Smart Grid Utility Challenges and Telecomm Opportunities Rick

Smart Grid Utility Challenges and Telecomm Opportunities Rick Geiger Executive Director, Utilities & Smart Grid T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 1

T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 2

Service Providers and Electric Utilities § Business Model: CAPEX vs OPEX Not an issue for Munis & Co-ops § Business Drivers – Voice & Data vs 120 VAC § SLAs § Disaster Recovery § My customers - Who’s your retailer? Not an issue for Munis & Co-ops § Technology Horizons T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 3

Coverage – Always a Challenge T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 4

Cooperatives T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 5

Cooperatives § Are located in 80% of the nation’s counties § Are the largest electric utility network in the nation § Total more than 930 local systems in 47 states § Have 40 million member-owners § Distribute power over 2. 4 million miles of line § Own $112 billion in generation, transmission, and distribution assets Source: NRECA T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 6

Public Power § Located in 49 of 50 States § 2010 Community Owned Electric Utilities § Serving 45 million people § 14% of US Electric Power Source: APPA T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 7

US Electricity Industry Statistics Number of Electricity Providers % of Total Publicly Owned Utilities 2, 010 61. 5% Investor Owned Utilities 212 6. 5% Cooperatives 883 27. 0% 9 0. 3% 153 4. 7% Federal Power Agencies Power Marketers Source: Energy Information Administration T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 8

Innovation and regulation drive change in the utility industry Change Drivers Changing Supply: Renewable Generation Changing Demand Patterns Regulation/ Compliance New Opportunities § Unpredictable renewable supply sources § Flexible tariffs cause changing demand patterns § Climate change and energy efficiency goals § Additional sales volume by electric plug-in vehicles § Distributed generation sources feeding into unmonitored grid areas § More complex to predict § Standards and interoperability § Economically store electricity T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid § Network security and reliability § Stimulus packages Cisco Confidential 9

Smart Grid: Transformation of an Industry Distributed Generation Sources Industrial Customer Power Generation Federated Data Centers Commercial Customer Transmission (Utility) Distribution (Local Utility) Network Control Center T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Network Control Center Cisco Confidential Residential Customer Energy Information 10

Utilities are challenged with a more complex operating environment Smart Grid Challenges Distributed Generation EV & Storage Energy Management Change § Intransparent build-up (geography & scale) § Significant increase in offtake § Integration of new applications Communication § Timing of feedin § Moving load § Increased information requirements Capabilities Challenges Capacity § Management of increased stochastic generation § Potential for storage & feedin § Technical specs defined outside utility industry § Competition for ownership of innovative efficiency solutions T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 11

Utilities will respond along three dimensions in building the Smart Grid Building Blocks Dimensions Requirements Rationale ( § Adequate capacity § Transition from distribution focused to contribution capable ) ) Communication ( § Basic system status § Creation of an information rich and potentially real time operating environment Capabilities § Electricity delivery § Integration of new infrastructure elements § Substitution of physical with virtual capacity Capacity T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid § Today’s consumption supplied though no demand shifts included § Physical infrastructure to accommodate complex load flows SG Building Blocks Readiness Infrastructure Layer § Current system highly reliable in “look and see” mode § Increased levels of uncertainty around system behavior ICT Layer § Stable environment with limited need for short term action § Increased system stress through erratic offtake / feed-in Applications Layer Available today Cisco Confidential Not available today 12

Business and regulatory requirements open new business opportuntities Smart Grid Opportunities Network of substations SG Building Comms for Supply Side Blocks Vehicles Grid Operation by 2020 Substation Automation V 2 G Infrastructure Layer Smart Meter Top Utilities: We can do it better than SPs Plan, design, operate ICT Layer Narrow- / Broadband Enablement Data Integrity Management DG Integration Applications Layer Comms for new installations Advanced Grid Sens. & Contr. Residential smart meters Demand Side Energy Storage Visualization & Work Force Prediction Mgt. Load Mgt. & Balancing Application hosting Smart Grid business opportunties for SPs Source: Booz & Company, Newton Energy Research, ABS Energy Research T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential Micro Grids Self-Healing Grid System Engineering Demand Response Energy “Near-Time” Management Pricing Building/Home Web Services Energy Mgmt Business Energy Mgt. Comms C&I smart meters 13

Strategic and architectural challenges: Will Utility/SP infrastructures converge? § Utilities rolling-out Smart Metering Market Expectation § Strong regulatory and public pressue to deliver energy efficiency solutions § SP / Challenger under pressure to enable mass market broadband connectivity § Utility and SP under pressure by declining retail margins Competition § Renaissance of home automation services fueled by energy efficiency solutions (and renewable integration) § Utility and SP independently fighting for retail customer ownership Smart Grid as a hosted service How to develop a communication infrastructure meeting the requirements of an integrated though unbundled utility value chain? Could convergence of utility and SP networks enhance a joint value proposition? What are the regulatory and legal implications? T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 14

Way Forward: Developing the Vision for the converged infrastructure network § Develop a converged network position – Outline an end-to-end Smart Grid solution – Win-win value proposition and business models § Explore utility industry readiness § Consider a cross-industry Smart Grid initiative T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 15

T-Systems International © 2007 Cisco Systems, Inc. All rights reserved. Smart Grid Cisco Confidential 16