Navigant Research Blog

Great Britain Addresses Smart Meter Critics

— June 1, 2012

The U.K. Department of Environment, Climate and Conservation (DECC) made a series of announcements in early April regarding progress on the rollout of smart meters to 30 million households and small businesses across Great Britain.  The Government minister responsible, Charles Hendry, confirmed that suppliers are expected to deploy smart electricity and gas meters to all customers by the end of 2019.  The government also confirmed that it was on track to let the first licenses for the Data Communications Company (DCC) in the first quarter of 2013.  The central communications provision is expected to be in place to enable mass rollout to begin in 2014.

The government has not announced the bidders who have made it into the next stage of the tendering process.  However, media reports suggest that Accenture, Atos, HP, IBM, Logica, Siemens, and TCS have made the short list for providing the data management services for the DCC, a contract that the department indicates will be worth between £60  million and £240 million ($95-$240 million) over a period of 7 to 12 years.  The government will also award three communications contracts that will provide smart meter communications coverage across three geographical regions of Great Britain (Northern Ireland is outside the program).  Valued at between £330 million and £1.525  billion ($520 million to $2.4 billion), these contracts will run from 9 to 15 years, with a possible five-year extension.  Consortia led by Airwave, Arqiva, Balfour Beatty, Cable & Wireless, Ericsson, Everything Everywhere, O2, and Vodafone are understood to be the eight bidders to make it to the next phase.  A number of new consultation documents were also released by the government.  These include a new version of the smart meter technical specification, which give more details on meter functionality and communication requirements but does not address specific standards for home-area and wide-area network communications (other than to say they must be based on open standards).

Who Will Benefit?

More significantly, the government has clarified its policies on data privacy.  It is now consulting on proposals that will ensure consumer control over their consumption data.  Utilities will need to gain explicit approval from customers if they want to access data for other than billing and statutory requirements.  Consumers will be able to opt out of providing anything more granular than monthly data to their supplier, and they’ll have to provide explicit opt-in consent before suppliers can access half-hourly consumption data, as well as for any use of energy data for marketing purposes.  These proposals are particularly important given the growing concern amongst consumer groups and others that the suppliers are likely to reap most of the early benefits from the smart meter program.  Energy suppliers in the U.K. are already facing widespread criticism from consumer groups and the media over the perception that they have been profiteering from the volatility in global energy prices.

A House of Commons Public Accounts Committee report published in January, while broadly supportive of the program, also raised issues about how far smart meters would benefit consumers.  The U.K.’s approach to smart metering presents some unique challenges.  The decision to put the responsibility for meter rollouts on the energy retailers means that there is continued uncertainty as to whether network-level smart grid benefits will be given enough priority.  However, the United Kingdom’s approach does mean that consumer issues should be at the fore of the deployment – which is not necessarily the case when the distribution network operator is driving deployment.   Both the government and the energy suppliers are conscious of the need to show the consumer benefits of smart meters as well as their contribution to improving energy efficiency and reducing carbon emissions.  The latest announcements are positive sign that DECC is listening to critics but public engagement must remain a high priority for government and suppliers throughout this long-haul project.

 

With Forecasting, Operators Seek Balance

— June 1, 2012

In most countries, when we flip a switch, the lights come on.  Is this a miracle? No, in fact it’s the product of a great deal of planning on the part of the organizations that operate your local grid.   Both regulated and deregulated markets face many challenges when it comes to ensuring secure, reliable electricity.  One of the most important challenges is forecasting load (or, the demand for electricity on the system).  Load is affected by a number of factors including macro factors such as economic activity and more banal factors such as the day’s weather forecast.

Typically, load follows a predictable pattern.  Slowly increasing from the wee morning hours to a morning peak as people go to work, turn on equipment, etc.  This peak begins to dip in the mid-afternoon, then the load increases again through the evening peak, which occurs when people go home and turn on air conditioners, heaters, televisions and the like.  In order to prepare the system, grid operators forecast the load in advance to budget resources.

The ability to accurately forecast load varies from country to country.  For instance, comparing the day-ahead forecast and actual load profiles for France, Germany, Spain, and the United Kingdom, we can see that, while some European countries are able to forecast load very accurately, others, specifically Germany, consistently have sharp differences between forecast and actual load.  Systems that are able to accurately forecast load will rely less on reserves to cover in case of sharp increases in energy demand.

System Vertical Load for France, Germany, Spain, and the UK, Monday, April 2, 2012 in MW

(Source: Pike Research)

Now, it could be that Monday, April 2nd was an unusual day.  However, checking data for several weeks showed that Germany’s load is consistently erratic.  Germany is the industrial engine of Europe.  Chances are the significant increases and decreases in load reflect the industrial load profile and not residential load, which means that it may be more difficult for German grid operators to influence the demand of electricity on the system.  Barring any change in the load profile, alternatives such as reserves or energy storage could help Germany mitigate its wild load swings.

 

Natural Gas and Wind Power: Friends or Frenemies?

— June 1, 2012

Economics, politics, grid constraints, and a fair amount of luck have set in motion an awkward relationship between the natural gas and cleantech industries that could be characterized as “frenemies with benefits.”  My colleagues Kerry-Ann Adamson and Mackinnon Lawrence have already shared their views on this complex dynamic, and their outlooks are relatively optimistic.  But make no mistake, this could turn into a trainwreck in a moment’s notice.

Low-cost natural gas has been the energy story of 2011 and 2012.  Indeed, low-cost shale gas procured using previously unconventional methods such as fracking has fundamentally changed the energy landscape for both renewables and competing fossil fuels.  Today natural gas is trading at less than $2 MBTU, compared to a height of $14 in late 2005 – in the wake of Hurricane Katrina.  Politicians are increasingly pushing for a “low-carbon” energy standard so that natural gas can be included with renewables.  Natural gas companies and industry associations are claiming they can tap 100 years of natural gas at today’s low prices.  Natural gas is contributing significantly to meager U.S. economic growth.

This is where things get awkward.

The U.S. wind (and to a lesser extent, solar) power industry is in a very tight spot because its production tax credits are set to expire at the end of this year.  Wind can compete with natural gas at $4-$5 gas – but not $2.  Wind industry advocates must increasingly accept the reality that, as wind represents a higher percentage of our energy mix, grid operators are increasingly facing pressure to “firm up” capacity that can swing from hundreds of megawatts down to zero in 15 minutes or less.  Increasingly utilities, developers, and natural gas supporters are eager to point out that natural gas is well suited for this “ramping” role.

At the political level, the U.S. wind industry, already on the defensive with the looming expiration of the production tax credits at the end of this year, may be trying to show some support for natural gas as a quid pro quo to entice swing-state Congressional representatives to commit to a longer extension of the tax credits that are critical to the U.S. market.  At the recent Future Energy Conference in Portland, Oregon, the director of sales for Vestas said that to date, wind and natural gas have been intentionally ignoring each other – but now he is getting phone calls from developers who want to respond to utility RFPs with a combination of both resources, which Vestas welcomes.

That could turn a competitive relationship into a cooperative one.  For years, in the seemingly zero-sum political energy arena, wind and natural gas have been sworn enemies.  When gas was at its price peak, wind had a field day; but with gas now its historic lows it appears the tables have turned.  One complicating factor is that fracking poses extremely serious environmental risks – and the wind industry does not necessarily want to be seen actively promoting it – let alone be associated with the baggage that comes with it.

To complicate things more – few have dared to even question the figures that the natural gas industry proclaims.  What if 100 year gas is more like 11? Bringing on huge amounts of gas will require major infrastructure and storage upgrades – how will that affect the final cost to ratepayers? What if natural gas faces growing NIMBY issues that delay drilling, reduce supply, and prices shoot up? The natural gas train has left the station, but how far it gets, and to what extent it positively or negatively impacts renewables, remains to be seen.

 

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