According to the recent Benchmarking Report by the European Commission, the European Union will achieve 72% coverage of households with smart meters by 2020 but Landis+Gyr believes that this goal is optimistic as planned rollouts are already taking longer and coming with smaller tenders than were originally foreseen. This is according to Oliver Iltisberger, Landis+Gyr’s Executive Vice President for EMEA (Europe, Middle East and Africa), who will be attending the upcoming European Utility Week conference.
Smart Metering in Europe is taking longer, but may come with increased benefits
In an exclusive interview with Engerati, Iltisberger points to smart meter roll-outs in Europe that have taken longer than anticipated. Smart metering was first put on the UK’s agenda with Gordon Brown’s first Budget Speech in 2007, but roll-outs are still in the early stages. The original metering target date of 2020 remains unchanged.
In France, the Linky Roll-out has taken longer than anticipated, and in Germany the Cost-Benefit-Analysis did not advocate an “EU-Scenario”, i.e. 80% coverage by 2020, but even so, the legislation to give a legal basis to that roll-out was planned for September 2014 which has now also been delayed.
Iltisberger believes that smart metering development in Europe will be slower than what the European Union forecasts. He adds, “However, we are still confident that the roll-out will come – and perhaps the silver lining in the delays is that the systems being deployed in the coming years in Europe will have more functionality than those deployed earlier.”
Smart metering developments in Europe will increasingly support the integration of renewables and decentralized generation, says Iltisberger who adds that this will be the foundation of the smart grid and the prerequisite for any significant demand response programmes in Europe. He explains that demand response is also coming later to Europe in comparison to other regions of the world, and will be based on other preconditions. Europe does not have capacity problems in generation or necessarily the network, but must make the maximum use of renewables and micro-generation. Smart metering will increasingly provide the foundation for the development of the smart grid to meet these challenges.”
Political support is critical for smart metering
Iltisberger says that political support of smart metering is essential. He explains, “It is hard to find a country where smart metering has been rolled out absent political support – I don’t mean government-financed, but rather a political push behind the roll-out to give the national regulatory authority and the utilities a stable legal framework.”
He adds that this kind of support is evident at the European Union level. “There is no doubt that the European Commission supports smart metering and the development of smart grids. We can expect this support to be reiterated in the Commission’s Retail Market Initiative.”
The problems usually lie at the EU Member State level, says Iltisberger. But, it seems that an increasing number of Member States are supporting smart metering. According to the EU, 16 Member States have already decided on a full scale roll-out by 2020 or earlier. “I would be very cautious to ask for additional legislation. The last thing we need right now is regulatory uncertainty.”
Smart metering development
There are significant differences between the US and Europe when it comes to smart metering, says Iltisberger. One is the market design: Europe with a liberalized, unbundled energy market is very complicated. The benefits of smart metering are spread across the value chain, but the costs are usually concentrated in the regulated monopoly that is the Distribution System Operator (DSO). There are therefore split-incentives: the entity making the investment only enjoys a part of the benefits.
In the US, where there are integrated utilities mostly, the situation is more clear-cut. An energy company will invest in smart metering because it will reap the advantages of that investment all along the value chain, from supply to the network to generation. Also in the US, there was the Obama Administration’s Stimulus Package, which put several billions of dollars into smart metering programmes.
Says Iltisberger, “In short, Europe is much more complicated – and I haven’t even mentioned the fact that there are 30 individual – with very different market characteristics – countries counting the EU 28 and Switzerland and Norway, whereas in the US, there are 50 states, but all more or less similar.”
Costs and benefits
The main challenge that smart metering development faces is financing or “how do you divide the cost pie?” The benefits of smart metering are spread out and longer term but the costs are concentrated and shorter term. Says Iltisberger, “It requires a wise regulator to know how to distribute these costs between the network operator and the final consumer.”
He points to Switzerland which seems to have a reasonable answer to spreading costs and benefits - the government is considering a bill in which the law would specify that the national regulator has to recognize the investment costs made by the DSO, but only for the specified minimum functionalities. Anything above and beyond that, the network operator has to pay out of his own pocket.
For every country in Europe there is an optimum portfolio of factors that would justify a smart metering investment, explains Iltisberger, and in many cases the regulatory evaluation is done by looking at the benefits not just to the network operator or end consumer, but also to society as a whole.
For those utilities that are just starting to evaluate an investment in smart metering, Iltisberger recommends that they look beyond just meeting any regulatory requirements. These utilities should take into account that solutions based on a service-oriented architecture and open standards will support innovation and provide more opportunities for future business activities based on the smart grid.
Iltisberger points out that from a partner engagement model perspective, selecting partners such as Toshiba and Landis+Gyr brings many benefits. He says, “We are committed to continuously developing our smart metering portfolio from end-to-end. We place importance on keeping lifecycle compatibility between applications. This, in turn, will give utilities the greatest chance to continue innovating their business by saving on life cycle management costs that will otherwise come up in the future.”
The matter of data security
Iltisberger stresses that smart meter security solutions should match the risks that utilities face. He explains, “When it comes to the protection of utility assets, our experience shows us that utilities are completely aware of the risks and that they are requesting adequate security for their end-to-end solutions. The real challenge for the utility, however, is the protection of the end-consumer and their personal data.”
Besides offering technical protection of data, with appropriate cryptographic measures, Iltisberger says that there is a tendency to leave the final decision on the registration of “critical” personal data to the end-consumer themselves. In practice, this means that the end-consumer is offered the possibility to opt-out on the registration of 15 minute consumption data without actually opting out of smart metering.
He says, “We see in our customers’ tenders that there is an increasing awareness of the importance of using best practice security mechanisms within their operational systems.” In response to this, protecting consumer data on its journey from the meter to the utility business process system is given a high priority by Landis+Gyr. He adds, “It is important to bear in mind however, that in addition to transmitting data securely, it is at least equally important for utilities to adopt secure organizational procedures governing the use of and access to their IT systems – and for them to ensure that the privacy of end-consumer data is ensured while it is being stored and processed.”
Preparing for the energy transition
The energy sector is facing many new challenges. Investment in renewables, for example, has been strongly incentivized in many markets over recent years, leading to dynamic power-flows and unpredictable load situations in the grid which cannot be managed in the same way as in the past, explains Iltisberger.
He adds, “We should be aware that the situation in the grid – and therefore the challenges – differs from market to market. It remains clear, however, that utilities are forced to prepare for this new situation in order to guarantee the right quality of service and avoid unnecessary additional costs, while still being required by the regulator to conduct a more or less passive management of the grid, especially on the low and mid-voltage level.”
New technologies are emerging to provide solutions for a more intelligent, active management of the network at all levels, which also allows for the creation of new business models for utilities. He says that Landis+Gyr believes that smart metering is a very important first step, but that more needs to be done.
“Some utilities are hesitant to invest in developing smarter grids as technology is evolving quickly and nobody wants to replace costly infrastructure.”
Retrofit solutions provide monitoring and control functionality secure investment protection and can be a good first step on the path towards distribution automation, thereby making grids smarter. Microgrid management solutions which provide voltage control are also becoming commercially more attractive.
“At the European Utility Week, we look forward to taking part in constructive conversations and dialogues to broaden our understanding of the industry’s business needs as well as decisions that can be made or contracts to be signed. We therefore aim for a wide range of utilities and customers with whom we can share exchange regarding Landis+Gyr and Toshiba`s latest smart metering solutions, as well as our strategic roadmap on the smart grid, documented by our exhibition stand, as well as our presentations at the conference.”