Realizing Smart Grid revenues

Using WiMAX to fulfill the M2M promise

White Paper

Contents 03 Executive summary 04 1. What is a Smart Grid network? 05 2. The Smart Grid market 05 2.1 The Market Segments 05 2.2 The Potential for Growth 06 3. Access technology choice is critical 06 3.1 Access network and device pair options 07 3.2 Feature set considerations 07 3.3 The WiMAX ARPU advantage 09 4. Business model build or lease 10 5. Nokia Siemens Networks Smart Grid solution WiMAX CSPs 10 5.1 Why Nokia Siemens Networks 10 5.2 Summary 11 6. Appendix: Smart Grid open standards and architecture

Realizing Smart Grid Revenues

Executive summary
Machine-to-machine (M2M) communication is becoming a potentially very attractive revenue stream for telecom carriers. One of the first and most promising M2M applications is Smart Grid, a comprehensive vision for improving the reliability, efficiency and security of the power system. The grid becomes smart when the conventional electric grid is augmented with telecommunications infrastructure, data management, automation and control technologies. Many of the elements of a Smart Grid implementation are already available, including smart meters, automated monitoring systems and power management systems. What has been needed is a communication technology that can make the Smart Grid not only possible, but profitable. WiMAX is now emerging as that technology. Factors that are encouraging many leading utilities to plan Smart Grid deployments include: Increased focus on energy efficiency and zero emission power production Stress on the electric grid due to growing power demand and aging infrastructure Dramatically lower cost of Smart Grid infrastructure using wireless broadband This paper provides a general introduction to the Smart Grid market, a description of the business case, and a blueprint that WiMAX carriers can use to capture their share of the new ARPU that M2M will begin to generate in the very near future.

Realizing Smart Grid Revenues

Smart Grid = Utility + Communications

Smart Grid enables many energy and cost-saving features not possible with todays electric grid

Electric Grid

Communications Network
Figure1: 1:Smart Smart Grid Consists Parallel Communications and Utility Networks Figure Grid Consists of of Parallel Communications and Utility Networks

1. What is a Smart Grid network?

More and more, the machines we use every day are becoming automated and intelligent. Smart systems such as manufacturing robotics, automated inventory controls and power management systems have long been among industrys tools, but they are now entering our households, as well. We have dishwashers that start themselves when energy costs are lowest, refrigerators that are aware of the products stored on their shelves, and entertainment systems that can be programmed over the IP backbone from anywhere. In fact, potentially smart machines already outnumber human communicators. The European Telecommunications Standards Institute (ETSI) estimates there are 50-70 billion connectable machines in the world, compared to about 7 billion people and while the majority of people are already connected to one or more communication networks, only about 1% of the machines are connected. For telecom carriers, that makes machine-to-machine (M2M) communication a potentially very attractive revenue stream. Thanks to growing global energy demand and a number of governmentbacked initiatives, Smart Grid is likely to be the first fully realized M2M application. In its most basic form, Smart Grid can be thought of as a parallel power and communications network, as illustrated in Figure 1. The communication network provides a means for all major elements of the electric grid to communicate with one another in real time, enabling many energy and costsaving features not possible with a standard, non-smart electric grid. An electric grid with smart capability allows power producers, distributors and users to maintain a near real-time awareness of one anothers operating needs and capabilities. With this awareness, the Smart Grid can produce, distribute and consume power in the most intelligent and efficient manner. With a Smart Grid system, everyone benefits: Energy users can be provided realtime information on energy rates by time of day, permitting them the opportunity to use power when it is available at a lower cost. Energy users and producers can add automation to the grid, optimizing the efficient transport of power. Utilities can have immediate information about the exact scope and nature of outages, enabling them to respond more quickly and efficiently.

Realizing Smart Grid Revenues

2. The Smart Grid market

The market segments
Just as energy users break logically into two primary segments, commercial and residential, so too does the Smart Grid market. Industrial and large commercial power users typically represent just 12% of a utilitys customer base, but consume about two-thirds of the power produced. Massive power usage at a discrete service location makes an excellent business case for any technology that can help monitor and optimize that usage, so Smart Grid technology has been in use in commercial applications for decades. Among residential users, however, 88% of the customer base consumes about one-third of the power generated. The incremental expense of connecting so many energy users to a common communication network has been a serious hindrance to Smart Grid deployment for this segment. That situation has changed dramatically of late, thanks to recent advances in digital technology and low-cost WiMAX wireless networks. The business case for residential Smart Grid is now strong, as will be demonstrated as we explore further.

Utilities will invest up to $240 billion on Smart Grid deployments

The potential for growth

Several Smart Grid global hot spots are moving forward with deployments at a rapid pace: The Australian government has committed up to $100 million to develop a demonstration project called Smart Grid, Smart City. This initiative, which will commence in July 2010 and continue until June 2013, demonstrates Australias position at the forefront of global efforts to use energy more efficiently, ensure network reliability and combat climate change. SP AusNet recently announced a comprehensive plan to deploy a WiMAX Smart Grid network. All of their customers will have smart meters advanced meters that can identify consumption in detail and communicate back to the local utility for monitoring and billing purposes by 2013. Europe is expected to deploy 145 million smart meters by 2020. European deployments are being driven by the EUs Smart Grid 2020 Directive. It calls for 20% carbon emission reduction, 20% energy efficiency use, and 20% renewable by 2020. The US Department of Energy recently awarded $4.5 billion in Smart Grid stimulus funds. The State of California has published aggressive efficiency and CO2 reduction regulations and mandated the deployment of smart meters. As a result, California utilities have projects underway to deploy millions of smart meters. Various other state mandates have motivated US utilities to launch 31 projects deploying a total of 81 million smart meters. China is also moving rapidly, concentrating on distribution automation to reduce grid loss. In the current five-year plan, all major generators will have Smart Grid measurement sensors by 2013. In all, utilities are expected to invest up to $240 billion to upgrade over 2 billion utility meters worldwide (see Figure 1). Each of those 2 billion devices will need to be paired with an access network to enable Smart Grid functionality. The question then becomes, which network makes the most sense?

Global Utility Meters

1400 Number of Meters (millions) 1200 1000 800 600 400 200 0 Unautomated Automated Electric 1165 110

Over 2 billion unautomated meters worldwide

Gas 370 30

Water 945 30

Figure 2 Global Utility Meters

Source: Robert W. Baird and Co., January 2010

Realizing Smart Grid Revenues

3. Access technology choice is critical

The choice of access networks can make or break a Smart Grid deployment, since the consequences of selecting an inappropriate access network and device technology can be staggering. For example, consider a utility with 300,000 Smart Grid customers. The network would consist of 300,000 residential devices, perhaps 200 to 1,000 access nodes and one or two core networks. One can reasonably replace components in the core if the first choice in design or products is ultimately not selected. However, replacement of equipment in the access network or customer premises is nearly unthinkable. The choice of access network and associated smart meters should be subject to intense analysis in order to avoid Technology Regret. The utility faces the challenge of determining which access network/ device pair (i.e., which technology) is best suited to provide a cost-effective and reliable communications network for Smart Grid. There are three basic forms of access network/device technologies in the market. 1. Wireless Networks WiMAX, cellular (2G and 3G) and proprietary (e.g., 900 MHz) Wireless networks have the lowest build-out costs. Typical installations range from$120 - $2501 per customer depending on density of customers covered. Furthermore, many regions already have several networks in place and capacity can be leased from a wireless carrier at a low cost. Typical lease costs can be as low as $0.50 3.00 per subscriber for large volume, long term deals. 2. Wired Communication Networks Cable, Digital Subscriber Line (DSL), Ethernet Wired communication network build costs vary from $500 - $2,000 per customer depending on density of customers covered. As such, they are not typically economically viable for Smart Grid. However, they can still be considered because they can often be leased from wireline communications carriers where they exist. 3. Wired Power Line Communications Broadband over Power Line (BPL), Data Communications Link (DCL) Wired power line communications networks use a portion of the electric network for data transport. They have proved viable in a small number of cases where the electric grid design permits hundreds of homes to be served by a single transformer. This configuration is uncommon and these deployments have typically proved to be cost effective only in portions of Europe. On the basis of cost and availability, then, wireless networks provide a clear benefit.
1 All figures in this section are Nokia Siemens Networks internal calculations based on actual customer deployments

Access network and device pair options

The access network and devices must be analyzed as a mated pair. This is essential because they must speak a common language (e.g., protocol) and very few access networks and devices are multi-lingual. For example, WiMAX devices and access networks speak to one another over the 802.16e wireless protocol using equipment in accordance with the WiMAX specification. Likewise, a proprietary 900 MHz access network will only communicate with a 900 MHz device manufactured by the same manufacturer as the access network.

Choosing the right access technology will prevent Technology Regret

Smart Grid CAPEX and OPEX

e.g. WiMAX, 2G & 3G Cellular, Proprietary, Mesh, Others

Figure 3: Smart Grid CAPEX and OPEX

Core Network and Applications CAPEX Cost: OPEX Cost: 15% 20%

e.g, BPL, PLC, DLC, DSL, ADSL, HFC, Others

Access Network 35% 50%

Residential Devices 50% 50%

Source: Motorola Internal Study

Realizing Smart Grid Revenues

Feature set considerations

When building a Smart Grid, careful consideration must also be given to the features enabled by a given access technology in order to assure that it meets the minimum requirements for a successful service. Figure 4 compares the features for the access network alternatives considered to be most competitive. As can be seen in Figure 4, WiMAX offers a number of advantages over other technologies for Smart Grid support. It offers the best value to the utility by providing the greatest feature/ functionality at the lowest cost. The advantages over Programmable Logic Controllers (PLC), Data Link Control (DLC) and Mesh networks are significant and compelling. Nokia Siemens Networks has outfitted cellular wireless networks with features to support Smart Gridlike applications for several years and they work well for a limited feature set. To support full featured Smart Grid deployment and to future-proof ones access network investment, the speed, performance and features inherent to 4G technology are needed. Taken as a whole, WiMAX is typically the optimal technology for Smart Grid.

WiMAX is typically the optimal technology for Smart Grid

The WiMAX ARPU Advantage For a wireless carrier, WiMAX offers one final advantage the rich revenue opportunity afforded by M2M communication over a WiMAX infrastructure. A WiMAX base station not only provides a low cost last mile infrastructure, it is also highly scalable, able to support from 450 to 3,000 subscribers. For high bandwidth usage, a typical load would likely average about 500 users, each generating an ARPU of about $30/month. So one base station could generate revenues averaging about $15,000/month. Now consider that same base station in use in a Smart Grid. Because machine-tomachine communications, such as regular monitoring of smart meters, are focused, predictable and can be managed without human intervention, the communication load can be optimized to take advantage of WiMAXs tremendous capacity. So a single base station can easily support 25,000 smart meters. Even though M2M ARPUs are much smaller ranging from $.50 to $3.00 the greater volume of subscribers served can yield monthly revenues between $12,500 to $75,000 on a single base station. The case for WiMAX as the Smart Grid access technology of choice is becoming very clear.

WiMAX provides the greatest feature set and functionality at the lowest cost Critical Attribute High Bandwidth Suitability for High Customer Densities Suitability for Low Customer Densities Security Standards Based Scalability Large Supplier Ecosystem Reliability Option to Wholesale/Lease System Availability Cost
Source: Motorola Internal Study

Comparing Access Technologies

PLC

DLC

Mesh

WiMAX

Cellular

Figure 4 Access Network Technology Comparison

Realizing Smart Grid Revenues

The strengths and weaknesses of the three strongest alternatives in the market 900 MHz proprietary systems, 2G/3G cellular systems and WiMAX are summarized in Figure 5 below. Again, WiMAX clearly has an impressive set of compelling advantages that make it worth serious consideration by any utility planning a Smart Grid deployment: IP-based technology Much higher capacity and lower latency than 2G and 3G Genuine standards-based technology Full ecosystem of suppliers and equipment assure competitive pricing Proven interoperability between suppliers guarantees the supply chain Large installed base of carriers future proofs the technology Best Business Case Cost effective, low OPEX, end-to-end solution Enables both build and lease options

Best Feature Set Full QoS regime assures utility traffic is given proper priority Strong security features safeguard grid and customer information Licensed spectrum assures interference will not affect network performance Private or Virtual Private Network support isolates utility traffic from that of the public carrier All-IP Architecture assures feature transparency Carrier-grade, high availability network assures system availability Scalable for very high and very low device densities New technology just beginning its service life (i.e., will not be replaced in the coming decade as is the case for 2G/3G)

There are more than 500 WiMAX network deployments worldwide

WiMAX Forum, March 2010

Comparing Wireless Access Technologies

WiMAX emerges a clear winner Technology 900 MHz Proprietary Advantages Several suppliers Field proven Disadvantages Proprietary Wed to a single supplier Interference issues Limited capacity Limited service life

2G/3G Cellular

Widely deployed Open standard Highest capacity Best feature set Supplier ecosystem Open standard

WiMAX

Deployments in process

Figure 5 WiMAX Advantages and Disadvantages

Realizing Smart Grid Revenues

4. Business model build or lease

When utilities first began to consider Smart Grid as a business opportunity, most simply presumed that they would deploy and operate their own Smart Grid access networks. As they have gained experience, many have come to understand that they have another option lease capacity on an existing Communication Service Providers (CSPs) network. This alternative has several tangible advantages, including faster time to market, lower capital costs, and better ROI. This alternative has not been overlooked by cellular network providers. Verizon and AT&T have recently established programs and rates structures intended to capture the utilities Smart Grid business. A typical deal structure would be as follows (also see Figure 6): Carrier provides the network and basic connectivity Utility provides and deploys the meters Utility maintains the Smart Grid back office Carrier bills the utility based on users per month and call model Guaranteed minimums and incentives for volume The cost of leasing network capacity can vary based on several factors, including: capacity requirements, term of lease, services provided, frequency of meter reads, outage recovery requirement, etc. The following carrier ARPU estimates are considered typical for most cases and can be used as a starting point for business case analysis: Large volume deals: $0.50 - $1.50/ subscriber, depending on the service Small volume deals: $1.50 - $3.00/ subscriber, depending on the service Low end: Automatic meter reading (AMR) use case, periodic reads of usage data and basic health checks High end: Advanced metering infrastructure (AMI) use case, real time metering

Leasing means faster time to market, lower capital costs, and better ROI

Smart Grid Business Structure

To realize all the benefits of Smart Grid, a utility needs to access network, not own it. Leasing capacity from an existing wireless carrier is a win-win for both partners.

Utility
Utility Customer Management Utility Applications Network Management IP/MPLS Network Gateways, Service Edge and Firewalls Base Stations

Smart Meters

Telecom Customer Management Carrier Applications Network Management

Wireless Last Mile

Wireless Devices

Wireless Carrier
Figure 6 Smart Grid Business Structure

Realizing Smart Grid Revenues

5. Nokia Siemens Networks Smart Grid solution WiMAX CSPs

Nokia Siemens Networks offers a tightly integrated end-to-end Smart Grid access network solution. The major components as illustrated in Figure 7 include: Smart Grid core network Wireless backhaul solutions Smart Grid access network Smart Grid meters Design, deployment and implementation services Know How: Smart Grid is more than just another wireless application. Smart Grid applications place new and strenuous requirements on a wireless access network. Having deployed the first WIMAX Smart Grid network, Nokia Siemens Networks has developed features, solutions and methods to assure that the stringent performance requirements of Smart Grid are met. Right Product: Nokia Siemens Networks is a full end-to-end supplier, providing one-stop shopping. The solution is fully compliant with open standards and optimized for Smart Grid applications, so we can work with our partners or with the utility providers preferred suppliers. Nokia Siemens Networks offers a rich set of smart meter features that will permit a utility to get the most from their investment.

Leasing means faster time to market, lower capital costs, and better ROI

Summary
The Smart Grid is emerging as one of the fastest growing new businesses of the decade. WiMAX carriers have the ideal access network technology for the Smart Grid and can leverage their network to capture a new, large revenue stream. As the first WiMAX system supplier to deploy a WiMAX Smart Grid Access network, Nokia Siemens Networks is the sole WIMAX supplier to optimize its system offering for the demands of Smart Grid technology. Nokia Siemens Networks provides the products, services and know-how that WiMAX Communications Service Providers (CSPs) will need to make the most of Smart Grid revenue opportunities.

Why Nokia Siemens Networks

The optimal supplier for WiMAX Smart Grid networks needs a unique combination of WiMAX experience and Smart Grid know-how, as well as a product line that supports smooth integration and deployment. Nokia Siemens Networks has that combination. Experience: Nokia Siemens Networks has demonstrated leadership in WiMAX since its inception by being: First to interoperate with other suppliers First to deploy a commercial network First to demonstrate mobility First to be WiMAX Forum certified First to build a WiMAX Smart Grid access network

WiMAXs End-to-end Smart Grid Solution

IP Core
Internet IP Services Smart Grid VoIP Presence Location Prepaid Gaming Mobile TV Push to X Hosted PDX PolicyNet NMS Canopy Wireless Backhaul MIMO Beamforming

WiMAX Access

Meters

IP MPLS

Metro

Consumer Devices

PSTN

WiMAX ASN Gatew ay

Base Controller Unit

SERVICES

Figure 7 End-to-end WiMAX Smart Grid Solution

10

Realizing Smart Grid Revenues

6. Appendix: Smart Grid open standards and architecture

Early Smart Grid systems were proprietary. However, the power industry understood the benefits of establishing open standards and has been driving the completion of standards in both the U.S. and Europe. The U.S. National Institute of Standards and Technology (NIST) recently released its Smart Grid Reference Architecture (Figure 8) along with recommendations for the adoption of 77 existing and developing standards from organizations including ANSI, DNP, IEC, IEEE, ISO, NERC, NIST, OpenADR, OpenHAN and Zigbee. Several European groups are also working on Smart Grid standards, including: the European Industrial Initiative on electricity grids under the SET European Technology Platform (ETP) Smart Grids, Open Meter 7 Group, and European Utilities Telecom Council (EUTC). The architectures and underlying standards being crafted for Smart Grid are IP-based and have much in common with 4th generation mobile network architectures. This makes WIMAX and other 4th generation wireless networks particularly well suited for Smart Grid. Utilities are leading the standards effort by making standards compliance a minimum requirement in the selection of venders for their Smart Grid projects. Leading Smart Grid suppliers are adapting their products to meet the U.S. and European reference architectures and emerging standards. It is generally anticipated that true interoperability will be achieved in the coming years. Until then, interoperability is being tested at each individual utility deploying a system.

Figure 8 - NIST Smart Grid Architecture

Realizing Smart Grid Revenues

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