Alongside DER grid interconnection, a need to prioritize IoT connectivity and utilities’ software infrastructure

Mario Caruso | Unsplash

Electricity grids across the United States — and around the world — are getting smarter, more decentralized, and more digitalized. The decentralization that is happening now in the energy sector implies that a smarter grid needs to have the capability to interact with smarter devices at the edge of the grid — not unlike how telecom networks transitioned from hardwired telephones connected to centralized switchboards into today’s cellular grids with billions of smartphones and increasing edge demand given the smarter capability held in the palm of users’ hands.

Implicitly, this means that power grids not only require more connectivity, but also must be able to communicate intelligently with the devices — behind-the-meter solar smart inverters, battery energy storage, thermostats, electric vehicles, charging stations, heat pumps, and so on. Unfortunately, there remains a gap between grid operators and customer-owned devices. We increasingly find ourselves with the electricity grid equivalent of modern digital smartphones connected to analog landline wires. Fortunately, the telco sector’s evolution provides a useful (and converging) frame of reference for the energy sector.

For grid operators — including vertically integrated utilities, transmission system operators, distributed system operators, and energy retailers — it can be helpful to think about the telecom network / connectivity / digitalization aspect in three related but distinct parts:

• Connecting endpoints: When it comes to utilities rate-basing connected hardware, this usually means advanced metering infrastructure. (Just earlier this year, Entergy, Duke, and ConEd announced deployment of millions more smart meters.) Of course, customers are investing in millions of other IoT endpoints too, via distributed energy resources (DERs) such as thermostats, batteries, solar panels, and electric vehicles — which often come with WiFi and other forms of connectivity to various cloud platforms. Then there’s this year’s joint announcement from telco giant Vodafone and Energy Web, ‘borrowing’ mobile network tech, such as cell phone SIM cards, to support secure DER identity on electricity grids (allowing for private/public keypairs to be generated that are needed for establishing an identity on the Energy Web Chain).
• Communicating with the endpoints: Given the secure connection and the fact that the devices have a trusted identity, grid operators can now include them in their energy markets. All the data shuttling back and forth (from basic digital meter readings to demand response signals to interactive grid flexibility services from DERs) needs a ‘pipe’ for the data to flow. But this is about more than just the ‘pipe’ and now includes what flows through the data pipe. In particular, this needs to start to include a new type of universal protocol so that the IoT endpoints can become an integral part of the grid and how it operates. This is important for the grid’s evolution, because for all the talk of grid digitalization, what we actually have today is a heavily analog grid with some digital solutions at the SCADA level and lots of smart digital assets ‘bolted on’ at the grid edge (i.e., DERs).
• Enabling the applications: Applications — whether on-premise, cloud-based, or decentralized — are the ‘brains’ of the so-called smart grid, and the place where policy reform is more important than ever. Applications, of course, is a broad term than can capture everything from utility SCADA systems to DERMs to new, decentralized solutions running on the blockchain-based Energy Web Decentralized Operating System (EW-DOS) that grid operators such as Exelon, PG&E, Elia, Stedin, Austrian Power Grid, PTT, and many others are now experimenting with. Yet new digital solutions vis-a-vis applications are seldom front-and-center for grid operators, or at best they’re compartmentalized into an innovation department away from primary operations.

Utility investment in digitalization and especially software has lagged, sometimes significantly, both other industries (such as banking) and other parts of utility infrastructure investment. That needs to change, yet there are often regulatory barriers to doing so. Tellingly, the Regulatory Assistance Project’s 230-page guide to U.S. electricity regulation mentions the word ‘software’ just a scant three times.

Could you similarly imagine a contemporary regulatory guide to smartphones, mobile applications, IOT infrastructures, and telecom networks barely mentioning an anchor component of its current and future landscape? In fact, software-driven networks and network function virtualization have already been transforming telecom network architectures for years.

It is time for the energy sector to start to catch up. Yet there are barriers to doing so.

In the ‘old’ days, relatively speaking, utilities could rate base some software infrastructure because they developed and owned the software and ran it on internal hardware / server systems. Those days are largely going away. Today’s era of cloud-based software-as-a-service (SaaS) has pushed software into an operating expense category that utilities are forbidden from recouping via customer rates. In fact, as recently as late July 2020 Illinois (USA) regulators rejected a proposal that would have allowed utility cost recovery for cloud-based computing. This is a natural investment disincentive for many utilities, whose regulatory and business models encourage ‘hard’ investments that earn a regulated return via rate basing.

Now, modern innovations with decentralized technologies such as blockchain muddy the waters further. We are entering a new phase in which digital solutions may in part run on shared, open-source infrastructure. And in which grid operators may host a validator node that serves not just their own customer rate base but other utility service territories as well (even in other countries, potentially). Consider, for example, the validator network that runs our own Energy Web Chain. Some thirty companies spanning four continents — including energy companies such as AES, Engie, EDF, Tenaska, Acciona, L03, and 3 Degrees — collectively maintain a blockchain platform on which to run their and others’ respective applications.

Policy reform is needed so that the converging utility and telecom sectors can better serve the needs of the digitalizing grid. Such reforms should prioritize:

• Align utility incentives to encourage / mandate investment in open, digital infrastructure, especially open-source software.
• Allow today’s technologies (cloud-based SaaS, decentralized solutions) to be rate-based alongside traditional steel-in-the-ground infrastructure as core components of the smart grid.
• In tandem with the growing popularity of and focus on performance-based rate making, ensure that utility performance metrics include and uphold values such as democratic market access (even for small assets), customer control of their own data, and other metrics that become more important as the grid becomes more and more connected.

Some utilities in North America — and more in Europe, Latin America, and parts of Asia — are making progress on this front. But for many, this is new territory. Regulatory and policy tailwinds will be crucial for helping utilities create value from changes that are already sweeping through the global power sector. In the same way that the rise of cost-effective renewable energy has upended power markets, so too will digitalization, Internet-connected customer DERs, and the convergence of telecom usher in another era for electricity grids.