grid implementation.

“Managing the transfer of data through every stage of the energy production process is already an incredible challenge,” explains Ian Miller, a director at HP’s application services division, and Smart Grid will add to that burden exponentially. At the same time, however, IT only represents between 1% and 2% of the average utility provider’s costs, so there is ample room for expansion, even as they are under pressure to reduce overheads, he says.

Integrating and analysing the information produced by millions of Smart Meters is a task akin to managing a mobile telecommunications network, and the IT giants with a track record in that sector have experience to bear, adds HP’s Hill.

The future of Smart Grids in the UK is uncertain. Following Barack Obama’s commitment, Conservative leader David Cameron said that his party would launch a Smart Grid initiative here, if in power. However, without the kind of money that Obama has committed to Smart Grid projects in the US, it will take longer for operators to make the necessary upgrades. The EU has issued statements of intent to promote Smart Grids, but again without much in the way of financial clout.

But the commitment to the technology in the US should accelerate the development of the technology. At the very least, the ability of businesses to monitor their energy consumption, and how much it costs them, is poised to improve dramatically.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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