It’s an undeniable fact that things in our lives are getting smarter: from cars, to homes and workplace technology, and even urban infrastructure. The foundation that drives this ‘smartening’ trend is the inclusion of new technology that connects devices – sensors, controllers, and meters – around us, commonly called the “Internet of Things” (or IoT, for short). IoT applications benefit users by optimizing or creating automated processes. Third party vendors often deliver IoT applications using software as a service -based control application and a pay-as-you-go delivery model.
A similar, but separate ‘smartening’ trend is the electric utility sector’s grid modernization efforts – aptly referred to as smart grid investments. Utility advanced metering infrastructure (AMI) platforms within these investments allow central communications with thousands (if not millions) of smart meters across cities and outside our homes & businesses through a field area network (FAN). The core value of the AMI investment is to allow utilities to drive efficiencies in meter reading, meter turn-on/off activities, customer interaction and outage management responses. But can this infrastructure have additional value in our connected world outside the electric utility domain?
This poses a fundamental question: Can a smart grid investment enable a utility to become an IoT service provider? And if yes, then WHAT, WHY, and HOW? Let’s break down the answer to this question into three logical areas:
The WHAT focuses on which sub-offerings of the vast IoT space can utilities add technical and commercial value. This process helps utilities narrow in on the discrete IoT use cases, which can include:
- Homes – home area networks, responsive or ‘smart’ lights, appliances & thermostats.
- Businesses – information networks, process and energy equipment, water leak detection.
- Cities – parking occupancy sensors, connected streetlights, environmental sensors, flood-monitoring, water meters, gunshot detection.
Applying a technical lens, utilities could consider how its AMI infrastructure connects with these new devices and what new services to offer. This is accomplished one of two ways: (1) using the existing end-points (smart meter) to directly communicate with other devices (sensors, controllers, etc.), or (2) adding additional devices within the utility’s network (effectively adding new end-points). Applying a commercial lens, utilities can determine how to price its services based on the benefits and scope of each IoT application. Some applications can provide universal benefit for all customers (standard recovery) and others will deliver ancillary services to specific customers, which may be competitive or require special rate riders.
The WHY raises the question of when should a utility, assuming they are eligible in the first place, offer IoT services. First and foremost, utilities have an obligation to deliver core services: safe, reliable, and cost-effective electricity. Other services are considered non-core, and cannot impede these operations. While utilities must maintain customer service-level expectations, engaging in non-core service areas can add value that supports the grid infrastructure investment.
Public utilities must report and justify all investments and costs. When considering IoT application services, a utility must establish the regulatory path. Many utilities have, or are demonstrating that AMI costs are prudent to the rate base. Then the questions arise whether incremental costs would be competitive against other market options for the IoT service, and how the additional revenue streams would be applied to the AMI capital cost recovery. As an example, should an electric utility offer the water or gas utilities that are serving the same customers to leverage the electric utility’s AMI solution for the water and gas meters or should the water and gas utilities install their own standalone AMI networks?
Finally, the HOW addresses a utility’s path to embrace and deliver IoT services. From our experience working with clients in this space, it comes down to seven key areas:
- Regulatory Path – identify the mechanism for cost recovery of core-service AMI/FAN infrastructure usage
- A Solid Business Case – justify the costs, benefits, and value proposition for delivering and supporting an IoT application for third parties
- Reliable, Interoperable Communications – connect to the physical devices and understand the impacts (if any) that this new IoT application could have on core operations of the electric utility
- Asset Management Processes – organize and integrate the device information into back-office systems
- Security Standards – maintain encrypted communications with IoT devices to the same level of existing end-point standards, while not accidently opening any security holes when the IoT application interfaces with the third party systems
- New Business Processes – Document operations & maintenance plans to run the new technology service going forward to support the third parties while not adding too much additional operational complexity for its own network
- People – develop the governance framework and resources to manage the new service offering, whether in a new stand-alone group or is embedded within existing utility departments
The IoT sector is facing increasing competition from technology vendors and incumbent network service providers, who are investing in this space. It’s unclear the extent to which utility providers will become a substantial market player in IoT services. The fact remains, utilities acquiring smart grid technologies have an opportunity to explore IoT service offerings that benefit their customers and business model. By focusing on their inherent strengths – connected assets, complete market coverage, customer billing relationships – utilities are well positioned to justify providing IoT services.