Smart Metering and the Network: The Use of IP Networking
and the Internet in Smart Metering Systems
Jennifer Hassani
The Use of IP Networking and the Internet in Smart Metering Systems
Jennifer Hassani, Triacta, Ontario, Canada
When new technologies are introduced, they have the ability to transform business models, to break them apart and create new ones. In the case of smart metering, meters are still in their technological infancy and the accompanying business model is largely untested. The real test will begin as millions of residential consumers gain experience with smart meters and through market forces, create their own value from them.
The purpose of this paper is to review the evolutionary paths of the telecommunications and electricity networks to apply the lessons learned in telecom to the rollout of advanced communications in the energy industry.
During telecom deregulation, new business models were tested and consumers were often overwhelmed with the introduction of new features and choices available to them. However, most consumers adapted to deregulation and embraced the new technologies that emerged. The introduction of smart meters to internet-savvyconsumers will cause smart metering to become absorbed into an internet-converged world.
This is where Internet Protocol (IP) and smart metering meet. IP became the standard protocol, or language, for networking and advanced telecommunications. IP became a standard through a series of “network wars”, where proprietary or legacy standards were pushed by vendors hoping to secure business through all points within the network. Billions were spent in developing proprietary networks. Unfortunately this money was largely wasted. The proprietary network wars have already begun in smart metering. If telecom is to be used as an example, it demonstrates that the vendors that support proprietary technologies will fail to secure widespread market adoption and open-architecture networks will prevail.
Utilities have the ability to leverage the outcome of the telecom network wars by rolling out smart metering with an IP-based, open architecture. The use of IP also enables consumers to take smart metering and make it their own.
As smart metering becomes intricately linked with the Internet, it will also evolve in unpredictable ways. For utility professionals, the best way to prepare for the future is to select network components that support an open, non-proprietary architecture such as IP.
Smart metering is a relatively new concept to the electricity industry; a concept that is still in its infancy in terms of adoption and consumer exposure. The new technologies and business models being put forth to support smart meter rollouts are based on communications technologies that were developed by other industries and are now finding a home in the electricity sector.
The introduction of a new technology to any industry has the power to transform tested business models, break them apart and create new ones. These business models mature over time, as Automated Meter Reading (AMR) has. At first AMR’s only purpose was to reduce the labor costs associated with meter reading, but now it has matured to the point where it enables many other value-added services such as demand response and time-sensitive pricing.
Technologies also mature over time. In the case of smart metering, meters are still in their technological infancy; much of the future value that they will create has yet to be identified, and until the mass market gains experience with smart meters, it is unclear how the technology will evolve. Free markets have a habit of taking a technology and transforming it into something completely unexpected. This transformation is what ultimately creates real and sustainable value.
Smart metering is the combination of old and new technologies; power measurement and telecommunications. While most in the electricity industry are familiar with the history of metering, it’s worthwhile understanding the roots of communications technology. These two industries have some very similar characteristics and evolutionary patterns.
Both the telecom and electricity industries began as heavily-regulated monopolies that were strongly backed by various levels of government. There was a good reason for this support; it required a tremendous amount of capital investment to establish the complex, long distance networks required and to maintain control over the just-in-time nature of the service provided. Both are deemed essential to the economic growth of a nation, yet their real value is often overlooked by both consumers and legislators.
In 1996, the telecom industry experienced a major overhaul in the form of the US Telecommunications Act. This Act introduced some fundamental changes to the telecom industry and deregulation began to flourish. While this legislation had many components, its primary function was the removal of barriers that prevented phone companies from competing with each other. The industry subsequently went through a rapid and often incoherent overhaul.
Several mergers followed and heightened private-sector activity spurred the development of new technologies and business models. Private retailers emerged to fight with the monopolies for access to their lucrative customer base. New business models were tested and consumers were often overwhelmed with the introduction of new features and choices available to them.
While there were some bumps along the way, most consumers adapted to deregulation and embraced the new technologies that emerged. As mentioned earlier, free markets have a way of transforming and innovating technologies in ways that no one predicts. Ten years ago, no one would have foreseen the emergence of the Blackberry, iTunes and Skype. The Internet and the broadband connections that support it are now permanent fixtures in society.
While it may seem strange to compare the feature-filled aspects of today’s IP-networked phone systems with an electricity meter, the telephone of twenty years ago was not overly complex either. It was simply a device that hung on the kitchen wall: the network termination device and billing point for the local phone company. Consumers needed to use it, but had little control over the rates they were charged for its use.
Jurisdictions around the world are about to introduce smart meters and their associated pricing models to consumers. The first uses of smart metering technology we see today are AMR and time-of-use pricing. Real-time usage feedback and demand response at an individual consumer level will soon follow. What consumers and markets will do with this information remains to be seen.
Consumers will adapt to this new technology, and there will be issues that arise. However, most residential consumers are already internet-savvy and will inevitably absorb the meter information provided to them and use it in ways that no one can predict. The technical jargon for this type of integration is network convergence, and we are about to watch smart metering become absorbed into an internet-converged world.
This is where Internet Protocol (IP) enters the world of smart metering. Where did IP come from? After deregulation, new network technologies were rapidly developed. The network and protocol wars began. Each hardware provider developed their own propriety methods of supporting internet use; there was X.25, Frame Relay, Asynchronous Transfer Mode (ATM) and IP, to name a few. In the end, IP won. IP became the standard protocol, or language, for networking and advanced telecommunications.
The network wars have already begun in smart metering. Many meter companies have tweaked their legacy and proprietary formats to support smart metering and want to force all points within the distribution network to use their software and hardware. While these protectionist policies are certainly understandable, they aren’t sustainable. If there is one lesson to learn from the telecom network wars, it’s that holding onto proprietary or legacy standards doesn’t work. This market strategy fails in the long run.
In telecom, companies that held onto their proprietary technologies were driven to the fringe of the network, lost the largest bids and were ultimately absorbed or failed. It’s not that their technologies were bad. Arguably many were better than IP at the time, but they failed to achieve widespread market adoption.
In telecom as in electricity, the equipment to roll out and maintain networks is capital-intensive and has a long life, typically over twenty years. The asset managers responsible for purchasing this equipment are obviously well aware of this as they plan their rollouts. Not a single large telco – not MCI, BellSouth or AT&T, bet their strategic network rollouts on a technology that would lock them into a single hardware or software provider.
Which technology will win in smart metering? This decision has already been made. To use telecom jargon, smart metering is bi-directional data communications with an end point on a customer premises. This network war has already been fought, and IP won.
IP brings many benefits; it can run over virtually any medium including phone lines, wireless and power lines. No single provider has the ability to lock a distribution company into a single network or transmission medium. If the cost of using WiMAX in the future is less expensive than RF, a switch is simple. A meter with IP-based communications should have the ability to leverage a variety of networks.
The use of IP also enables consumers to take smart metering and make it their own. This doesn’t mean that utilities will lose their billing device. Today, phone companies still bill consumers for usage despite the fact that phones operate in a totally different way than they did a decade ago.
For utilities, there is an upside to having a meter with an IP address and flexible networking abilities. There are new business models to investigate. For example, the meter could become a gateway to interface with other IP devices, including IP thermostats, IP fridges, IP displays and home computers. These other devices already exist, so why not utilize them? Why invest in a separate demand response unit for central air conditioners when an IP-addressable thermostat can do that for you, while also displaying customer messages and real-time cost information? The technology to do this already exists and can be readily re-packaged for the power sector.
There are many similarities between the evolution of the telecom and electricity industries. At some point, the technologies used – and possibly the industries themselves – will converge. It’s already happening with broadband over power lines. Smart metering is simply another step along the evolutionary path.
This is an exciting time in the electricity industry. There are some that will resist the changes brought forth by the utilization of IP and the internet in smart meter rollouts. Some vendors that hang onto proprietary methods and protocols will not be around in five years, while others will grow rapidly. There will certainly be unexpected technical and market adoption issues that arise.
In a recent lecture given by Steve Ballmer, CEO of Microsoft, an audience member asked him to predict what the Internet would look like in ten years time. He responded by saying that he had no idea. He wouldn’t have predicted what had happened in the last ten years, and the next ten would be just as interesting.
As smart metering becomes intricately linked with the Internet, it will evolve in equally unpredictable ways. For utility professionals, the only way of navigating these changes is to select network components that support an open, non-proprietary architecture. As utility professionals we must insist upon this openness in order to properly leverage the inevitable software and meter technologies that vendors will provide.