by Jeff Buxton, Black & Veatch
Automated metering has been a part of utility operations for more than 30 years with the early versions of remote meter reading (see Figure 1). Advanced metering infrastructures (AMI) began emerging about 15 years ago with the first commercial implementations of fixed networks for communicating to metering devices. These devices became more than meters for measuring energy consumption as the injection of additional functionalities made them smarter.
Investments in fixed-network automatic meter reading (AMR) and AMI typically are approached as singular, large-investment projects in which a utility makes a one-time investment, deploys the new technology and extracts the benefits over 10 to 20 years (without further investments beyond simple maintenance). This might be changing, however, as the pace of technology changes. As advanced metering capabilities have evolved, the velocity of change in added functionality has accelerated rapidly and should be expected to continue.
This places increasing stress on utilities to strategically and continuously upgrade rapidly evolving AMI technologies. This new continuous investment changes the way utilities must invest and deploy advanced operational technologies and forces them to better understand the drivers, business justifications and inflection points where incremental investments in technology improvements make most sense. In addition, it pushes utilities to consider with each new technology release that they need not implement a new technology just because it’s available. If the initial business case remains valid, regardless of the new technology, then a utility shouldn’t be compelled to upgrade unless an independent business case justifies the investment.
Early investors in AMR and AMI have found themselves in the middle of this curve and have begun sorting through what and when to upgrade capabilities. As investors in first-generation AMI, they might have developed industry-leading capabilities and improved performance from their initial AMI systems. After completing their initial deployments, implementing performance improvements and leveraging their expanded capabilities, however, they soon might face new opportunities, intersecting stakeholder interests and aging technologies that create the need for a disciplined, systematic approach to planning their AMI investment strategies.
Step Changes vs. Incremental Changes
Each change in technology carries its own unique and significant improvements (see Figure 2). Some might be step changes that open new opportunities. These types of capability improvements often can be significant enough to support their own business case justifications for surgical or ubiquitous upgrades. Examples might include:
- Interval data;
- Remote disconnect;
- Distribution automation;
- Demand response;
- Voltage data;
- Outage detection and restoration; and
- Theft and tamper detection.
Other improvements might be more incremental in providing marginal improvements in functions or performance, which build on previous capabilities. These might become part of continuous investment strategies rather than stand-alone projects:
- Faster response;
- More bandwidth;
- More data; and
- Additional alarms.
Shifting Nature of Potential Benefits
As the functional and performance capabilities improve, the potential business impacts evolve (see Figure 3). Incremental benefits might become more difficult to justify in a project-based approach as the incremental benefits might be less operational, harder to quantify or less universal in application. This might force utilities to re-examine the way they consider, justify and invest in expanding AMI capabilities.
Shifting Basis of Investment, Regulatory Justification
Although the potential financial benefits of technology upgrades might be significant, the nature of the benefits also might change based on the new capabilities that are being implemented. The stakeholders who benefit from the investment might change. As benefits vary between direct operational savings and societal, the basis of their value to the utility changes. The justification for investment in these new capabilities changes, and the utility must determine the basis for a more incremental investment in operational technologies. This imparts new investment and regulatory considerations.
Why Consider a Generational Upgrade
Given this increasing complexity, why would a utility consider incremental AMI technology investments vs. generational change outs of technology? The considerations are becoming more complex, but there remains a growing array of important utility drivers that might help determine whether incremental upgrades are warranted or whether it might be time to invest in the next generation of technology. Although unique to each utility, these might include:
- Legislative or regulatory directives
- Demand response or demand-side management initiatives
- Deregulation and third-party access
- Customer-enablement initiatives
Potential additional business benefits include:
- Field operations
- Distribution operations
- Power quality and reliability
Increased risk of technology obsolescence include:
- Lack of vendor support
- Performance degradation
- Failure rate acceleration
Notwithstanding the shifting nature of new AMI capabilities, several motivations remain for utilities to continue to invest in their new advanced metering capabilities.
How to Do It
Regardless of the driver that motivates a utility to consider an upgrade to an existing AMI system, there are several steps to follow to evaluate the merits of further investment, including (see Figure 4):
- Developing a technology road map of major steps, dependencies and the expected sequencing of investments. Planning for potential incremental investments will lay the groundwork for prudent decision-making when each investment becomes timely. No technology investment road map is ever unchanging, but having foresight into the expected timing and magnitude of future investments in the AMI system will help provide the basis for ongoing choices and reasonable decisions based on anticipated technology evolution. It is often useful to develop a long-term investment plan that extends beyond the timeframe of the current vendor’s technology road map. This will enable the utility to plan for capabilities beyond simply following the vendor’s plan but also might incorporate signposts of divergence based on alternative vendor solutions and the current vendor’s ability to maintain state-of-the-art functionalities.
- Developing business cases and justifications for benefit-driven upgrades. One critical decision–especially as the underlying technology ages–is determining whether to upgrade the existing technology or replace it with a new or different technology. Any utility investment should be accompanied with a business case evaluation of its benefits, costs and strategic and regulatory drivers. A properly developed business case can evaluate potential scenarios that might consider the upgrade or replace decision, alternative implementation timing, deployment models or the bundling of upgrade options for improved business case outcomes.
- Involving stakeholder groups to ensure acceptance, adoption and cost recovery. As the utility manages the decisions between system replacement and continuous investment, also need to transition the thinking of stakeholder groups. Clearly portraying the customer benefits of each incremental investment is important to support strong acceptance and adoption of this approach and the required cost-recovery support.
- Initiating proof of concept pilots and tests to validate technology performance and achievement of expected benefits. No technology investment is foolproof and without implementation challenges. Investment and technology risks often can be mitigated easily with the use of proof of concept or technology validation tests.
The accelerating life cycle of new AMI technologies will force utilities to face new technology investment strategies that will require increased discipline in evaluating each incremental opportunity. This will include improved skills at effective technology road maps, investment value determination, efficient implementation planning, alternative scenario analysis and productive stakeholder communications.
To do this properly, utilities must:
- Dedicate knowledgeable resources to evaluate and pilot technologies and improve the utilities’ understanding of the incremental opportunities;
- Institute a repeatable, reliable financial governance model to provide guidance on the justification for each incremental investment and the alternatives for improving technology investment returns;
- Assure thorough stakeholder involvement, including internal and external stakeholders; and
- Be disciplined in the approach to this continuous investment paradigm to make prudent decisions.
Jeffrey Buxton is an executive consultant for Black & Veatch with 30 years of experience within the energy, utility, information technology, technology and industrial sectors. His expertise includes North American and international management. Reach him at email@example.com.