The Copenhagen Climate Change Conference, COP15, will see countries making commitments to reduce their greenhouse gas emissions, even if no overarching international agreement is reached. Datamonitor encourages delegates at the summit to be mindful of the consequences of carbon abatement and renewable energy targets for their country's utility network infrastructure.
The network bears the strain
Although the carbon reduction targets are laudable, there is likely to be a hidden impact on the utilities sector, with companies needing to build networks that can accommodate the unpredictability of the various renewable energy sources. As Datamonitor set out in the brief The Development of Smart Grids published earlier this year, decentralized generation places a particular strain on the existing distribution networks. In many circumstances, those networks were created a century ago, and were never designed to cope with the variability that is created through microgeneration and the vagaries of much of the larger renewable generation base.
The investment strategies of the utilities industry are at their most effective when players have strong information about future demand and supply characteristics, and detailed information about the existing asset base. The uncertainty about the COP15 conclusions will inevitably leave utilities with uncertainty about the assumptions that they need to make about future asset spend. The gap between individual government "in the cloud" statements made at or before Copenhagen and the regulatory regime in each country will widen, as governments posture during the summit and fail to give enough attention to the utilities industry that will be tasked with constructing and managing the network needed to support their political posturing.
The situation will only be made worse if there is not an international accord. While smart grid infrastructure can and will generate efficiencies and cost savings within a single country, the greatest potential is when the power infrastructure can be treated more internationally. Of course, the existing interconnect infrastructures achieve a lot, but an interconnected network of smarter infrastructure could achieve even more. However, this will definitely need a consensus to come out of Copenhagen.
Will smart grid see new market entrants?
The ICT industry has, for many years, talked about convergence. In its original context this related to the coming together of telecoms and IT markets, with IT companies delivering software over the network and telecoms companies moving into markets traditionally dominated by the IT services companies. While the reality of the rhetoric of this convergence can be debated, one thing is certain; the debate had a huge impact on the corporate strategy of a large proportion of the combined ICT market globally.
It is highly possible that similar events will occur as the smart grid issue moves from concept into reality. Smart grids will see many of the elements of sophisticated IT management software and hardware being integrated with the traditional transmission and distribution networks, moving beyond the technology that was previously deployed in distribution management systems. At a technology layer there is also likely to be a degree of convergence, as low-cost commodity IT equipment that is based on open standards begins to form part of the network - as happened in the telecoms sector. When this happens, utilities companies will need to consider very carefully how they manage the network infrastructure, whether they maintain different management fabrics for their network operations and IT systems, or whether they opt for a converged management fabric. Equally, they will need to consider how they can ensure that the future cost of controlling either separate management fabrics or an integrated management fabric can be curtailed.
This opens up the delicious possibility of IT companies seeking to enter the utilities network market and create propositions that allow them to offer reduced and predictable network management costs. Utilities companies would do well to keep a competitive watching brief on the IT industry - a supplier and partner can, over time, become a competitor and a threat to a company's core business.