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:
This process helps utilities narrow in on the discrete IoT use cases, which can include:
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.
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?
From our experience working with clients in this space, it comes down to seven key areas:
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.