Why the Smart Grid Won't Have the Innovations of the Internet Any Time Soon

Many people (myself included) have painted a picture of how the consumer piece of the smart grid could develop into a real-time, two-way communication network that looks a lot like the Internet. In that world, consumers would be able to see variable pricing change in real time, while smart meters and energy management devices read and visualize energy consumption data every second, leading to changes in consumer behavior. The ultimate vision of that landscape is that real-time energy data unleashes innovations and applications that we haven’t yet thought of, which will deliver substantial behavior changes.

Well, that’s the outcome for which entrepreneurs and innovators are hoping. The reality is that the consumer piece of the smart grid will look very different for many years to come. While it’s significant that utilities are starting to build out smart grid infrastructure, utilities are largely opting for networks that provide connections that are far from real time, and this could stifle the desired innovation.

What Utilities Are Planning

Utilities today are largely designing smart grid networks to collect data from smart meters in a time frame that ranges from between every 15 minutes to an hour, then bringing that data back to a collection point on the network. From there, many utilities are only bringing data back to the utility back office where the numbers are processed and packaged for consumers once a day. As Google’s (s GOOG) Tom Sly explained to me recently, there are two different temporal issues: the resolution of the energy data (at what intervals the energy consumption is tracked) vs. the age of the data (how long it takes before it makes it back to the customer). PG&E (s pcg), Duke (s duk), San Diego Gas & Electric and Southern California Edison are all planning slight variations of this setup.

When an outside company partners with a utility to provide smart grid and energy management tools, it’s beholden to this setup. When Google — which largely believes that the more information the better — works with a utility, smart meter data that is pushed to Google’s PowerMeter energy tool has to make its way back to the utility before it can be sent to Google. That means that even for Google’s energy tool, there can be both a significant delay before information reaches consumers, and significant gaps in energy data details. These delays and gaps can undercut the premise of how smart meter technologies will empower consumers to make decisions about their energy use based on real-time costs.

When it comes to providing real-time pricing to the consumer — with the idea that raising prices when demand goes up will discourage energy use during those times, lowering peak demand — the utility execs we spoke with didn’t even want to speculate on how frequently consumers will eventually get pricing updates. It’s just too early in the smart grid network design, most said. Google’s first version of PowerMeter also isn’t working with pricing information.

Why are utilities not rolling out networks that can provide more real-time services? Primarily because of the cost. It costs more to build out networks that are more complex and provide more services. Utilities have to get regulatory approval for these smart grid rollouts and want to keep costs low, particularly because consumers will end up footing most of the bill for the upgrades through rate hikes. Utilities want to move slowly because they aren’t sure how consumers will react. But also many in the utility industry don’t realize the disruptive nature and capabilities of communication networks. While networks have been changing the way we consume entertainment, work, talk to friends, and spend money, it’s perhaps not so clear to the utility industry how powerful the network effect will be when it comes to changing human behavior when it comes to energy.

Why Infrequent Data Falls Short

Google says it will work with utilities that have a minimum resolution of smart meter data of once per hour, while the age of the smart meter data when it reaches consumers can be 24 hours old. Google says a resolution longer than once per hour becomes less useful for changing consumer behavior. But that cut-off actually seems pretty lenient. The more frequent and granular the information is, the more it could affect consumer behavior.

Carrie Armel, research associate at Stanford’s Precourt Energy Efficiency Center, who is beginning research on energy data and consumer behavior change, and is working with Google, says, “If you are only given one number per hour regarding how much energy your home used, it will be very difficult to figure out how much energy was used by each of the behaviors you performed in the past hour.” Armel points out that the more frequently the data is given to the consumer, the more engaged the consumer will likely be, and that our brains are hardwired to respond to quick feedback. Human brains create a stronger emotional connection between a behavior (like turning on an appliance) and an outcome (a visual display of a spike in energy use and money spent) when the delay between the behavior and the outcome is very short (less than 2 seconds). Longer delays could be less motivating.

Beyond the risk of not changing consumer behavior significantly enough, I would guess that the closer the networks get to delivering real-time information, the more an ecosystem of innovation and new applications can be built up around this information. For example, look at the history of the telecom industry and location-based services. Many years ago, a debate arose around how often phone companies would enable their networks to ping the GPS in the cell phone — what would be most productive, people asked, once every couple of minutes, or closer to real time? For cell phone companies and utilities alike, it’s more expensive to provide data more frequently. But for cell phones and GPS, the debate ended when the killer location-based app — turn-by-turn driving directions — finally emerged. Turn-by-turn driving directions only work when the data is available in real time — no one will use a service that tells you to turn a couple minutes after you pass the right street.

Something similar could happen with energy data and changing consumer behavior. I’m not really sure what the application that will most effectively change behavior is, and that’s the point. A killer app will likely emerge after the networks are already built and we can study their effects. If those networks aren’t built to provide granular information then there’s less of a chance it will foster the innovation we need to reduce energy use.

The Future

Of course, new energy management tools (like a Wattvision) are coming out that can bypass the utility data system and get closer to real-time information in the home. Google is planning on working with these types of partners. But if the future of real-time energy data relies solely on consumers going to a retailer and buying and installing one of these home energy products, the market will not only be disjointed but will take a very long time to unfold.

Ultimately we applaud utilities for starting to move on building out smart meters and the smart grid. And most utilities say they plan to make networks more robust and collect and process data more frequently down the road. The most common explanation I heard in talking with experts about this was that we’re still in the early days of the smart grid, and I should just hold tight, because the networks will get more sophisticated eventually. But it’s important that in the first buildouts of these systems, utilities are as forward-thinking as possible.