Is it now worth the investment to install smart meters, complete with two-way communication?
The meter has always been the "cash register" in the basic operations of the utility business. Now it is also becoming a vital communications link, carrying information between a utility and its customers. The meter can supply information critical to customer retention and value-added marketing, as well as more effective system operations.
In choosing from among the wide range of metering options available today, a utility should find a technology that fits its business model. If the company is not interested in offering energy management services and does not foresee any competition for customers in its service territory, then it may choose to settle for a more basic solution or perhaps just continue with manual meter reading.
On the other hand, if the utility plans to be competitive, seeks additional revenue streams and wants to find ways to reduce customer costs while maintaining margin (thus protecting its customer base), then it will need a more advanced meter that enables these new services.
Metering options vary widely in cost, function and return on investment. This disparity reinforces the conclusion that a utility should choose a metering system in line with its overall business plan.
A traditional meter costs around $25 in volume, plus $6 to $10 annually for a human meter reader. If a utility contemplates an investment in automated meter reading, or AMR, the utility must first ask itself if the increased functions alone justify the potential cost savings. Carried further, what return on investment is needed to invest in a full-blown, two-way communications gateway?
To explore these issues, data on leading metering products from a variety of suppliers was analyzed. Calculations included expenditures for equipment, software, project management and related items.
To conduct the analysis, metering options were grouped into four classes:
1. Meter modifications, or kilowatt-hour meters that have been fitted with some sort of AMR module. These meters usually are capable only of limited AMR.
2. Existing electronic meters, both with and without two-way communication capability. Generally capable of AMR and load profiling.
3. Advanced electronic ("smart") meters, with and without two-way communication capability. Capable of AMR, load profiling and time-of-use control.
4. Full-service gateways, which offer full, two-way communication. Capable of AMR, TOU control, load profiling, load control, outage notification, surge protection, real-time tamper protection, messaging and many other value-added services.
Chart 1 shows a summary of the four classes, including communications protocols and capital cost range for each one based on a 100-unit trial and a 50,000-unit rollout. Chart 2 shows the meters' functions.
In the analysis, it was assumed that all communications space was leased by the utility. Though the cost of leasing spectrum bandwidth (whether radio frequency, cellular, or broadband) varies slightly according to geographic region and is subject to availability, the numbers were close enough for the purpose of this study.
On the other hand, building and installing these different communications infrastructures will increase communications costs per customer. These costs can vary widely, depending on the type of infrastructure, population density and terrain of the service territory. The costs would decrease if the burden were shared by other business opportunities, such as voice, data and video services; economic or community development initiatives; or leasing bandwidth to other service providers.
As Chart 1 shows, no strict correlation exists between price and technology class. For instance, a modified TOU meter can cost as much as $300 in quantities of 50,000, compared to a full-service gateway's cost of as low as $256. Therefore, any comparison of meters must also take into account their functions, as illustrated in Chart 2. At the low end, a modified kilowatt-hour meter capable of straight AMR costs $75. Assuming a traditional kilowatt-hour meter costs $25, plus another $8 to $10 per year for a human meter reader, this system would pay for itself in five years; it does not, however, offer any strategic energy management options. This type of meter would be justified if the utility plans to focus on boosting the operational efficiency of its core business of providing bulk energy and does not anticipate competition in its service territory.
Existing smart meters costing around $100 in volume provide an added benefit of load profiling. However, they generally cannot provide a reading on-demand by the utility. Therefore, these meters measure information that is useful to utility operations, but could not provide more than one or two energy management functions and do not enable "customer choice."
Advanced smart meters do provide on-demand readings, as well as AMR, TOU control and load profiling. Such meters make useful purveyors of basic energy management services. However, current models can cost as much as $500 in volume, and even then, high-volume information on demand is not possible.
Full-service gateways offer full, two-way communication between utility and customer. These full-service systems also support a range of utility services, including load control, outage notification, real-time tamper monitoring and surge protection. In addition, a wide range of value-added services, like security monitoring and home banking, is also possible with these models. However, the on-demand capability of these systems is a function of the type of communications infrastructure used.
Depending on how much processing power, or "intelligence," must be distributed in the network, full-service gateways can cost as little as $256 in volume.
Utilities must be careful to choose a full-service gateway system that will not become obsolete over the time of its expected life. Availability of communications networks is dependent on geographical location and demographics. So the choice of gateway should support multiple communications infrastructures, since a utility may choose to migrate to a new network, as it becomes available. Also, the lack of a standardized LAN interface protocol at present could bring on premature obsolescence in the future if the system cannot accommodate the eventual standard.
Return on Investment
The potential return on investment is tremendously important in calculating the cost of a metering system. A system that cannot only pay for itself, but can also generate new revenue streams could be an essential component of a utility's future business strategy in a competitive marketplace.
In contrast, a system that provides a return on investment in the form of reduced operational costs will be less valuable in a competitive market.
The advantage of full-service gateways is that they enable a host of revenue-producing services in energy management and lifestyle enhancement, as illustrated in Chart 3. As we have seen in the deregulation of other industries, these high-margin, value-added services can grow more important to a company's bottom line than the low-margin, basic commodity-type services.
New, value-added services promise significant intangible benefits as well. Such services offer an opportunity to build customer satisfaction and brand loyalty, and provide customer choice - key factors in retaining existing customers and attracting new ones in a competitive market.
Closing the Gap
Two-way communication enabled by full-service gateways generally costs only marginally more - and in some cases is priced even less - than an average smart meter. And that cost gap closes rapidly when the revenue potential of new, value-added services is taken into account.
There will be instances when simple AMR or other basic utility functions are adequate for a utility's business goals. But most utilities will find themselves in an environment that demands more powerful solutions.
Jack King is president of Scientific-Atlanta's Control Systems Division, specializing in communications products for utilities. He has nearly 30 years of public utility experience in all phases of utility operations.
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