We recently sponsored the European Utility Telecommunications Conference (EUTC) held in Madrid from 26 – 28 October – and took attentive note of the progress made by the industry on the mythical smart grid.

For some time we have been advocating the importance of smart grid with clients. As the smart grid sits at the cross-roads between the telecommunications and utilities industries, there is an opportunity for utilities to drive change. If they can capture the benefits generated as a result of smart grid by partnering at a strategic level with telcos, they can secure a better outcome for themselves in the event of possible disruptive innovation.

Alternatively, non-proactive utilities run the risk of losing out and become ‘price-takers’ fighting for margins in a new market ruled by their more proactive competitors.

Frustratingly, we had seen little evidence of utilities recognising telcos as possible strategic partners until recently. More often than not, commercial relationships between utilities and telcos have been purely utilitarian, characterised by tactical moves and commoditisation of telco services. After attending the EUTC 2011, we feel that all this is about to change.

During this year’s EUTC we have seen the first signs of a change of heart in some utilities. Here are some examples that we took away from the conference:

• Dr. Andreas Breuer at RWE presented on optic fibre implications for DNOs. As part of this, he covered RWE’s strategic plans for the rollout of fibre in Germany’s rural areas.
  RWE needs to upgrade its distribution network as a matter of course and while doing so have identified a strategic opportunity: its business case for the rollout of fibre looks more attractive than it does for telcos willing to offer services in rural areas. However, as Dr. Breuer explained, RWE is happy to partner with telcos to allow them to operate the new fibre infrastructure and, at the same time, use it to offer commercial services to consumers located at areas that would not otherwise have a chance to have high-speed broadband. This is a win-win-win scenario where all stakeholders take advantage of efficiencies and could spark further collaboration between RWE and their strategic telecoms partners in the context of smart grid.
• Rusty Williams at AFL Ltd covered lessons from the US and what Europe can learn about the American’s experience with smart grids.
  He discussed the criticality of telecoms for the utilities’ business in the context of the future smart grid. In Rusty’s words: “for the first time, telecommunications will be critical to the utility’s business. We must get it right”. This is a clear acknowledgment that, in the future mode of operations, a tactical relationship with telco providers will not be enough for utilities anymore. The utility’s telecoms department is about to become critical in the operating margin equation and will gain a lot more visibility on the CIO’s radar over the coming months/years.
• We observed a shift of emphasis in some of the presentations from technology and boxes to services and from ‘How do I build this?’ to ‘What kind of service is my business asking for?’. 

Utilities have traditionally been reluctant to let go of their telecoms infrastructure based on the idea that their needs are so specific that telcos are unable to provide the right levels of service at a lower price. However, both sides of the debate have come a long way during recent years. During the EUTC, we saw a new train of thought willing to consider the question: “Do we build another private network for smart grid or do we trust a telco to do it for us?”

We look forward to seeing and facilitating more dialogue between utilities and telecommunications service providers as a result of the encouraging signs we observed at this year’s EUTC. Utilities are starting to ask themselves the right questions, telcos must listen to their clients and look for win-win scenarios. We hope to return to EUTC in 2012 and report that this new era is in full swing.

Consumers Energy (a leading electricity supplier in Michigan) has just announced the award of a contract for the installation of 1.8million smart meters in their area of operations to SmartSynch. This is an important landmark and a point of reference for utilities in the United States and the rest of the world.

The successful bid by SmartSynch is based on a cellular communications solution making it the first utility in the US to plan for the deployment of smart meters at a significant scale on the back of a WAN solution based on a public network.
In an environment where most electricity companies are vertically integrated regional monopolies, the preference has been to deploy smart meter communication solutions based on bespoke and often dedicated private communication infrastructures.

Consumers Energy stated in the relevant press release that their decision to go with SmartSynch’s cellular solution came ‘after extensive research and testing of available industry solutions’. Presumably their selection process must have also considered commercial profiles, service management and operating model considerations of competing solutions. The fact that SmartSynch came on top might indicate that one or more of the following is true for Consumers Energy:

• Companies offering smart solutions based on public networks have found a competitive commercial offer that make it worthwhile for a big utility to take the risk of deploying on the back of a cellular network;
• SmartSynch managed to overcome commonly perceived concerns regarding public network implementations including questions over availability, coverage, possible obsolescence and overall capacity to handle the data generated by smart metering traffic not just on day one but also in the future;
• Consumers Energy might have a more strategic view of their future operations that may not include the need to own every single asset it uses to deliver service with the associated burden of maintaining in-house service and support organisations. A managed service for smart metering could represent a better financial option in terms of return on capital;
• Perhaps Consumers Energy is considering other ‘intangibles’ like avoiding the use of other wireless technologies at the consumer’s premises thus favouring a technology with high popular acceptance like cellular. After all, if the smart meter uses cellular, why should that  be any different than having a mobile phone at home. This perception factor might improve acceptance among consumers and reduce opt-out rates during roll-out.

We look forward to see the results of this programme. We believe that other utilities around the world would also be following events closely as this deal could signal the arrival of a credible option for utilities to deploy ‘smart’ communications at a large scale based on public networks.

Traditionally utilities have separated the management of their operational technology (OT) and their information technology (IT). However the smart grid will require integration and alignment between these two functions. Utilities need to start considering their future operating model now to ensure they are ready to effectively implement and manage the smart grid.

Two separate operating models

Utility companies traditionally have two separate and completely segregated organisations managing their OT and IT

• The OT function is responsible for the technology services that are used for the protection, monitoring and control of the transmission and/or distribution infrastructure.
• The IT function is responsible for the technology services provided to the business, including applications, data centres, desktop services, networks and contact centres.