Summary:

To build or to buy is often described as the oldest decision in IT. Today, electric utility executives are facing it anew with the smart grid. The best decision is likely to be neither build only nor buy only, but rather to take a hybrid approach.

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To build or to buy is often described as the oldest decision in IT. Today, electric utility executives are facing it anew as their industry plans to spend as much as $34 billion in the coming decade to deploy digital communications and control networks for the power grid to improve the efficiency, delivery and use of electricity.

The best decision is likely to be neither build only nor buy only, but rather to take a hybrid approach, with a mix of building private networks and buying space on commercial services varying from one utility to the next.

Private vs. Public

Many utilities still see 100 percent ownership as the best way to maintain reliability and security for the smart grid. At the same time, however, having calculated the costs of service-area-wide private networks, they are also searching for other ways to deliver smart grid services efficiently, securely and cost-effectively, with as small an impact on rates as possible.

One major potential impact on utilities is the need to find ways to manage enormous increases in data traffic associated with the power grid – estimated to be around 900 percent over the next 10 years by Lux Research.

These challenges lead to a classic build-or-buy decision. On one hand, utilities can continue with the 100 percent ownership model. On the other hand, the smart grid challenges are unprecedented, and utilities can find the needed reliability, security and performance from buying services from communication providers.

Eight Key Network Decision Criteria

Utilities that Verizon has worked with to help assess network capabilities and future needs, typically apply a number of criteria to their private-public network selection decisions. The first six in the following list were the top-priority factors identified in a September 2010 survey of utility executives by the Utility Telecom Council (UTC):

1). Capacity/Bandwidth: The smart grid’s increased demand for higher bandwidth to support two-way communications and a massive increase in data input points will require expanded backbone communications — particularly in the middle-mile backhaul and last mile wide-area communications. The UTC report found that most communications service providers offer enough bandwidth for virtually every service a utility might need, including machine-to-machine communications from the meter to the data center, sensors at transformers, reclosers, switches or relays, street lights, etc.

For example, Verizon is finally making the connected home a reality through its Home Monitoring and Control offering that enables remote home management via high-bandwidth broadband. You can control lights, door locks, cameras and thermostats and monitor energy use in the home all through your smartphone, PC or TV.

2). Latency: Extremely low latency (delay in sending or receiving communications) is mandatory for a utility’s mission-critical core and operations communications networks. The UTC survey found that utility latency requirements vary widely depending on application and network configuration. The report also identified a potential solution in Long-Term Evolution (LTE) wireless technology, which can provide latency as low as 30 milliseconds.

Commercial providers recognize that some Transmission and Distribution (T&D) control functions require latency less than 18 milliseconds, which is not necessarily achievable on systems like Verizon’s 4G LTE network. The Verizon 4G LTE network already reaches more than 110 million people and covers Verizon’s entire existing nationwide 3G footprint by the end of 2013.  It is playing a key role with Duke Energy in the Envision Charlotte project linking 70 buildings in Charlotte, North Carolina.

3). Coverage: Utilities need communications systems that cover the entirety of their service areas in order to monitor critical assets and support field force employees. The UTC noted that many utility substations may not have access to commercial wireline or wireless networks. The report also recognized that with the addition of a utility customer, communications service providers may well have the business rationale to fill gaps in current commercial coverage with fixed wireless, satellite or wireless mesh service.

4). Reliability: The UTC study found that utilities typically require at least four nines (99.99 percent) uptime reliability for many critical, non-time-sensitive applications.  Major service providers like Verizon have demonstrated the ability to maintain four and five-nines reliability over many years working with financial services, military and other applications. Achieving a high level of reliability must also take into account the failure rates and the resiliency of other components of the system being analyzed.

5). Security: The smart grid’s addition of millions of new end points to electric power networks elevates the need for protecting the network from physical and cyber attacks to an unprecedented level, and has prompted issuance of new cyber security guidelines from the National Institute of Standards and Technology (NIST).

Verizon, which manages security for connected devices and systems worldwide, also provides governance, risk and NERC-CIP and PCI compliance services, and can provide effective security support and assessment for smart grid devices.

The Verizon 2011 Data Breach Investigations Report, conducted by the Verizon RISK Team in cooperation from the U.S. Secret Service and the National High Tech Crime Unit of the Netherlands Policy Agency, offers new insights into cyber attacks around the world and recommendations on how enterprises can best protect themselves.

6). Uninterrupted Backup Power: Since uninterrupted power is essential to providing secure and reliable service, uninterruptible power supply from backup battery systems is ubiquitous in electric power utilities. Service providers like Verizon and others have implemented systems to provide portable cell sites with automatic power backup for emergency use, and have invested billions of dollars in reserve power infrastructure and equipment.

Additional Considerations for Build vs. Buy – Economics and Innovation:

Beyond these six technical requirements, utilities invariably grapple with a number of additional factors as part of their build-or-buy decisions:

1). Economics: “Price” or “cost” can be the elephant in the room. Utility management considering build vs. buy options evaluate the relative economics and regulatory treatment implications in the course of contract negotiations with suppliers, and it is safe to say that the “buy” solution has been successfully negotiated in many, many situations across the country.

2). Innovation, Obsolescence and Staffing Challenges: With the rapid pace of digital innovation, utilities are constantly challenged with managing technologies that are likely to become obsolete long before they are fully depreciated. Most utilities — and their aging, nearing-retirement workforces — lean in favor of tried and tested communications technologies like SONET networks, and are less familiar and comfortable with advances like wireless “machine-to-machine” (M2M) developments and “cloud-based” meter data management or security solutions.

By teaming with commercial service providers, utilities can help fill their growing capability gap with well-trained communication engineers who are up-to-date with the latest technologies and accustomed to the pace of change in communications technologies.

Hybrid Solutions

The key to identifying the combination of private and commercial networks that will be best for a specific utility is a rigorous evaluation of the situation’s requirements, and an assessment of the available solutions in terms of performance, security, cost, regulatory acceptability, customer usability, plus projected government funding and capital availability.

The UTC has concluded that:

“For electric utilities to provide the level of service required in meeting customer expectations and to maintain safe and reliable operations, electric utilities must be able to utilize various communications technologies—there is no magic solution.”

Conclusion

It’s clear that utility communications and control networks are not amenable to “one size fits all” solutions, and the best customized solutions are likely to result from combining the strengths of existing infrastructures with selected capabilities from outside providers.

Rilck Noel is the vice president of Verizon’s Energy & Utility practice.  He has more than twenty-five years of experience with large electric and gas utilities across the globe. To tap into the energy and utility-related experience and resources of one of the world’s largest network services providers, contact  energy&utility@verizonbusiness.com. A copy of the executive summary of the Utility Telecom Council’s September, 2011 report, “A Study of Utility Communications Needs: Key Factors That Impact Utility Communications Networks,” is available at no charge from the UTC at http://utc.org/commneeds/.

Images courtesy of tsmall, Lee J Haywood, timo_w2s, Horia Varlan,

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