October 01, 2008
From hilly, rural terrain in Oregon to high-rise apartments in New York City to suburban neighborhoods and office parks that could be almost anywhere, pilot projects to field test smart meters are under way.
These smart meters are busily collecting data that will influence the decisions made for the operations of millions of similar units to be installed everywhere over the next few years, not to mention the multi-billion-dollar investments required to make it all work.
The market is so big, in fact, that up to 50 million advanced meters could be in the pipeline by 2010, representing an investment of $18 billion, according to government estimates. While local conditions may vary, industry executives and observers agree there are several common factors driving utilities in this direction: advanced metering infrastructure (AMI) is a key component of any smart grid initiative; federal and state regulators are pushing this policy imperative; the energy act of 2005 encourages the adoption of time-of-use rates; operational costs are skyrocketing; fuel costs are increasing even more rapidly; and the presumed adoption of a cap-and-trade system for carbon emissions has utilities seeking every possible way to reduce their carbon footprint.
Perhaps complicating the issue are the product specifications that will be required. There are simple ones that everyone most likely will want -- remote connect or disconnect capabilities, to name one. Power quality may be a requirement. Will there be outage notification? But what if your state does or does not yet have a demand response program? Will there be time-of-use rates, and if so, at what intervals, 15 minutes or hourly?
The primary motivations appear to be money and reliability -- saving the former by cutting operational costs and preserving the latter by reducing peak demand during the most critical hours when electricity usage threatens to exceed available supply
Joel Westvold, director of AMI projects for Oregon utility Portland General Electric, says that the company's primary motivation was the operational savings it would gain from smart metering. "In the long term, we're committed to an $18 million savings that will be credited in future rate cases."
Based on these data points, thousands of utility managers, executives and regulators will be making decisions that will ultimately be worth billions of dollars. These decisions will not only impact the vendors and equipment manufacturers they choose, but also will help set a dollar value on the operational benefits they'll accrue, the time-of-use rates they may eventually charge, or even cost-recovery mechanisms employed, the rate base or billing surcharges. It will even influence the brave new world of carbon management, if either a tax or cap-and-trade plan is passed in the coming years.
Anticipating Demand
The New York Public Service Commission ordered utilities to investigate the costs of deploying AMI and the operational benefits. But the initial results were problematic for one major utility, Con Edison, which serves New York City and some surrounding counties. The construction of an AMI system had a net present value of $712 million while operational benefits were estimated at $500 million. That gap has to be bridged, says Larry Nardo, a section manager for strategic applications for ConEd.
If carbon caps are adopted, there will be benefits that accrue not just to the utility, but to society as a whole. "If we consider the highest use of our 40 to 50 hours, something that substantially reduces the cost of our carbon footprint, then that makes the business case a net positive of $60 million over 15 years," Nardo says.
To provide evidence for those assumptions as well as the operational benefits, the company is just starting its own pilot project. After a few months of data, ConEd will re-file with the Public Service Commission and, if its business case flies, will proceed with its rollout. With only one other utility in New York nearly as far in its planning process, ConEd's direction will have significant influence on the AMI implementation in the rest of the state.
"There are a number of drivers and the first one is operational savings," says Wayne Harbaugh, Baltimore Gas & Electric vice president of pricing and regulatory service. Those concerns include recent legislation, reliability concerns and high prices on the spot market on the highest-demand days.
"With a 20 percent churn in Baltimore city, that's a tremendous amount of unscheduled reads for turn-ons and turn-offs," he says. BG&E has its own pilot program for operations and reliability benefits of AMI in different ZIP codes to test it under various operating conditions. AMI has also been wedded to a smart grid/demand response initiative. When spot prices reach a certain baseline, say $1 a kilowatt-hour, an AMI-enabled system would cut power to a residence, qualifying the property owner for a rebate.
Vendors regularly announce major contracts with utilities across the country. Southern Company and Sensus Metering Systems, for instance, have a deal for 4.3 million meters over the next five years. The numbers elsewhere are staggering: 2.3 million units for San Diego Gas & Electric; 5 million for Southern California Edison; 10 million for Pacific Gas & Electric, and that's just in one state. Granted, that's the nation's largest, California, but that still represents a fraction of the potential U.S. market.
California is an important state given the size of the planned deployments of the three IOUs there. Accordingly, California tends to receive the lion's share of market attention.
But what if utilities and regulators see the initial results and begin ordering rollouts simultaneously, creating a stampede in 2010 or so when demand far exceeds manufacturers' ability to supply these units?
In preparation, both utilities and vendors report that they have worked together to secure a place in the queue to anticipate that demand, perhaps smoothing out these anticipated rough patches.
The industry will have to be ready. With market demand, regulations, carbon management and consumers' expectations, it'll be a mad, mad world in the advanced metering universe.
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Bill Opalka Editor-in-Chief Energy Central
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