Aging system needs a charge of investment, technology to meet needs

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Toronto Star Article
Transforming dumb network into smart grid


Aging system needs a charge of investment, technology to meet needs
Dec 31, 2008 04:30 AM
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Tyler Hamilton
Energy Reporter

Before the Internet there were small private networks that connected PCs, and before these networks were stand-alone computers incapable of sharing information.

And before the computer? We had the trusty old typewriter.

Looking forward, the technological evolution that in three decades moved us from the mechanical typewriter to Internet-connected computer is destined to be repeated in the move to modernize the continent's antiquated electricity system, experts say.

The goal: turn a dumb network of lines and electromechanical devices that is heavily reliant on human intervention into an efficient, two-way, automated "smart grid" that collects, shares and acts on information to manage the flow of electrons.

It's a transition already underway, and for good reason. The transformer devices in a typical electrical substation – that is, a point on the grid where power is converted from a higher to lower voltage (or the reverse) – are designed to last 40 years. The average age of transformers in North America is currently 42.

"You've got this aging infrastructure that isn't going away, and you can't just say you're not going to replace it. There's no choice but to replace it," says Marzio Pozzuoli, founder and CEO of Woodbridge-based RuggedCom Inc.

And that might come sooner than expected. President-elect Barack Obama has promised a major economic stimulus package that includes substantial investment in the U.S. transmission infrastructure, including smart-grid technologies. Similar talk is occurring around the world, including Canada, and companies such as RuggedCom are primed to benefit. "It all looks good for us," Pozzuoli says.

The Canadian company is the world's top seller of "ruggedized" communications gear to electrical utilities. RuggedCom manufactures routers and switches that are similar to the networking equipment that pushes information around the Internet, but with one important twist: Its devices are designed to withstand extreme temperatures, rain and snow, and electromagnetic interference in substation environments – conditions that would fry garden-variety networking equipment.


A step or two behind RuggedCom is network-equipment giant Cisco Systems Inc., which sees the market as an extension of its traditional business. It's another sign the power grid is about to follow in the footsteps of the Internet. Cisco's leaders have named the "smart grid" as one of 24 company-wide initiatives to pursue in 2009, and have called it the most likely place to build a billion-dollar business in the next five years.

There are 275,000 substations in the world, 70,000 of them in North America. Most are filled with electromechanical control devices, the equivalent of analog in a digital age or the typewriter of the computer era. As utilities begin the expensive task of modernizing transmission and distribution networks, Pozzuoli says it's a natural next step to introduce microprocessor-based intelligence to the substation.

"The grid is just another system, but the electric grid is operating blind," says Scott MacDonald, a partner with Emerald Technology Ventures, a Montreal-based venture capital firm that specializes in energy technologies. At a previous firm MacDonald led an investment in RuggedCom and once sat on the company's board.

Compared to the phone or cable company, which can pinpoint and often fix network problems remotely, the local electric utility typically relies on phone complaints from customers to find out about outages on the distribution network. It then sends a crew to wander the streets in search of the failed equipment or line. "They're in the dark ages compared to the telecommunications network," says MacDonald.

The electricity system is a complex beast. Typically, electricity from a large power-generation facility is put on a 500-kilovolt transmission line, travels to a medium-voltage line, and finally to a low-voltage distribution line where it ends up coming out of a residential power outlet at 120 volts. Along the way it passes through different substations and the various transformers, switches, surge protectors and metering devices inside.

Now included at the edge of this system is the much-hyped smart meter. In Ontario, most homes and businesses are now equipped with such a digital device, which measures the amount of electricity being consumed during a given time of day. This permits time-of-use pricing, allowing utilities to offer discounts during periods of low electricity demand and charge a premium during peak periods.

Special devices can also be placed on energy-intensive appliances, such as air conditioners, allowing the utility to temporarily shut off or curtail operation of the appliance during peak times. These applications are part of what utilities call "demand response."

A number of companies offer such technologies and services, and some are publicly traded. Itron Inc. is considered a leader in smart-meter devices, while Comverge Inc. and EnerNOC Inc. offer demand-response services and technology. They're examples of smart-grid applications, but just scratching the surface, Pozzuoli says.

"We're focused on the infrastructure in the middle, which is the real grid," he says, pointing out the true vision of the smart grid is a self-healing, automated grid that can manage complex flows of electrons, from the hundreds – potentially thousands – of large and small sources of power to the millions of homes, businesses, industrial customers and, potentially, electric cars that require that energy.

Without reliable two-way communication in substations, it's not going to happen. There will continue to be disconnects on the grid, silos of information stranded in remote locations. Take the example of the 2003 northeast North America blackout, which was caused by a short circuit after a sagging transmission line touched a tree that hadn't been properly pruned.

"If we had a smart grid, it would have predicted that the branch was causing a fault condition. It would have analyzed what the corrective action was by running all these scenarios in real-time, in milliseconds. It would have then offered up a corrective course of action," says Pozzuoli, adding that system operators today rely on phone calls and email to solve problems.

Pozzuoli says the grid today has 99.97 per cent reliability, meaning you can expect about three hours of outage time a year. On the surface it sounds acceptable, but in the age of the Internet and Web commerce most data centres now require 99.9999 per cent reliability, amounting to about 30 seconds of downtime annually. No wonder Google has entered into a partnership with General Electric to collaborate on the development of smart-grid technologies.

Currently, about 10 per cent of electricity consumption requires "six 9s" of reliability, adds Pozzuoli, but that number is expected to increase to 60 per cent by 2020. By 2020, 10 per cent will require "nine 9s" of reliability, or average downtime of just 32 milliseconds a year.

Getting the massive amounts of information required to reach that level of reliability will require the kind of two-way communications that RuggedCom and Cisco offer, but what happens to all that information once it's collected?

The answer to that is partly explained by the membership of IBM, Microsoft, Accenture, and Hewlett-Packard in the GridWise Alliance, a group of utilities and technology companies that have come together to "realize the vision of a transformed national electricity grid." These tech giants know that as the smart grid evolves there will be a need for systems and software that can collect, store, retrieve and make sense of an overwhelming amount of information to support intelligent decision-making.

Big Blue has been particularly active in the space, knowing full well that utilities – a conservative bunch not likely to put their faith in start-up ventures – are looking for a reliable technology partner that can hold their hand during these transformational times.

"The concept of a smart grid, including how it can be built and the benefits it would offer, is at the heart of IBM's view on the future of energy," said Guido Bartels, general manager of IBM's energy and utilities division, at a September conference called GridWeek 2008.

Pozzuoli says as the physical grid is "enabled" with two-way communications, the demand for analytics, data warehousing, and other applications and services will naturally follow. "It's a big, big opportunity," he says. "Instead of just passing around that information, let's do something with it."

RuggedCom, having established itself as a leader in smart-grid networking, is well positioned to climb that value chain. Profitable when it had its initial public offering in July 2007, the company has had 17 consecutive record quarters and expects around $60 million in revenue this year. Profits are up 189 per cent year-over-year, orders are up 74 per cent, and revenues are growing at 61 per cent.

The company's shares have also been resilient over a volatile year, a sign that investors are taking it seriously. RuggedCom's stock is down just 12 per cent on the year, compared with a decline of 85 per cent for EnerNOC, 78 per cent for Comverge and 27 per cent for Itron.

MacDonald says venture capitalists still haven't figured out where the biggest opportunity for the smart grid lies, partly explained by a lack of awareness, and those that do see the potential in companies such as RuggedCom are scared away by the target market: utilities.

"Utility customers just look like terrible customers," he says. "And the guy making the buying decision won't get fired picking Cisco. He can get fired buying RuggedCom."

If a new start-up is able to penetrate the conservative armour of utilities, investors could find themselves sitting on the next Cisco. Says MacDonald: "Once one utility adopts your technology every other utility does and then you become standard."

The big phone companies were the same way 15 years ago. If it wasn't invented in the labs of Bell Canada, or provided by an elite of well-entrenched suppliers, such as Nortel Networks, it wasn't given a minute of consideration.

We know how that story ended.