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Energy system transition and smart grids: Will Europe ever get there?

Article in the Energy Industry Times, Volume 6, Number 8, October 2013
By John Harris, Vice President and Head of Governmental Affairs and Public Relations

There is so much buzz about smart grids, smart houses, smart cities, smart markets, smart this and smart that right now, let’s get back to basics for a minute. The historical electricity supply system – and the one we still have today – is pretty simple: you have a heat source that produces steam which drives a turbine and produces electricity. The heat source can come from uranium, coal, lignite, gas or oil. The electricity produced is then transported via copper cables, first big ones then smaller ones, to a point of consumption, whether it be a high-tech factory or a light bulb in a hut. The generation of electricity is usually conducted in large, centralized power plants, and the system is designed to transport that electricity to the most remote dwelling in a one-way flow. This is not rocket science.

The role the meter plays in all of this was also relatively simple. Landis+Gyr was founded in Zug, Switzerland in 1896, eight years after the electricity meter was invented, and for the first 110 years or so of the company’s existence, the electricity meters the we produced were little more than cash registers; they measured the amount of electricity delivered. Those Kilowatt-hours multiplied by the price of electricity was the amount the end consumer had to pay to the utility.

Recent developments and future plans for energy supply in Europe change two particular elements of this scenario: generation and commercial supply, and the role of the electricity meter changes with them. The meter (and the system behind it) moves from being a cash register to an operational element in the network. At the same time the demands placed on the grid, particularly the medium and low voltage network, increase exponentially. And here the lowly electricity meter changes character significantly and plays a decisive role.

In the mid-1990’s the European Union decided to liberalize the supply of electricity and gas. No longer would European consumers be tied to their local monopoly, but could choose from a number of suppliers. At the same time, the generation of electricity became competitive, and energy exchanges were created which set wholesale prices. Only the grid remains a “natural monopoly”. This policy decision still casts a long shadow as Europe tries to develop smart grids.

In the meantime pressure was being put on the generation of electricity and the traditional power plant fleets. First, global warming and climate change brought the traditional sources of thermal energy in disrepute. Later, the nuclear disaster at Fukushima caused a general debate on the risks involved in nuclear power, which was already controversial in many countries.

Between these two forces of the commercialization of supply and the de-carbonization and de-nuclearization of generation is the grid, and the point of contact between the network and supply is the meter – which in the meantime, has become smart, i.e. it can talk to the consumer as well as the network operator and the supplier, and supply a wealth of information and data useful to all actors in the value chain, from the end consumer to the supplier, network and grid operators to generators.

The smart meter can be seen as the greatest consumer empowerment tool of the last one hundred plus years. For the first time, consumers have detailed information on their energy use. Trying to save electricity without knowledge of level and time of use, is like trying to adhere to a speed limit without a speedometer in the car. For the first time, consumers can receive accurate bills and just pay for the energy they consume rather than be tied to estimated bills for most of the year. Consumers can also more easily take advantages of the benefits of liberalization with smart meters. They can change suppliers more easily and based on the information on their consumption pattern provided by smart meters, the suppliers can offer products most suited to their lifestyle.

At the same time, the revolution in the generation mix – away from centralized thermal power plants to de-centralized and small generation such as wind power and photovoltaics – makes it imperative that non-dispatchable generation be complemented by variable load. That means that load/consumption should increase when there is an abundance of renewable energy and consumption should be reduced when either generation or network capacity is tight. This can only happen when the data on generation AND consumption is readily available to all market actors. This is the crucial information provided by smart meters. Moreover, the smart meter plays an operational role: based on the information it provides, both generation and consumption can be adjusted to specific circumstances. The electricity from solar panel on the roof of a house can be throttled, if need be, or a heat pump and hot water heater activated to make maximum use of the availability of that renewable energy. Moreover, the smart meter provides invaluable information for the network operator on voltage and power quality as well as detailed information needed for investment decisions.

If the smart meter is so central to the development of the energy supply system in the 21st century, then why don’t we already have complete coverage from Finland to Portugal and from Scotland to Greece? The problems are not technical. Despite what some say, standardization is not an issue nor is the technology questionable. It is tried, tested and mature.

Landis+Gyr and many other smart metering and smart grid providers have the required technology “sitting on the shelf”. The investments in the technology necessary to realize both the goals of market liberalization and the transition of the generation system are not taking place. The European Union’s 3rd Energy Package foresees 80% coverage of European households with smart meters by 2020. We, in the industry, do not see that happening.

In almost all EU Member States, the metering system is part of the network infrastructure and thusly part of the “natural monopoly” of the distribution system operator. Investments in smart metering are therefore, the subject of negotiations between the network operator and the national regulatory authority. Both of these two are well versed in negotiating over “copper and steel”. But the development of the smart grid depends on adding intelligence to the system, not more hardware.

But that is exactly the point: we do not want to invest in “more of the same”, i.e. enhance the grid with hardware to cover any and all eventualities. Rather we want to be “smarter”. By adding intelligence to the network – particularly in the area between the sub-station and the point of consumption, where it is “blind” today, the network can be run more effectively and sounder investment decisions can be made.

To add to this complication is that some regulators have thrown in the notion of a “smart market”. The idea is that the investment in certain technologies belongs in the competitive part of the value chain rather than in the regulated infrastructure. The unbundled, liberalized energy market foreseen in the 2nd Energy Package of 1996, makes investments in smart grids technology more difficult. In almost all EU Member States, the distribution system operator (DSO), a natural monopoly, is responsible for metering.

The beauty of smart metering is that it brings benefits all along the value chain. The problem lies therein, that the benefits are spread out and longer term, but the costs of making the investment are concentrated (usually with the DSO) and immediate. An unbundled, liberalized electricity market makes dividing this “cost pie” much more difficult. The smart metering industry in Europe is looking at a flat growth rate in at least the next two to three years.

Other regions of the world, such as Australia, Asia and North America have already surpassed Europe in the deployment of smart metering and smart grids technology. With few exceptions they all have not liberalized nor unbundled their energy markets or at least have gotten past the politics of “who pays for what” vs “who benefits from what”, and have found a way to deploy smart metering technology to the benefit of all stakeholders. A vertically integrated energy company derives all the benefits of smart metering from supply upwards, and therefore, is willing to make the investment. Furthermore, the benefits provided from smart metering are usually greater and at lower cost.

It would be difficult to argue here for a complete reversal of European energy market policy of the last 15 years, but the hurdles to investment that this market design causes have to be recognized: by regulators, the Member State governments and most particularly by the European Commission.

For all the grand plans the European Union has, they all depend on a transformation of the grid from a one-way, centralized flow to a multi-directional, dynamic, “living organism”. The distribution network will bear the brunt of most of these changes, and the metering system is the keystone to this new smart grid. The fact that the European Union has an almost unbroken record of setting goals and then failing to meet them notwithstanding, if smart metering technology is not in place at least according to the timeframe foreseen in the 3rd Energy Package, the other goals will melt away like an ice cream cone in the July sun.

If Europe wants to achieve its energy policy and environmental goals, have an energy market characterized by competition AND develop the smart grid, it is going to have to find a way to square this circle.

We, in the smart metering industry, have been in the starting blocks for a long while, and we will provide constructive contributions to the debates, as well as develop state-of-the-art technology for the benefit of Europe’s consumers and utilities. But the policy-makers and regulators have to do their part. The question of smart metering deployment is not technical, but political and regulatory.

Let’s get on with it!

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