3 Factors Driving Smart Grid 2.0

There’s nothing quite like ownership. Certainly, that’s been the traditional position of public utilities when it comes to Smart Grid communications. Since the inception of the Smart Grid and through much of its evolution, most utilities have chosen to own and operate their own private communication infrastructures.

In a lot of ways, this made sense: utilities are obviously concerned about maintaining the security and reliability of communications affecting critical infrastructure, and have been hesitant to entrust that to a third party. And it’s not like utilities have no experience building and maintaining infrastructure, right?

Well, kind of. While some maintenance aspects do translate from the world of energy transmission and distribution to communications, the reality is that a modern IP communication network is a vastly different animal. And, while utilities may like the idea of end-to-end control over both energy transmission and Smart Grid communications, for many utilities, it just doesn’t make economic sense any longer.

For this reason, the industry is seeing more and more utilities collaborate with third-party mobile network operators (MNOs) to host their Smart Grid communications. Indeed, this shift is becoming so significant, some in the industry refer to this evolution as “Smart Grid 2.0.”

So what exactly is driving this transition? ABI Research recently explored this question in a new paper, “The Evolution of Smart Grid 1.0 to 2.0.” Here are three prime factors driving the shift to Smart Grid 2.0:

1. Focusing on Core Competency

The biggest reason utilities are looking to “outsource” Smart Grid communications to MNOs is also the most straightforward: communications are just not a utility’s core competency. Can a utility build that competency? Of course. Along the same lines, an automobile company could build up the infrastructure necessary to manufacture its own tires. But why? Why invest the time, manpower, and dollars to recreate something yourself, when you can purchase a mature product from a vendor that focuses exclusively on providing it?

For a utility building out the Smart Grid, global MNOs can offer deep expertise and many years experience in secure wireless communications. And, every dollar a utility saves by not building and operating communications infrastructure is a dollar that can be invested in smarter energy infrastructure.

2. Falling Costs

Even when utilities considered offloading communication services in the past, the costs were often high enough that the value proposition wasn’t compelling. But that’s changed a lot over the last several years, largely due to a maturing cellular industry.

As cellular technology has matured, it has come down significantly in cost. (Where an embedded GPRS cellular module cost approximately $30 a few years ago, today they cost roughly half that.) But the industry itself has also changed as MNOs have launched lower-cost rate plans for machine-to-machine (M2M) cellular connectivity, and begun to target and compete for utilities’ Smart Grid business.

Today, utilities can connect Smart Meters for around 50 cents per meter per month. ABI Research argues that with the current state of cellular technology and services, the deployment and ongoing operational costs of a hosted solution are substantially lower than owning and operating a private communications infrastructure.

3. Greater Trust

Just as important as these factors, the degree of confidence that utilities have in MNOs has also changed over the last several years. As the cellular industry continues to grow, utilities have begun to recognize the substantial investment that MNOs have made, not just in their communications networks, but in assuring the security and reliability of those networks. Today, many utilities recognize that a Smart Grid communication network hosted by an MNO is just as safe and reliable as one owned by the utility, if not more so.

Expect these trends to continue. As the cost of cellular technologies and services continue to decline, and cellular Smart Grid offerings continue to mature, the economics of collaboration rather than ownership have become too compelling to ignore.

What are your experiences?  What have you experienced regarding Smart Grid communication networks?  Please share your thoughts/observations.  We look forward to your comments.
Rita Mix Utility Industry Lead Marketing Manager AT&T About Rita