In mid-October, San Diego Gas and Electric (SDG&E) regulatory filings indicated that the company has changed plans to deploy a foundational private WiMAX network as part of its ongoing smart grid deployment, opting instead for a mix of various public and private network systems.  This move is noteworthy because SDG&E is a leader in adopting a comprehensive, integrated, smart grid communications strategy.  Its abandonment of WiMAX raises questions about the future of private 4G network technology for smart grid.  Pike Research has been bullish on the future of standards-based private wireless for smart grids, so naturally we’re asking ourselves the same questions.

Utilities have a longstanding preference for private wireless over public cellular (though this is often overstated as vocal proponents of private wireless usually also have pervasive public cellular deployments, especially for advanced metering infrastructure (AMI) backhaul).   However, for critical applications (such as distribution and substation automation), private networks are still considered more reliable and resilient in the face of disruptions, and in some areas, the regulatory preference for returns on deployed assets tilts the field toward private networks.  Private 4G technologies such as WiMAX offer a standards-based private solution with strong performance and are expected to displace the plethora of proprietary solutions available.  SDG&E, CenterPoint Energy, and Oklahoma Gas and Electric (OG&E), as well as many smaller utilities in Canada, were and are heading in this direction.

Smart Grid Communications Node Shipments (Excluding Smart Meters), As % of Total, North America: 2012-2020

(Source: Pike Research)

However, as SDG&E discovered, reserving guaranteed spectrum for such private networks is challenging.  SDG&E had earlier been a showcase customer of Arcadian Networks, which built a product offering around dedicated spectrum that covers most of the United States.  However, Arcadian failed to attract enough customers to convince its investors that such networks were the best use of their spectrum, and ultimately failed.  This is less of an issue in Canada, where WiMAX-suitable spectrum has been reserved for utility use, leading to greater usage.

Against some of these challenges, public cellular companies have more aggressively supported some of the bandwidth and service guarantees required by utilities, enabled by new capabilities delivered by their own 4G networks.  Public telecom carriers have been riding a wave of greater acceptance by utilities for AMI applications (both to the meter and for backhaul), but not all of these are considered mission-critical, at least from the perspective of immediate availability during an outage crisis.

Where will this lead? At Pike Research, we still see a strong trend toward adoption of open standards for public and private, wired and wireless network technologies, and the benefits of integrating these in a unified communications architecture rather than in separate application silos is too great to ignore.  The ongoing post-mortems of recent major storms, such as Hurricane Sandy, should help guide in the private versu public network resiliency debate, if utilities are willing to share their experiences.  We still see a strong future for private 4G wireless technologies but also strong growth of public 4G networks (40% CAGR, 2011-2020, for unit shipments into distribution automation and AMI backhaul applications in North America).   We’ve never said that there will be “one network to rule them all,” much to the chagrin of some network equipment vendors.  Diversity will remain the key defining attribute of grid communications networks long into the future.

Utilities are facing a learning curve, but to paraphrase Darwin, it’s not the strongest that will survive, but the most adaptable.  In most utilities, the relationship between the utility and the customer is largely transactional; the provider delivers electricity, gas or water and the customer pays for that service.  However, as the grid modernizes and consumers become increasingly vocal and expressive, asking the customer to interact with the utility in the way that’s easiest and most efficient for the utility is no longer a viable strategy.   Control, persuasion, and influence have run their course; instead, helping consumers achieve benefits efficiently and effectively is at the heart of consumer empowerment and utilities’ success going forward.  (For more on this topic, sign up for this upcoming webinar on Smart Grid News, titled “Lessons from the Real World: Understanding and Engaging with Your Customers,” on September 25.)

The empowerment of energy consumers is an opportunity to drive innovation in the utility that can create operational and competitive advantage (where there is competition) by interacting with people on topics related to energy information, efficiency, safety and new product offerings.  The digitization of the customer voice, powered by individuals’ ability to access information on almost any topic instantly, is a potent determinant for the success of customer relationships.  The interactivity of social networking creates a collective customer experience where customers discover new products together and share their experiences and their opinions.  Anybody who has ever gone to Google for help with a computer problem understands this; like-minded users are often better qualified to help other customers than company employees.

By recognizing the fact that customers can and will advise each other, utilities that seamlessly integrate company expertise in a manner that facilitates customer collaboration will create gratifying experiences for their customers.  As the Smart Grid News webinar will explore, utilities can increase customer satisfaction and loyalty at a lower cost than traditional means of reputation management, differentiation and marketing.  To realize a return on investment from these new processes, utilities must adapt their customer interaction practices and develop systems for the analysis of results that allow for adjustment and fine-tuning of useful and meaningful messages.

Realizing that current marketing practices like “message exposure” and “captive audiences” may in fact be creating worn-out and bored customers is the first step in moving toward customer empowerment.  Utilities must become customer-centric for real engagement to work.  The primary difficulty is accepting that there is a loss of control perceived in turning the organization to an outside-in focus.  This fact underscores the need for a comprehensive approach to creating cultural change that acknowledges the fact that customers are strategic assets, not captive ratepayers.  Adaptable utilities will figure out how to optimize and exploit innovative and emerging application platforms to deliver tailored marketing strategies, tools that make it easy for customers to understand the product offerings that help them modify their consumption patterns, and merchandising techniques that provide information, interaction, and customization.

Oracle has released an intriguing study that includes a survey of utility executives who collectively say they are not doing so well when it comes to Big Data – i.e., the challenge of making sense of large volumes of complex data that can be transformed to help improve business operations and customer service.  In fact, the utility executives rank themselves among the least prepared to handle the data deluge, something we at Pike Research have noted as a major challenge for the industry as it transforms itself with smart grid technologies.

Here is the relevant scorecard, according to Oracle’s study:

• Public sector (government), health care and utility industries are the least prepared, with 41% of public sector executives, 40% of health care executives, and 39% of utility executives giving themselves a grade of “D” or “F” for preparedness
• Overall, 29% of the C-level executives surveyed from 11 different industries in North America give their firms a “D” or “F” for preparedness
• By contrast, communications industry executives claim to be the most prepared to handle the data deluge, with 20% giving themselves an “A”

Practically all the executives surveyed are concerned about the near- to mid-term data challenges, with 97% saying their firms must improve their use of data over the next two years.  Thus utilities are not alone, just behind the curve compared to others.

So why are utilities flunking out?  One reason is a lack of experience.  Few utilities have ever seen such a huge volume of data generated from utility processes.  In the past, utilities read a meter once a month and sent a bill.  That’s roughly 12 data points per year per meter.  With the latest technology, that volume expands exponentially, with the potential number of meter reads increasing to more than 35,000 per year per meter (based on 15-minute intervals).  That’s an increase of 291,900%!

And that’s just the meter read.  Some advanced meters also send and receive other data related to pricing, pre-paid options, load control, tamper detection, and temperature, which can amount to hundreds of additional attributes that must be processed and correlated.  In addition, the grid itself is being outfitted with a plethora of new two-way communicating devices that report their measurements even more frequently than most smart meters.  These additional types of data create new challenges that many utilities are just now trying to comprehend, and leverage to their benefit and that of their customers.

Moreover, the utility industry lacks skilled data analytics experts.  With just about everyone across the corporate spectrum seeking these people, utilities have to compete for scarce talent.  Most people with these skills are gobbled up by sexier industries, like communications or web-based businesses.  As a result, utilities are turning to third-party vendors for help with data analytics, and that will help ease the burden for the near-term.  However, utilities that want to leverage the data in their own way and perhaps save the cost of outsourcing will need to bring this expertise in-house.

The data deluge is a growing, long-term issue that will test utilities for years to come.  The message from the Oracle survey does have an upside, however: executives know they are failing, which is the first step in making the necessary changes to improving their performance.

ABB picked up another dance partner with the planned acquisition of Tropos Networks, a leader in standards-based 802.11 Wi-Fi and WiMAX for smart grid applications.  This is the latest in a spree of major and minor ABB acquisitions, with the most recent big one being January’s announcement that ABB would acquire Thomas & Betts for $3.9 billon.  Certainly Tropos Networks, with somewhere around 50 people, counts in ABB’s “minor” acquisition tally.  But it is significant nonetheless, as ABB is jumping into the communications market while its other smart grid buys have focused on software and analytics (Ventyx, Obvient Strategies) or expansion of power infrastructure and equipment (such as Powercorp).

ABB is no stranger to smart grid communications, with leadership in IEC 61850 standards for substation automation and a popular line of communications gateways.  However, ABB has been largely agnostic on actual communications technologies.  Tropos now puts ABB in the middle of the Field Area Network battle, a crowded segment with many private / public / wired / wireless offerings from a plethora of large and small vendors.  Tropos has had respectable success with Wi-Fi based mesh networks for distribution automation, AMI backhaul, and other smart grid applications, but like others, has found breakaway success elusive.

One of the key assertions of smart grid technology adoption is an evolution from vertically integrated application silos (including communications) toward horizontal multi-layer networks supporting multiple applications.  Yet this acquisition could be viewed another vertical element to ABB’s distribution and substation automation solutions.  And ABB would not be alone, as GE continues to talk about WiMAX field networks, S&C continues to develop its SpeedNet technology, and Cooper Industries (soon to be Eaton) picked up Eka Systems not long ago.  Does this portend a continuing mish-mash of grid communications?

We think the answer is a little yes and little no.  Utility business models still favor projects that have fully self-contained ROIs, making more general multi-application investments in grid infrastructure difficult to justify.  This makes the job of broader communications companies such as Cisco, Trilliant, and Silver Spring Networks (outside of AMI) that much harder.  Yet as each of these solutions adopts IP standards, which is happening though with frustratingly varying degrees, interconnectivity into viable “networks of networks” become more possible, and the benefits of a layered multi-service network can be realized.

Getting back to ABB and Tropos, there are likely other good business drivers for the acquisition outside of smart grid, as there are other industrial automation, transportation, and mining applications where the Tropos solution can help.  And Tropos, whose major strength is in North America, can help expand ABB’s footprint as well.

Naturally, other independent vendors of grid communications technology, including Trilliant, FreeWave Technologies, On-Ramp Wireless, and Silver Spring Networks, are certainly watching and wondering if one of the other grid infrastructure vendors might ask them to dance. Fortunately for them, the music is still playing.