Anticipating the future’s Smart Grid economy
The world’s overall energy demand expected to rise by nearly 40 percent between now and 2035 according to the International Energy Agency (IEA). Power providers need to be prepared with the right communications and service platform for the future’s Smart Grid economy, but what will that look like and how much will it cost? Is there an ultimate business model?
The optimal Smart Grid value proposition depends on numerous factors related to regional needs, national priorities, technology development and regulatory environment, according to Ravi Krishnaswamy, Vice President, Energy Practice, Frost & Sullivan. “It’s not a one size fits all situation,” he says. “Each utility will have to weigh these factors, then arrive at elements of Smart Grid that works for them.”
Drivers, Challenges and Investment
Drivers for the Smart Grid future are environmental policy and renewable energy development, greater demand for energy efficiency, growing energy demand and economic development. Challenges that restrain development include lengthy decision-making process, the high cost of investment, a lack of standards and data security concerns.
While energy demand in Europe and North America will continue to grow, emerging economies will make up 93 percent of the demand growth, with China and India accounting for 36 percent and 18 percent of the rise, respectively, according to IEA. Renewable energy will be a large part of that mix, increasing substantially across Asia, and especially in China and India.
Focusing on all of these opportunities and challenges, forward-looking global players and governments in the Smart Grid ecosystem already are making major investments. China is the world’s largest investor in renewable energy, and is aiming for a 16 percent renewable share by 2020. The European Union (EU) also has taken a global lead through its 2020 target, which includes reduction of greenhouse gas emissions by at least 20 percent compared to 1990 levels, and increasing the share of renewable energy in final energy consumption to 20 percent, with a 20 percent increase in overall energy efficiency.
“We require a Grid that is more intelligent than it is today, obviously because conventional resources are limited while new elements need to be effectively integrated.” says Krishnaswamy. “That brings us to the next stage of evolution, which basically is having large utilities gain storage – capturing and storing that renewable energy so that it can be used whenever you need it.”
The consumer interface, as embodied in demand management initiatives (DMI) and smart meters, is shaping up as the leading edge of deployment. “Reaching the full promise of the Smart Grid will take several stages or steps,” says Krishnaswamy. “The rollout of smart meters, is the first.”
Just consider the following total investments in smart metering technology that Frost & Sullivan has projected for the period between 2009 and 2017:
- United States: $4.3 billion, with a 52.4 percent Compound Annual Growth Rate (CAGR)
- Europe: $9 billion, 13.5 percent CAGR
- Japan: $4.6 billion, 85 percent CAGR
- Asia Pacific: $12.5 billion, 69 percent CAGR
“The Smart Grid gives the consumer more choice, he or she can better control consumption, and eventually will be able to manage home energy right down to home appliances,” Krishnaswamy notes. “Some of the most promising edge applications will be the in-home displays through which consumers will be able to measure and proactively control power consumption by appliance. Many also will have solar or other alternative generating capacity in their homes, which they can sell back to the Grid. These are realities if we have a Smart Grid, and they will provide an attractive value proposition.”
The Impact of Renewables
Frost & Sullivan estimates that by 2020 renewable energy should account for 20 percent of the European Union’s final energy consumption, in line with EU targets. China invested more than $10 billion in new renewable energy capacity last year, second only to Germany, according to the Worldwatch Institute, and is aiming to double its renewable share by 2020, based on its own government’s target. In the U.S. 22 states have renewable targets of between 10 percent and 20 percent for the same period, while renewable power in Africa is expected to reach $57 billion in 2020, up from $3.6 billion in 2010.
Krishnaswamy notes that the Smart Grid is essential for utilities and nations that want to grow their renewable generation base, which itself is a key element in the equation for meeting future demand. “Many countries have significantly added capacity in the recent past. Still these are intermittent sources, and in some instances, especially in China’s case, they not able to connect that new capacity for lack of transmission technologies,” he states.
“Predominantly renewable energy is growing, especially the solar market, and it’s growing on the strength of feed in tariff (FiT) support from the governments,” Krishnaswamy notes. “This has led to economies of scale which in turn has resulted in lower cost of production. So I would say that the renewable energy market will start taking a significant share of the power source in many of these countries.”
“We believe that the infrastructure created by utilities will in several cases have the potential to serve as a backbone for all the communications that happens in a smart city, whether created from an existing city or a planned new urban development.”
Smart Cities and More
One of the more fascinating outlooks for the Smart Grid is its role in supporting smart cities. “We believe that the infrastructure created by utilities will in several cases have the potential to serve as a backbone for all the communications that happens in a smart city, whether created from an existing city or a planned new urban development,” says Krishnaswamy “This is basically a convergence of multiple sectors, such as transportation planning, healthcare delivery, water and waste management and so forth.”
These smart cities will be highly efficient, competitive and sustainable, fully capitalizing on the convergence of utilities’ infrastructure so that a broad range of public services can be delivered more efficiently. This scenario presents a myriad of enhanced business opportunities for power providers working in this space. “These value-added service opportunities provide a strong business justification for the Smart Grid – especially on a pilot scale at this point,” Krishnaswamy notes.
The Evolving Business Case
Smart Grid technologies are fundamentally changing the business models for power providers in several ways, including deferred investment in expensive power plants, reduced maintenance and service costs, more efficient and reliable load management and that expected proliferation in potentially lucrative smart services using the Grid’s communications infrastructure.
Yet those factors alone are only part of the equation. Krishnaswamy points out that most utilities will need some kind of government support, especially in emerging markets where the industries themselves do not have very strong financials and are not able to adequately support the initiatives.
“The Smart Grid is especially important in places such as India, Indonesia and China, where they will be able to avoid billions of dollars that would have been spent on new power plants,” he says. “It also translates into lower carbon emissions, so there is a definite incentive to having these intelligent Grids in many of these markets. It’s a strong business case long term, but for some of them it’s going to be very tough initially. For a time we will see utilities struggling to come up with a business case, and that’s why they need some element of support, or even approval from regulators in a given market for passing through the costs.
“You see that playing out in many countries. It’s kind of a chicken and egg situation,” he notes. “The Smart Grid is not just one project; it’s an architecture and a schematic that needs to be developed over a five- to ten-year time frame, depending on the individual needs and realities of the utilities.”
The Smart Grid Tipping Point
When will we see the tipping point, when the technical, policy and business factors all converge to supercharge ubiquitous Smart Grid adoption? Krishnaswamy believes that it probably is not going to be coming from one source or one direction, but from multiple facets of the Smart Grid.
“Take the communications infrastructure,” he suggests. “Is the tipping point is going to be the whole cost of the infrastructure, or is it going to be the consumer demand for more choice and control – the moment when consumers recognize that they need to have the Grid to support the money-saving smart devices and other killer apps that they crave? At this point it’s tough to say that one particular event or aspect will do it.”
Krishnaswamy says that overall smart adoption and the precise form it takes will vary from community to community based on markets being served, regulatory environment, and other factors. “You can list 20 or 30 Smart Grid benefits, but what are the two or three key objectives for a particular utility? Is it going to be renewable energy integration? Is it going to be fault identification & rectification, is it going to be smarter distribution management? Once utilities and the communities they serve consider that and determine their own cost-benefit landscape, then that determines their initial architecture and tipping point.”
Then they can add on elements as needed. “That’s the beauty of today’s Smart Grid – it’s not just one big animal, but an aggregation of smaller projects. Utilities can start with something that is more manageable and meaningful for them in the context of their particular needs. They may start at different points, but eventually the whole system will be done up in 15 to 20 years’ time frame,” Krishnaswamy states.
“In the end we are striving for efficient operation of the whole utility Grid, because today the utility industry is loaded with inefficiency. For many years generation has been taken care of, but there’s not so much that has been done on the distribution and transmission side. That is the new focus for the years ahead.”
** Legal disclaimer: People posting to this web site, including moderators and authors, may include employees of Alcatel-Lucent. Opinions and comments expressed herein are the personal opinions of the commenter, not of Alcatel-Lucent. The content provided here is for informational purposes only. It is not intended to be an endorsement or representation by Alcatel-Lucent or any other party. This web site is publicly accessible. Do not post any information you consider confidential to this site. Do not post any personal data related to others unless you have their consent. By posting content to TechZine e-magazine, you agree to be solely responsible for all information you contribute and there by release Alcatel-Lucent from any liability related to your use of this site. By contributing a post, you also grant Alcatel-Lucent all rights to any original content you provide.