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The integrated AMI business case

Jumping off from my original post.

The evolution of smart grid technology, created an dynamic change in the evaluation of field technology for utilities. For years traditional equipment, such as transformers, meters, substation controls, had been routinely purchased without concern. But now this equipment across the board is under critical scrutiny. It is the drastic change in technology (read cost to some extent) that has resulted in this new policy. The proliferation of smart meters has led to the need for approvals at the meter level. Based on this scrutiny as well as past business case controversies for smart meters, I want to delve into the aspects that make for a strong AMI business case.

19_1.jpgAs with all business cases, we must look at cataloging costs into initial capital investment and recurring costs/benefits (eg maintainence costs, network management).

Capital costs:
Upfront Investment-
AMI programs have taken significant investment in the past. One factor of the large price tag is the difficulty of technology selection. The primary upfront investment would include:
• Meters
• Communications
• MDM Software
• Data Warehousing
• Head End System
• Additional Field Equipment

Year 1 Project Based Costs- As part of any large scale implementation, there are roll-out costs not directly associated with project kick-off activities that must be a part of the overall business case. These costs include:
• Software Implementation
• AMI Integration
• Project Management
• AMI Testing

Operating Expenses:

Maintanence and Management Costs- There are costs associated with the depreciable life of your smart grid program. These include both one-time costs as well as recurring monthly or annual costs.
• Software Maintenance
• Routine Equipment Maintenance
• Upgrade Costs
• Comunications Network Management and Maintenance
• Installation Costs
• Service Costs
• Ongoing Field Training

Benefits- As a part of assembling the business case, the monetary benefits must be calculated. The primary impact for most smart meter programs has been the reduction of workforce, but there have been additional minor impacts from the alert feature of the meters. The benefits are listed below:
• Reduction in field force
• Reduced outage occurrence and reduction time to diagnosis
• Reduction in theft due to alert
• Improved customer satisfaction through improved response
• Reduction in consumption (please note this is a factor often overstated)

Peripheral Systems Adding to Cost/Benefit: Most utilities assembled their smart meter business case on a stand-alone basis. However, it is more realistic to assemble the business case as a full-fledged smart grid roadmap. This roadmap would include the additional reduction in outages based on a fully integrated MDM and outage management system. With a fully mapped connectivity model, it is fully feasible to diagnosis outages without a customer call. The key areas that provide strength to smart meter deployments are listed:
• Outage Management
• Stand-alone or Integrated Event Correlation

Based on the expected life of the program or equipment the net present value of the program can be calculated. Once you discount each cost/benefit based on the utilities weighted average cost of capital, you arrive at a overally program value (positive or negative)
I would be interested to see what you find. I have run different models of the included inputs and the results vary wildly based on the tangilbe benefits allocated. The allocated costs are fairly standard across the board and can be calculated readily. However the benefits seem to vary based on source. Many pundits will argue that consumers reduce electricity consumption by 7-9%, but realistic savings are likely in the 1-2% range. The true value is in the delivery of an end-to-end business case, outlining the costs and benefits of the truly integrated utility.

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