Adam Gillert, a senior associate in Bird & Bird‘s Commercial Group, advises on technology rich areas involving the commercialisation of intellectual property rights and other complex technology projects and is a founder of Bird & Bird’s smart grids blog. Here Adam explores the background to smart grids in Britain and certain opportunities and challenges key industry players may face.
Why a smarter grid?
Britain’s electricity sector currently faces a host of challenges, including:
- achieving a low carbon energy mix;
- integrating intermittent renewable generation;
- ensuring adequate electricity capacity and security; and
- mitigating rising electricity costs and delivering value for consumers.
The “smart grid” agenda focuses on helping to overcome such challenges by using advanced information and communications technology to achieve improved outcomes and lower costs for consumers.
For decades even the most innovative electricity markets have relied on the legacy of last century’s technology. Smarter grids are now high on the agenda of many of the world’s governments and leading companies. Smarter grids are being encouraged by a variety of investments, initiatives and policy changes such as the EU’s Third Energy Package, national legislation and local efforts focusing on creating smarter cities and communities. Under current plans, by 2020 around 53 million gas and electricity smart meters will have been rolled out to homes and small businesses in Britain as part of a Smart Metering Implementation Programme. Those smart meters will be able to inform domestic consumers how much energy they are using through a display in their homes and communicate directly with energy suppliers (removing the need for meter readers to visit premises in the future).
A smarter grid has two mutually re-enforcing foundations:
- smarter infrastructure: at the network level, greater use of technology should reduce costs, assist in making the grid more automated and better able to “self-heal” (reducing the risk of blackouts) and reduce the need for expensive re-enforcement through more efficient use of existing infrastructure. Smarter infrastructure, such as smart meters and other technologies to monitor the grid, also facilitates the creation, capture and analysis of smarter data.
- smarter data: enables improved outcomes but also new consumer choices, markets and business cases that may facilitate investment in further smarter infrastructure and the growth or expansion of new markets such as renewable electricity, decentralised electricity, smart appliances and electricity storage. For example, better visibility of end consumption may assist network operators in reducing loss of electricity as it flows through the grid and households in reducing their own waste – both benefits leading to direct or indirect cost savings for consumers.
Standardising a global vision
One of the biggest challenges facing smart grids is that they will not achieve their potential unless key components are able to interact effectively through common standards. The call for standardisation and interoperability is relevant throughout the supply chain, including for generation, distribution, interfaces, management of systems and networks, data models, security and methods of communication and data exchange.
Smart grids will therefore depend on the successes of initiatives to develop national and international standards for interoperability. Fortunately, a great deal of detailed standards work is now underway at both national and supra-national levels. Standard setting organisations (SSOs) will have an important role to play in that they commonly set rules in relation to the ownership of patents applicable to the standards that they adopt. SSOs will usually define when a patent becomes essential to a standard and require that owners of essential patents declare their existence and undertake that they will be made available to everyone on fair, reasonable and non-discriminatory terms (FRAND). These FRAND rules exist to prevent members of the SSO exploiting the monopolistic advantage of having their patents specified as a standard. Those using standards need to be aware that FRAND does not mean patents relevant to the standards can be used freely or without reference to the patent owner’s terms. It is also worth remembering that SSOs do not give assurances that all patents relevant to the standard or a particular product are identified.
Businesses involved in this emerging market should keep abreast of such developments and participate in policy making processes that will determine the shape of tomorrow’s electricity markets, otherwise there is a risk that a business may adopt a technology that has been locked out of the standard. It is also vital that any standards are sufficiently future-proofed to allow for new functionalities as smarter grids mature. Innovators need to ensure their investments in new processes and technology are properly protected through appropriate intellectual property rights. This is particularly important where technologies are being shared with competitors in a standard setting process
Architectures for the future
Smarter grids are inherently linked to the concept of what the British energy regulator Ofgem terms “smarter markets”: that is making the electricity industry more efficient, dynamic and competitive. For example, Ofgem’s Smarter Market Programme is currently examining how to ensure that energy consumers can reliably switch supplier the next day – a significant change from current processes that can take weeks. Achieving those benefits and adapting to new policy landscapes enabled by smart grids will require new technology systems and architectures and potentially revised business models.
In Great Britain, many of the greatest technical and commercial challenges posed by smart grids are likely to be felt first and foremost by electricity suppliers (those that sell to consumers, as opposed to the network operators who carry the electricity). GB electricity suppliers are charged with leading the nationwide roll-out of smart meters; probably the biggest logistical and customer engagement challenge the industry has ever faced. Suppliers will also need to adapt their back-end systems to operate within the new technical framework that will support smart meters and regulatory obligations arising from a smarter market.
The introduction of smart meters may also create market opportunities for new players and challenge existing business models. For example, the British government is keen to encourage a greater role for Demand Side Response (that is, consumers rapidly adjusting their consumption in response to the needs of the grid).
Much of the commentary relating to smart grids has, perhaps unsurprisingly, focused on “smart” threats, especially complex security and data protection issues. As I explained at greater length in an article published in the industry magazine Utility Week (03.05.13), whilst those are important issues and worthy of careful analysis, personal data and privacy are already governed by robust laws in the UK and the rest of Europe. There are many other technology intensive sectors (including financial services and telecoms) on which modern life depends that industry has kept generally secure.
The experiences of other sectors indicate an often overlooked challenge in successfully leveraging complex information and communications technology (ICT) is how to avoid some much more “dumb” risks – such as the risk of ICT simply not working as it should because of a lack of adequate processes and controls to prevent, detect and remedy incidents or adequate risk mitigation in the form of legal and other protections. Smarter grids (including the associated regulatory licence obligations that will accompany them) will mean electricity companies will have to be more vigilant in ensuring that robust due diligence, planning, testing, disaster recovery and other processes are followed when procuring critical technology systems.
Energy is something that enriches every home and business. The success of the electricity sector in harnessing the power of information and communications technology to deliver improved outcomes is something that will affect all of us.
This article, provided by Bird & Bird LLP, gives general information only as at the date of first publication and is not intended to give a comprehensive analysis. It should not be used as a substitute for legal or other professional advice, which should be obtained in specific circumstances.