Alcatel-Lucent Smart Grids Final

The Economic Benefits of Smart Grids and the Role of
Communications
Author
Max Bryan Alcatel-Lucent Australia
Presenter
Matt Bostwick Alcatel-Lucent New Zealand
EEA Conference & Exhibition 2009, 19-20 June 2009,

Christchurch
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1. Introduction
Recent concerns with the global economy have raised questions about what people might be
prepared to give up in response to tougher economic times. While many familiar items may
be considered, it is unlikely that electricity would be included or even contemplated in most
cases. Of the many ‘important’ items essential to our daily existence, few would come close
to the fundamentally critical position that electricity occupies. It is so pervasive and still
relatively cheap that it almost passes unnoticed, that is until something goes wrong or we are
faced with significant price hikes.
As we move into the early part of the 21st century, there will be an increased focus on the role
that electricity plays in our daily existence. Our collective attraction to more and more
electronic goods, from PCs, wide screen TVs, white goods, electric vehicles, heating and air-
conditioning, and increasing demand from more office buildings, large shopping centres and
manufacturing plants is putting pressure on electricity utilities. Increased usage is pushing the
need for expensive, additional generation capacity and straining distribution networks. While
we take electricity for granted most of the time, we are less tolerant of supply problems and
expect unquestionable reliability. Electricity underpins the digital economies of the 21st
century and causes significant economic impact when it is not available.
Equally, if not more important, is the impact that electricity production has on the climate,
particularly where it is based on coal.
The seemingly endless need for more capacity, efficiency and reliability coupled with more
greenhouse gas emissions is no longer a sustainable model. Change is required.
Smart Grids are seen as one response to the challenges of increased capacity, efficiency and
reliability. They also include distributed power generation, based more on renewable
resources, thereby addressing some of the climate change issues.
The challenges of implementing Smart Grids are significant, more than a single electricity
utility or vendor can address by themselves. There are major Smart Grid initiatives underway
in the USA and Europe, with participation from governments, utilities and industry. Recent
initiatives in this area have been seen in some of the stimulus packages announced by the US
Government.
2. Challenges for Electricity Utilities

It is interesting to observe the increase in the use of electricity since the 1950s. At that time,
electricity was primarily used for lighting, motors, refrigeration and a few entertainment
devices in the home. This was relatively consistent across a number of sectors, including
industry, retail, business, finance and healthcare (reference: The Electric Economy; Global
Environment Fund – August 2008). This has completely changed over the last 50 years and it
is now difficult to find any device that does not use electricity in some way.
The seemingly never-ending spiral, which will affect both developed and developing
countries, has led to predictions of a doubling of worldwide electricity demand in the next 40
to 50 years, requiring the construction of tens of thousands of generating plants.
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In developed countries, virtually everything depends on electricity in some way and the
impact of supply problems can be quite significant. One estimate put the impact on the US
economy at just a little more than 1% of GDP (reference: NETL Modern Grid Initiative –
April 2007).
To address the challenges facing the electricity industry the emerging Smart Grid can be
characterised as:
• More reliable: providing power dependably and with a high quality;
• More secure: able to withstand physical and cyber attacks without resulting blackouts;
• More economic: operating under the laws of supply and demand and providing fair
prices;
• More efficient: reduced transmission/distribution losses and improved asset utilisation;
• More environmentally friendly: based on initiatives in generation, distribution, storage
and consumption and an increased usage of renewable resources; and,
• Safer: no harm to users or grid workers and sensitive to those who use it as a medical
necessity. (reference: NETL Modern Grid Initiative – April 2007)
While it is not fair to say that electricity networks in developed countries perform poorly in
relation to any or all of the above benchmark areas, it is clear that their current capabilities
are not acceptable when considering the importance of electricity, increasing demand and the
need for the industry to lower its collective environmental impact, either through more
efficient operation or increased use of renewables.
Given the diverse nature of the Smart Grid objectives, one of the other challenges facing
electricity utilities will be: where to start. No one can implement a Smart Grid as a single
project. The implementation of a Smart Grid will be achieved as a series of projects over a
long period. Indeed, it could be argued that a Smart Grid implementation is really a
continuous improvement process for generally risk-averse electricity utilities, in part because
improvements must be achieved in manageable steps but also because improvements in
electricity network technology and equipment, network management capabilities and
communications technology will also be an ongoing process. The Grid 2030 paper from the
US Department of Energy (July 2003) addresses this area and plots improvements in
electricity network technologies stretching out to 2030.
3. Smart Grid Initiatives

Implementation of an electricity network that achieves the objectives of the Smart Grid will
be a costly and complex exercise. No single organisation has the experience or knowledge to
address all of the applications, network infrastructure and communications issues that arise
out of such an undertaking.
Recognising this, governments, utilities, industry groups and others in America and Europe
have begun taking various Smart Grid initiatives.
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3.1. United States of America
The US government and industry has been very active in addressing Smart Grids. Most
notably, the US government stimulus package from February 2009 includes approximately
USD4.5B in funds targeted specifically at Smart Grids.
However, the US government understood the importance of Smart Grids some years ago and
had already passed legislation to advance the concept.
The Energy Information and Security Act (EISA) of 2007 had as a primary objective to
“…increase energy efficiency and the availability of renewable energy”. It established “a
federal policy to modernise the electric utility transmission and distribution system to
maintain reliability and infrastructure protection”. It also included a definition of the scope of
a Smart Grid:
”Smart Grid is defined to include a variety of operational and energy measures
including smart meters, smart appliances, renewable energy resources, and energy
efficiency resources.”
Specific initiatives related to Smart Grids included:
• The establishment of a federal policy to modernise the electric utility transmission and
distribution systems;
• Reporting requirements on Smart Grid deployments and barriers, reporting requirements
to Congress;
• Requirements to conduct Smart Grid research, design and development;
• Incentives for Smart Grid investments (reimbursements of 20%);
• Encouragement for utilities to employ Smart Grid technology and recover Smart Grid
investments through rates; and,
• Requirements on the Department of Energy to report to Congress on the potential impacts
of Smart Grid deployment on the security of electricity infrastructure and operating
capability.
While not mandatory, it certainly set a direction for the industry.
A number of other initiatives, with various levels of participation by government, utilities and
others have also been put in place. These include:
NETL Modern Grid Strategy: The National Energy Technology Laboratory (NETL) is a part
of the US Government’s Department of Energy (DoE). The NETL conducts research and
development to support the strategic goals of the DoE related to the availability of reliable,
affordable and environmentally sound energy. NETL is active in developing a national grid
modernisation framework and in the management of electricity transmission and distribution
projects. Importantly, it is also working with other parts of the US government on the Modern
Grid Strategy initiative which looks at the benefits of state of the art technologies and aims to
develop a shared national vision for the modern grid. (reference: NETL;
www.netl.doe.gov/moderngrid/)
The GridWise®Alliance is a consortium of public and private stakeholders working towards
a vision of ‘an electric system that integrates the infrastructure, processes, devices,
information and market structure so that energy can be generated, distributed and consumed
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more efficiently and cost effectively; thereby achieving a more resilient, secure and reliable
energy system.” (reference: Gridwise®Alliance; www.gridwise.org).
Their membership includes more than 70 companies covering energy equipment vendors,
consulting firms, IT and telecommunications vendors among others. Working with the DoE,
the consortium has an action plan which covers areas such as the deployment of innovative
technologies and the support of innovation within the industry.
3.2. European Union

Within the EU, the European Commission Seventh Framework program for Research is seen
as a key initiative related to general growth and employment objectives. A number of
‘technology platform’ programs have been established to support the above objectives and
one of these is the Smart Grid Technology Platform.
The platform comprises representatives from industry, utilities, research bodies and
regulators and was established “to create a joint vision for the European networks of 2020
and beyond.” (reference: European Smart Grids Technology Platform Vision and Strategy for
Europe’s Electricity Networks of the Future – 2006).
Key elements of the vision include:
• Creating a toolbox of proven technical solutions that can be deployed rapidly and cost-
effectively, enabling existing grids to accept power injections from all energy resources;
• Harmonising regulatory and commercial frameworks in Europe to facilitate cross-border
trading of both power and grid services, ensuring that they will accommodate a wide
range of operating situations;
• Establishing shared technical standards and protocols that will ensure open access,
enabling the deployment of equipment from any chosen manufacturer;
• Developing information, computing and telecommunication systems that enable
businesses to utilise innovative service arrangements to improve their efficiency and
enhance their services to customers; and,
• Ensuring the successful interfacing of new and old designs of grid equipment to ensure
interoperability of automation and control arrangements
The establishment of the technology platform has led to a number of strategic research
activities covering areas including Smart Distribution Infrastructure, Smart Operation and
Smart Grid Assets and Asset Management.
Another activity within the Smart Grid Technology Platform, known as ADDRESS is
specifically targeted at energy utility requirements, communications technologies and
architectures to support the Smart Grid.
In Australia, most government activity in the Smart Grid domain has been focussed on Smart
Meters, primarily through the Ministerial Council on Energy. A number of papers dealing
with meter functionality and Smart Meter Cost Benefit Analysis have been prepared over the
last few years. Although to date there has been little government activity specifically targeted
at Smart Grids, there is some groundswell activity within the industry. For example, Smart
Grid Australia is actively pursuing the topic. The CSIRO and various universities are also
working in Smart Grid related areas.
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4. The Role of Telecommunications in Smart Grids
The range of activities undertaken by electricity utilities can be quite diverse, depending on
the part of the network in which they operate.
Operational networks include SCADA, teleprotection, smart metering, voice and video and
security services including access control and CCTV. Also included can be a workforce
management and an operational data network. Corporate networks can include LAN services,
voice and video, call centres and Internet services.
Because electricity is required virtually everywhere, from large cities to remote dwellings, the
geographic range of networks is extensive. Further, operational parts of the utility network
include substations, depots, roadside and pole mounted transformers and a range of other,
challenging physical locations.
These two network types, operational and corporate, and the services and applications they
support, may share common network resources. However, the different services may have
very different requirements in terms of availability, bandwidth, transaction rates, latency and
security. As an example, teleprotection requires extremely high reliability and has
particularly tight latency requirements. Operational voice is also a critical service and can be
particularly important in grid recovery during natural or other disasters. The ability to manage
various network characteristics for each type of service is very important, particularly when
the communications network is critical to the reliable operation of the electricity network.
Recognising the importance of the communications infrastructure, some countries have
introduced very strict regulatory requirements. The North America Electric Reliability
Corporation Critical Infrastructure Protection standards (NERC CIP) are a good example of
this.
The diagram below shows the various parts of a network that underpin the operation of
electricity utilities.
Figure 1: Telecommunications Network Example

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Because of the diverse nature of the services and their wide geographic spread, appropriate
communications technologies, either owned by the utility or using public network operators,
must be chosen carefully. This is especially the case today where siloed types of
implementations can no longer be tolerated.
Network technology is critical to the evolution of the next-generation utility. The intelligent
utility network (“SmartGridNet”) must support the following key requirements.
• Virtualisation – Enables operation of multiple virtual networks over common
infrastructure and facilities, while maintaining mutual isolation and distinct levels of
service.
• Quality of Service (QoS) – Allows priority treatment of critical traffic on a “per network,
per service, per user basis”.
• High Availability – Assures constant availability of critical communications, transparent
restoration, and “always on” service - even when the Public Switched Telephony
Network (PSTN) or local power supply suffers outages.
• Multi-Point to Multi-Point Communications – Provides integrated control and data
collection across multiple sensors and regulators via synchronised, redundant control
centres for disaster recovery.
• Two-Way Communications – Supports growing sophistication of interactions between
control centres and end customers or field forces to enable new capabilities (e.g. customer
sellback, return, or credit allocation for locally stored power; improved field service
dispatch, information sharing and reporting).
• Mobile Services – Improves employee efficiency, both within company facilities and in
the field.
• Security – Protects the infrastructure from malicious and inadvertent compromise from
both internal and external sources, assures service reliability and continuity, and complies
with critical security regulations (e.g., NERC CIP).
• Legacy Service Integration – Accommodates the continued presence of legacy Remote
Terminal Units (RTUs), meters, sensors and regulators, supporting circuit, X.25, Frame
Relay (FR) and Asynchronous Transfer Mode (ATM) interfaces and communications.
• Future-Proofing – Capability and scalability to meet not just today’s but also tomorrow’s
applications as driven by regulatory requirements (such as Smart Metering) and new
revenue opportunities, such as utility delivery of business and residential
telecommunications (U-Telco) services.
One further point reinforces the importance of appropriate telecommunications technology
and network architectural choices. The Smart Grid will be implemented as a series of
improvement projects. The implementation of an appropriate telecommunications
infrastructure by an electricity utility can be used as the basis for supporting multiple, diverse
Smart Grid projects, saving cost through re-use of existing capabilities and potentially
speeding up the delivery times of the Smart Grid projects.
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5. Economic Benefits
It is arguable that the level of investment in electricity networks has been lower than it might
otherwise have been over the last 20 to 30 years, although this situation will vary from
country to country. While, in most cases, the performance of the networks is adequate,
demands of 21st century economies and 21st century customers are forcing changes in the
industry.
Smart Grid initiatives, implemented as a series of improvement projects over many years are
expected to deliver a range of benefits. Due to the relatively early stages of Smart Grid
initiatives, it is difficult to be too quantitative about the real benefits at this stage. However, a
number of expected economic benefits can be identified.
• Energy Efficiency: this can be explained in a number of ways. Better asset utilisation
should lead to more efficient operation of power plants, better use of capital and a
lowering of operational costs. Further, better control of the network should lead to lower
transmission losses and the delivery of higher quality power, both reducing economic
losses.
• Environmental: Some countries have established targets for power derived from
renewable resources; typically in the order of 20% by the year 2020. The overall affect of
achieving these targets will be to reduce the reliance on coal and other sources of
greenhouse gases and help to achieve global targets for reductions in this area. This will
be particularly challenging since predictions for energy growth in countries such as China
show a very heavy reliance on coal.
• Electricity Usage and consumer incentives: the introduction of Smart Meters as a Smart
Grid initiative will change the way in which customers interact with their energy provider.
Providing electricity consumers with better information on their electricity usage through
the use of In Home Displays, coupled with tariff incentives, offers the hope of a reduction
(or a slower increase) in energy demand in the home. Further, encouragement of
consumers to reduce their power consumption at peak times, or allowing the utility to
take this action as part of a tariff incentive should assist in lower energy demand peaks,
which occur for short periods but require massive investments in generation capacity.
These initiatives are not necessarily new since energy utilities have, for decades,
encouraged their bulk users to spread their energy demands more evenly across any day.
The new dimension is the involvement of the ‘average’ consumer through two way
communication via Smart Meters. In Australia, at least, we have already seen how
government and community action can change water usage patterns; other initiatives,
coupled with appropriate investments are needed to achieve similar results in electricity
usage. The benefits are lower long term capital requirements for new generation capacity.
• Workforce: a study by KEMA (Reference: The US Smart Grid Revolution, KEMA’s
Perspectives for Job Creation - 2008) prepared for the Gridwise Alliance investigated the
impact on job opportunities with investments in Smart Grids. The study concluded that,
with reasonable Smart Grid investments, approximately 280,000 new positions, primarily
in direct utility suppliers and indirect utility supply chain, would be created in the period
up to 2012. Further, once the main Smart Grid deployments had been completed,
approximately 140,000 new jobs would persist as ongoing, high value positions.
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• Distributed Generation: home systems, comprising solar cells and a means of delivering
power into the grid are already available. While still expensive, these systems offer a
degree of independence from the grid for the ‘ordinary’ consumer. The benefit for the
consumer comes from reduced electricity bills through their ability to supply their own
power and to sell any excess back to the utility. The benefit for the utility is potentially
reduced peaks in demand and ultimately deferred investment in additional capacity. High
levels of distributed power generation do, however, provide significant control problems
for the electricity utility.
Just as the investment levels and current network performance will differ between countries,
so will the range and level of economic benefits.
6. Conclusion
Smart Grids are steadily increasing in their visibility, particularly in recent times with
significant investment commitments. Further, a general awareness of Climate Change issues
and a realisation of the contributions of the electricity generation industry have forced
attention onto our seemingly insatiable appetite for all things using electricity.
Growth of electricity usage in the western world and the forecast usage in emerging
economies, particularly China and India, results in projected electricity usage over the next
20 years which will be extremely difficult to fund, even if it was physically possible to build.
In many countries, particularly the USA and in Europe, considerable effort by utilities,
universities and industry and backed by governments is being directed into developing and
deploying Smart Grids.
Smart Grids, built using improvements in grid infrastructure, applications and intelligent
devices offer a hope of addressing these issues. This will be achieved by better efficiency and
control in developed economies and applying Smart Grid technologies more effectively in
developing countries. The selection and deployment of appropriate telecommunications
technologies underpins the implementation of Smart Grid projects.
All of this will happen in parallel with the increased usage of renewable resources and a grid
architecture which relies on distributed generation, from smaller power plants down to
individual homes.
One thing is clear, the way the industry has evolved over the last fifty years is no longer a
sustainable model for future development.
Smart Grids are one of the key ways in which economic growth, built around a sustainable
electricity future can be achieved.
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End of Paper
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The Economic Benefits of Smart Grids and the Role of

EEA Conference & Exhibition 2009, 19-20 June 2009,

2. Challenges for Electricity Utilities

3. Smart Grid Initiatives

3.2. European Union

Figure 1: Telecommunications Network Example

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