IT and the Energy Industry

Intellect– Intellect is trade association for the technology industry in the UK.


The enthralling energy and debate surrounding the impending rollout of smart-meters across the UK is a potent example of the synergies between the technology industry, in particular the telecommunications sector, and the utilities and energy industry. The advent of broadband and wireless mobile communications has presented an opportunity to transform the way utility retailers operate, and empower customers with greater information about—and therefore more control over—their electricity and gas usage.

In October 2008, the Government announced its decision to mandate a rollout of smart meters to domestic electricity and gas customers by 2020, starting from next year. The project will require each of the country’s 26 million homes to be fitted with new gas and electricity meters which will allow customers to monitor their energy consumption on easy-to-use digital devices.

The Government’s preferred communications model, known as the ‘central communications model’, would see gas and electricity supply companies responsible for the provision of smart meters, including their installation and ongoing management, with a single provider appointed centrally to provide communications services to and from meters.

The rollout is expected to cost between £7.7 billion and £9.3 billion, and the benefits are estimated between £11.1 billion and £11.8 billion over the next 20 years. The range of benefits is broad, and goes beyond providing customers with basic data about their energy consumption. From a retail perspective, it is hoped that customers will shift their demand patterns thanks to differential tariffs, in turn easing the pressure on the grid, and the need for new power stations. From a network perspective, operators will be able to spot and manage leakages and boost the grid’s efficiencies. Utility companies themselves will be able to shift resources away from old-fashioned meter-reading, also leading to greater efficiencies. The positive effect on carbon emissions could be significant—UK emissions are expected be reduced by about 2.6 million tonnes per year by 2020—, as could be the improved operational efficiency and transparency of the utilities industry; though of course, careful considerations of data and security issues is a must, particularly for the chosen communications provider.

Yet the project is not without its difficulties. Consumer behaviour is at the heart of the expected efficiencies and savings made possible by smart meters, which is by nature difficult to predict with high levels of certainty. The Government has commissioned a number of risk assessments to look at best and worst-case scenarios, and has estimated the rollout will cost £7-9bn, while bringing about net positive benefits; yet others have claimed the cost could be nearer £13bn1 . The crux is where the cost lies: while energy providers are responsible for the rollout, the associated costs will inevitably be passed onto customers. The hope is that an increase in the cost per unit of energy consumed will be more than countered by a reduction in absolute energy consumption; but with such varying cost scenarios, the scales could be tipped

Once costs have been harnessed, other challenges remain. Meters need to be designed with the correct functionality and interoperability in mind, while ensuring that they will provide the optimum level of service throughout their life cycle (standards will need to be set to this effect). The central communications provider will need to be able to harness the data emanating from each meter effectively and safely.Delivering this data together with the management, dissemination and use brings further challenges. The network used must be reliable, ubiquitous and capable of working over the life of the meter. This is a particular challenge to the telecommunications industry where new systems are often rolled out every 5-10 years or so. There is unlikely to be one solution that fits all. One possible solution is to piggyback on the customers’ existing broadband connection, but only 60% of homes in the UK currently have broadband. Even in the most highly developed countries in Asia, penetration has barely exceeded 70%. A lack of radio coverage underground may pose problems for meters installed in cellars if a wireless system is to be employed. A link between the meter and the “outside world” may be required in these circumstances. Also as we have seen recently the best mobile networks struggle to achieve total coverage, and even satellite systems require aerials on the roofs of buildings which may be difficult in conservation areas. With all these solutions a further system may be required to connect to the electronics associated with the meter. The industry is aware that access to reading the meters can sometimes be difficult. Many meters are situated in inaccessible places making the reading of these devices by the consumer difficult. The Government have indicated that they are likely to mandate in-home display units to counter this.

Nonetheless, this is an exciting opportunity for the technology industry, and one which could bring the UK a step closer to an even more significant transformational project – the smart grid. In many ways, the smart grid represents the epitome of successful collaboration between IT and the energy industry, and one much needed since major carbon emission targets are now enshrined in law. The next stage in the transformation of the utilities and energy sector will require extensive collaboration between National Grid, network operators, energy retailers, the regulator and the technology industry to ensure that the smart grid delivers optimum results.

1. Ernst & Young report, May2009

Scarlett Graham and Stephen Hearnden;
Intellect
Russell Square House,
10-12 Russell Square,
London,
WC1B 5EE
Tel: 020 7331 2000
Web: www.intellectuk.org