Making the smart grid smarter

The recent change in the issue of smart metering data and communications tenders by the UK’s Department of Energy and Climate Change has led to significant concerns in the market. Nick Wellington, Head of Strategic Communications at Navetas Energy Management, explains why.

Ahead of the smart meter rollout, the recent announcement by the Department of Energy and Climate Change (DECC) around issuing tenders for smart metering data and communications has been causing quite a stir in the market. The reason? The DECC has broken the tenders down into smaller chunks, opening it up to more and smaller competitors. However, at the same time, it has extended the contractual period to a term which could see potential providers outlive their technological competitive edge.

This move by the DECC to extend the contractual agreement terms, from anywhere between nine to 20 years, has raised some questions on whether we will see the technological advances currently made in the energy industry taper down and stagnate over the next few years.

Will this long-term solution provider approach to suppliers really achieve an optimised and truly smart grid that benefits the industry energy consumers? To understand this, we need to take a deeper look at what the DECC has placed on the table.

The DECC communication tenders

The UK government is looking for only one or two suppliers to provide the communications gateway and connections of the communication service to one or more data centres in three areas, which have been split into:
1. northern Britain, including Scotland
2. central Britain, including Wales
3. southern Britain.

The winning supplier or suppliers will then be contracted to the data and communications company (DCC or the authority). In essence, this means that the winning service provider or providers will be responsible for developing and implementing the software, hosting and application management services that will drive the UK’s smart grid. They will also be responsible for integrating data meter communications services and ensuring interoperability with the IT systems of the DECC’s users.

The combined value of all three contracts is estimated to be worth anywhere between GBP990m to GBP4.57bn, over the period of the agreement or agreements. Some will say this is a clear indication that government is taking the smart grid implementation very seriously indeed. But, others, including Navetas, are arguing that the tenders’ contractual terms, of between nine to 20 years, could exclude competitors – and more importantly, competitors that may bring new innovation and energy-efficient technologies to the table.

The government, no doubt, may have a different view. A single or perhaps a limited amount of suppliers may give them more bang for their buck and make the process easier to manage. But winning the contract won’t be easy and the companies who want to put their bid in need to fulfil rigid requirements.

Requirements for the tender

Companies who want to bid on the communications tenders need to provide plans to fulfil the following requirements:
• provide communication services for up to 100% of smart meters in the specified geographic area
• supply (but not installation of) the communications gateway that will allow smart meters to connect to the communications service (WAN)
• connection of the communication service to one or more data centre locations specified by the Authority/DCC.

When vetting organisations, the DCC will rank them on the ability to deliver these services, not only from their submitted applications but also as a company as a whole. This vetting process will take the form of a confidence rating. But as of yet, no announcement has been made for the specific metrics that will be used to calculate these confidence ratings, so it will also be interesting to see what the government deems most critical, when they are released.

Questions remain in the mind of the energy industry. Today, the only certain element is that the entire country and energy industry will be affected by the decision that is made by the DCC.

The potential impact

The question the energy grid, industry and power producers should be asking themselves is, “what will be the impact of the DECC’s decision?.”

The smart meter communication tenders will no doubt have an impact on every aspect of the energy supply chain. The greatest pressure perhaps will fall on utility companies, who will be responsible to both government and energy consumers.

The government will expect the energy providers to manage the UK’s power supply more effectively. Equally, consumers of energy, whether they are businesses or households, will depend on utilities to help them manage fuel bills and deliver clearer and simpler energy tariffs. For the utilities this is a precarious position to be in. But it is also an opportunity for these industry players to step up and become the central point of the energy management network.

What the industry needs to know

At the moment, when it comes to the smart grid and energy reduction initiatives, the whole industry is crying out for more information.

However, what we do know is that once the communication infrastructure is in place it will enable energy providers and industry to communicate on a larger more detailed scale than ever before.

Rather than the weekly, monthly or even bi-annual updates the industry currently operates under, energy providers will be able to collect vital and detailed information on the peaks and troughs of daily energy use. It will be able to identify in almost real-time where the country’s energy needs are.

This new method of “real-time” collection will revolutionise the industry, providing that there is an extremely up to date information source enabling the prediction of energy use to a far greater degree.

Building trust through visibility

By increasing the flow of tangible information across the entire energy industry, the government’s smart grid will be able to provide a more transparent account of how energy is generated, stored and distributed.

This gives energy industry players the opportunity to build trust with their consumers – an element that it has been lacking for some time in the eyes of many. A move to more transparent information flow will also enable energy providers to work with those organisations in energy-dependent industries, such as manufacturing, to find more efficient approaches.

The key is that energy providers will need to develop open lines of communication that will help empower energy consumers.

Potential downsides

While the DECC tenders bring many opportunities such as transparent communications, there is also a downside. On one hand, the concept of a smart grid communication network is exciting. It is what the nation needs to advance the monitoring of its power usage and to learn how to distribute energy more efficiently.

But, as with many innovations, there are potential shortcomings for the users of this new network. Up to this point the government has taken a very commendable approach to energy management with this scheme. It has a vision for a long-term communications network. The introductions of smart meters across households and businesses in the UK will also undoubtedly help to reduce the UK’s energy use and carbon emissions.

However, as with any large-scale project, cost will always be an issue. If organisations bid for all three tenders, they may no doubt offer government some degree of discount, especially due to the length of the agreements, and it’s in this area where the risks of a project such as the communications tenders will become apparent.

Rather than looking at discounts through a long-term supplier approach, a much more beneficial approach would be to encourage collaboration between a variety of technology providers, over a short-term period, to ensure a future-proof smart grid that will deliver a sustainable, energy efficient nation.

A lack of technological innovation competition over the twenty-year term could lead to a “value” connections network. Low cost is definitely not a negative, but a lack of compatibility with smart meters and future technologies could leave the UK with a billion-pound experiment.

Acting now to make the smart grid smarter

As DECC is still in the planning and commissioning stage there are no certainties of the specific technology the industry will see being implemented across the nation. But Navetas has a good idea of what is currently in the pipeline for energy management.

The simple truth of the matter is that a single energy supplier for the smart meter communication tender may be an unrealistic goal. The industry needs to consider the fact that we will not see the smart meters of today’s generation being installed in 2014. Technology is advancing rapidly and developments such as energy disaggregation technology could revolutionise the next generation of smart meters.

While today’s smart meters are a very good first step to achieving energy efficiency alongside the communications network more needs to be done. The industry needs to maintain focus and realise the potential the smart grid represents. It is a chance for energy providers, innovators, technology companies and energy consumers to work together to feed a network that will present mutually beneficial information.

Nick Wellington is a predominant figure in the energy management industry. He has been with Navetas since October 2008 and is the company’s Strategic Communications Director. Nick has worked for a number of years in the Public Affairs and Communications Industry, providing advice to names such British Airways, John Lewis Group, Prudential and Sainsbury’s on a range of issues.