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Summary:

There are a lot of similarities between the build out of telecom and Internet infrastructure, and the current rollout of the smart grid. But here’s one major, and very important, difference between the construction of communications and energy networking, which the President and Chief Operating Officer […]

There are a lot of similarities between the build out of telecom and Internet infrastructure, and the current rollout of the smart grid. But here’s one major, and very important, difference between the construction of communications and energy networking, which the President and Chief Operating Officer of utility ComEd, Anne Pramaggiore, mentioned on a panel at the Cleantech Investor Summit last week: unlike broadband and telecom service providers, utilities are very risk averse.

“There is very little tolerance for problems in this [the energy] industry. You need to understand this beast if you are going to work in the industry.” said Pramaggiore. Three-mile island single-handedly stalled nuclear power, and an issue like the one in Bakersfield (where residents in the region in California ended up suing PG&E last year over heightened rates that they claimed were due to smart meters) can send shock waves through the industry, said Pramaggiore.

Bakersfield and Three Mile Island, of course are very different, but, any appearance of a problem with the smart grid rollout and it will have serious effects on the way utilities react. “We have to get this [the smart grid rollout] right early on,” insisted Pramaggiore.

Scott Lang, the CEO of Silver Spring Networks, who also participated on the panel, had a similar sentiment to Pramaggiore and said the industry needs to make sure that the early rollouts of the smart grid are flawless. Bakersfield was “a perfect storm,” said Lang. We installed the smart meters at the same time as a customer care program had just expired in the area, a new rate case had recently hit the area, and the region experienced an unusually warm period of weather, said Lang, who’s infrastructure technology was installed in Bakersfield. The meters are accurate, we’ve done testing,” added Lang.

One reason for the differences in the tolerance for risk between telecom/Internet and energy industries, is that the stakes can be a lot higher for energy than for communications. If your calls drop periodically, web and mobile services don’t work as advertised, or your Internet connection goes out for a day, it’s really irritating but not necessarily life threatening (GPS for 911 calls not included). But say your heat or electricity goes out for many days, or there’s a dangerous electrical mistake or glitch, that can be a lot more serious.

In addition in the Internet industry in particular, but also for telecom, there’s a history of building new products and innovations that are market risks. Google is the classic example — Google’s energy guru Bill Weihl told the New York Times recently that “[I]f you don’t say five years later, “We never should have done that” about a significant percentage of it , then you’re being way too conservative.” That statement would never be uttered by a utility executive.

Finally, most utilities are regulated and can’t make big decisions without getting the approval of, and justifying their actions to, their public utility commissions. It just naturally makes building out network infrastructure that much slower and more conservative. That’s also why utilities often times prefer to work with large companies as opposed to small startups. As Pramaggiore put it, that’s just the nature of the animal, so companies looking to sell into the new smart grid market, better be prepared.

Image courtesy of Ian Muttoo’s photostream Flickr Creative Commons.

  1. Smart Grid 102.

    The huge risks that are being mentioned in the article are the result of a structuring fatal flaw in the Energy Policy Act of 1992. The emergent power industry structuring solution, separates the whole emerging system in two subsystems, each of which is highly cohesive, with lightly coupled interfaces among them, in time and space. The separation is enabled by the system architecture ultraquality imperative, which leave 1) a regulated subsystem that can follow the needs of very risk averse utilities and regulators and 2) an open subsystem that can follow all the similarities of the telecom and internet infrastructure developments.

    The primary subsystem (where the power beast lives) is the regulated delivery network that operates under a compact with a responsibility to deliver electricity. The open business system is complementary in the wholesale and retail markets. To get introduced to the structuring details, please read the EWPC post “States that Implement a Heterogeneous Grid are Poised to be the Winners” in the link http://bit.ly/6R5tDP

    To learn about the most recent EWPC article about the business system, which is the result of the mentioned fatal flaw, please read the EWPC article “Huge States’ Costs as Utilities are Unable to Cross the Home Energy Management Chasm” in the link http://bit.ly/8HHm23

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  2. “Risk averse”? Try “chickenshit”!

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  3. [...] Smart Grid 101: Utilities Are Very Risk Averse Any appearance of a problem with the smart grid rollout and it will have serious effects on the way utilities react. [...]

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  4. With innovation, change and uncertainty comes resistance and fear to adapt new unproven technologies, such as is the case with the Smart Grid. There is a govermenmet mandate currently pushing towards the adaptation of new energy efficient methods; however, what are missing are the activities towards “SOCIAL CHANGE” to influence CONSUMER perception to ease this transition. That is the piece that is missing from giants such as ABB, IBM, Siemens, etc…. “Social Marketing” initiatives where utilities can influence the “end-user” = “the consumer”.

    Why is this not happening? Because neither Utilities nor players such as ABB had to market their products in this way ever before, it’s a mix of B2B and B2C. So they must hire specialists from other industries such as telecom in order to generate demand and ensure the success of the convergence this industry is facing.

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  5. With innovation, change and uncertainty comes resistance and fear to adapt new unproven technologies, such as is the case with the Smart Grid. There is a government mandate currently pushing towards the adaptation of new energy efficient methods; however, what are missing are the activities towards “SOCIAL CHANGE” to influence CONSUMER perception to ease this transition. That is the piece that is missing from giants such as ABB, IBM, Siemens, etc…. “Social Marketing” initiatives where utilities can influence the “end-user” = “the consumer”.

    Why is this not happening? Because neither Utilities nor players such as ABB had to market their products in this way ever before, it’s a mix of B2B and B2C. So they must hire specialists from other industries such as telecom in order to generate demand and ensure the success of the convergence this industry is facing.

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  6. [...] Smart Grid 101: Utilities Are Very Risk Averse Posted January 25, 2010 Filed under: Uncategorized | http://earth2tech.com/2010/01/24/smart-grid-101-utilities-are-very-risk-averse/ [...]

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  7. [...] Smart Grid 101: Utilities Are Very Risk Averse Any appearance of a problem with the smart grid rollout and it will have serious effects on the way utilities react. [...]

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  8. Mary Sullivan Monday, January 25, 2010

    Telecoms were pretty risk averse back in the early ’80s. They’ve come a long way in the last 30 years. Let’s hope it doesn’t take utilities that long to open up to new thinking and a little strategic risk-taking.

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  9. Hi Katie,

    My comment written at 7:29 PM on January 24, 2010, is still awaiting moderation. Its title is Smart Grid 102.

    Please expedite it.

    Thank you!

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  10. [...] Smart Grid 101: Utilities Are Very Risk Averse Any appearance of a problem with the smart grid rollout and it will have serious effects on the way utilities react. [...]

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