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Leveraging Investment in Fiber Optic Communications

Though utilities use only a fraction of the broadband capacity they install to support smart grid applications, it is relatively easy to justify investing in that capacity. If utilities were to lease fiber optic capacity to providers of general broadband services, companies in both sectors would benefit, and so would their customers.

Fiber optic communications systems support smart grid applications as well as wireline and wireless broadband applications. The business case for investing in fiber optics, however, is radically different for electric distribution systems than for broadband telecom operators. This creates an opportunity for electric utilities to leverage their investment in fiber optic systems used to support smart grid applications.

 All smart grid applications—including smart meters, home area networking, substation automation and distribution automation—require communications networking infrastructure. Furthermore, the communications infrastructure—whether it is wireline or wireless—requires significant fiber optic transport capacity. Typically, fiber optic facilities carry traffic from points-of-traffic concentration back to a data center or regional network node (the "backhaul", in industry parlance). The traffic concentration point could be at the curb serving five or six houses or back as far as the distribution substation. Its location depends on cost/performance tradeoffs.

For example, in my community, Concord, Massachusetts, the municipal utility uses Calix Passive Optical Networks, a fiber-to-the-home technology. The fiber goes to the transformer that serves roughly six homes and then uses ZigBee wireless technology the rest of the way. Calix has a large share of broadband accounts in small towns and rural areas where a single system is used for broadband Internet and municipal services.

Center Point Energy in Houston, as another example, uses a special wireless cellular technology to go from the transformer to the substation. Fiber connects the transformer to the control center.

To generalize, smart grid communications requirements include ubiquitous access to residences, enterprise establishments and the electrical transmission and distribution systems; availability during catastrophic events; independence from the electric power system and immunity to electromagnetic (EMI) and radio frequency (RFI) interference. Smart grid bandwidth requirements, however, are very modest compared to those of broadband. CenterPoint Energy estimates a bandwidth requirement of 10-27.4 Mbps at major backhaul points where traffic is taken off the distribution network and backhauled to the data center, 3-5 Mbps for backhaul from substations to neighborhoods, and low kilobit data rates to smart meters and within homes.

In contrast, the FCC's National Broadband Plan estimates that today's per-household broadband downstream data rates average 4 Mbps and upstream data rates average 0.5 Mbps. The FCC judges this to be inadequate to meet consumers' needs and has set an interim target of 50 Mbps downstream and 20 Mbps upstream for 100 million households by 2015. Its long term goal is 100 Mbps downstream and 50 Mbps upstream for 100 million households by 2020.

Although fiber optic communications are generally associated with very high bandwidth capacity, a strong case can be made for deploying fiber even when the bandwidth requirement is modest. Fiber optic cables are very rugged and they are entirely immune to EMI and RFI. They do not corrode as do copper cables, wireless and wave-guide antennae. When installed in underground conduit they are not easily cut and are not affected by water. Steel armored fiber optic cables installed on high voltage transmission towers rarely break, even when the towers fall down. Currently, material costs for copper and fiber optic cables are similar but long-term price trends favor fiber optics over copper. Fiber optic cables, therefore, have longer service lives and lower maintenance costs than wireless antennas and copper cables. Also, their immunity to water, EMF and RFI make them more dependable in substation environments and during bad weather.

The business case to invest in smart grid technologies and their associated communications systems is straightforward. An industry rule-of-thumb is that a one megawatt reduction in peak power demand saves $100,000 in transmission and power generation facility costs. Proactive monitoring of transmission and distribution system facilities can reduce outages, cutting the costs of field service overtime and buying customer goodwill. Support for two-way information flows with customers provides a vehicle for the creation of value-added services that can achieve substantially higher profit margins than simple energy service delivery.

Compared to an investment in smart grid, the business case for wireless and wireline broadband infrastructure is a difficult one. Broadband financial returns come exclusively from broadband subscribers. According to the FCC, 40% of U.S. households subscribe to cable modem service while 28% have DSL subscriptions. Consequently, broadband operators’ revenue comes from a minority of all households in the service territory. In contrast, smart grid benefits are derived from a combination of internal initiatives that do not require customers to opt in and the smart grid customer base includes all households and nearly all enterprise establishments.

The greater part of smart grid and broadband networking installation costs are accounted for by construction costs—trenching and equipment installation, right-of-way expense, cabling and outside plant apparatus. These are fixed costs and are independent of the end-use applications. Most of the network’s incremental cost is linked to service initiation activities, such as the installation of smart meters or broadband service termination devices—DSL modems, cable modems or optical network terminals. The financial challenge in initiating smart grid and broadband projects is to cover the large, up-front fixed costs.

Since the smart grid business case is more easily justified than the broadband business case, an opportunity exists for the smart grid operator to lease backhaul facilities—especially fiber optic facilities—to broadband operators. Sharing backhaul facilities does not compromise either the smart grid operator's or participating broadband provider's competitive positions because smart grid services and broadband services address different market needs.

The smart grid operator can profitably offer lease terms that are substantially less than what it would cost the broadband operator to build its own facilities. From the Smart Grid operator’s viewpoint, the leasing revenue improves the return on the power system investments. From the broadband operator's viewpoint, more broadband projects become economically feasible; this is particularly true for the second or third provider considering market entry. Lowering of broadband market entry barriers also benefits broadband service subscribers, who will see lower prices and better service as more competitors enter the market.

Tags: EMI


  • Michael KennedyMichael Kennedy is principal analyst at ACG Research. He has helped electrical utilities develop networking strategies and networking vendors with marketing efforts. Michael was managing partner of Network Strategy Partners, which was recently acquired by ACG Research, and also has worked at Bell Labs, AT&T, Gartner and Arthur D. Little.

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About the Smart Grid Newsletter

A monthly publication, the IEEE Smart Grid Newsletter features practical and timely technical information and forward-looking commentary on smart grid developments and deployments around the world. Designed to foster greater understanding and collaboration between diverse stakeholders, the newsletter brings together experts, thought-leaders, and decision-makers to exchange information and discuss issues affecting the evolution of the smart grid.


John KellyJohn Kelly, as deputy director of the Galvin Electricity Initiative, leads research into improved electricity governance models and the development of ... Read more


Dominique GuinardDominique Guinard is a researcher at the Institute for Pervasive Computing of ETH Zurich. Previously, he was research associate for SAP ... Read more


Michael KennedyMichael Kennedy is principal analyst at ACG Research. He has helped electrical utilities develop networking strategies ... Read more


Thomas BourgeoisThomas Bourgeois is a nationally recognized authority on economic and policy issues related to distributed generation, combined heat and ... Read more


William PentlandWilliam Pentland is a senior energy systems analyst at the Pace Energy and Climate Center. A graduate of Stanford Law School, he writes a blog on ... Read more