Smart grid changes access network economics

Michael Kennedy, Network Strategy PartnersThe electric power industry's deployment of smart grids embodies some surprising changes for the economics of communications access networks.  Business case motivations for deploying smart grids include more efficient delivery of electric power, reduced energy costs, improved service availability and quality, and reduced environmental impacts. A two-way digital communications access network that connects homes, enterprises and control points in the electric distribution system is the foundation upon which a smart grid is built. The smart grid network uses fiber optics, Ethernet, and IP just as broadband networks do.  The economic motivations for constructing smart grid networks, however, are quite different than those underlying broadband access networks. This has the potential to accelerate fiber optic access network deployments.

Smart grid business drivers include reducing the cost of energy, improving the availability and quality of electric service, and encouraging the use of renewable energy.  For example, reducing energy use during peak times has tremendous cost leverage.  Reducing peak demand cuts cost because generation and transmission must be sized to meet peak demand. In addition, peak demand periods require that more costly facilities be brought online.  A rule of thumb is that a one megawatt reduction in peak demand saves $100,000.  Smart grid supports both physical and market-based peak demand reduction. For example, hot water heaters can be controlled to heat water during off peak periods so as to limit energy use during peak periods.  Market-based peak demand reduction systems use smart meters that incorporate price incentives.

Smart grid also is used to improve electric power availability and quality.  Simple applications include monitoring transformers so that maintenance crews can repair them when they begin to depart from design tolerances rather than waiting for them to fail.  Smart grid requirementsPower quality--voltage variability and spikes--can be monitored and corrected proactively instead of waiting for customer complaints or damage to customer equipment. Smart grid also is an important enabler for renewable energy initiatives such as Solar Renewable Energy Certificates (SRECs) that provide paybacks to home owners who install solar energy systems on their roofs.

Key requirements for smart grid networks include independence from the electric power system, availability during catastrophic events, and very low cost network termination devices.  Also, the network must be ubiquitous.  It must reach every household, enterprise, institution and every element of the electric distribution system.  This contrasts with broadband network deployments that primarily target residential areas with an emphasis on those that are most economically attractive.

The ability to carry high speed bandwidth is not a smart grid network requirement. For example, much of the smart grid business case in my local community of Concord, Mass. can be made by deploying an application that shuts off home air conditioners for a couple hours during peak periods two to four times per year--a few hundred bits per year does the job. This sharply contrasts with broadband Internet bandwidth requirements where the FCC has set a goal of actual 100 Mbps download speed to at least 100 million households.

Optical fiber is the best choice though bandwidth requirements are low.  A utility owned and operated fiber optic GPON connected to every distribution transformer--roughly one transformer for every six homes--meets the requirements at least cost. The dedicated system is more secure and reliable than using commercial services--this is particularly the case during catastrophes.  Fiber cable costs about the same as copper, is immune to electrical interference, is non-conductive, and costs less than copper to maintain. Also, PON designs do not require electric power other than at the Optical Line Termination (OLT) and at the Optical Network Terminal (ONT).  The OLT is located in a secure facility with backup power while the ONT employs battery backup. The connection from the transformer to individual appliances, meters or control points is made using ZigBee wireless technology. ZigBee is used in radio-frequency applications with a low data rate (20 Kbps), long battery life, and secure networking. Smart grid requirementsThe transmission range is between 33 and 246 feet though enhanced versions can reach 1,500 feet.

The toughest part of the fiber optic access network business case is construction of the optical distribution network (ODN)--fiber optic feeder and distribution cables, splitters, outside plant structures, plus trenching and other installation costs.  Our studies show that this is at least 85 percent of the total cost of ownership.  This is a primary reason for the slow deployment of fiber-to-the-curb or home (FTTC/H).  Smart grid economics eliminate this deployment barrier. In the case of my own community shifting electric power usage for air conditioners and hot water heaters from peak to off-peak periods pays for the smart grid network.  And you do not have to sweat or take a cold shower because you can affordably generate the cooled air or hot water in advance of the peak period.

When deploying their smart grid networks electric utilities add a few extra fibers to the ODN. The incremental cost is very low. This means that a broadband communications network can be deployed at about 1 percent of its usual cost.  This creates the opportunity to accelerate broadband fiber network deployments as well as provide competitive entry into those communities where only one or at best two broadband operators exist today.

Michael Kennedy is a regular FierceTelecom columnist and is the co-founder and Managing Partner of Network Strategy Partners, LLC (NSP)--www.nspllc.com--management consultants to the networking industry. He can be reached at [email protected].

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