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Toward a ‘smarter’ world

Date
15 April 2011
Toward a ‘smarter’ world

By Caroline Bayliss, Australia Director, The Climate Group

First published in CFO Magazine

While the engine of your electric car quietly comes to life, you notice with a smile that your ‘smart charging’ system purchased electricity at rock-bottom prices during the night. As you pull out of the driveway your navigation system is already calculating the best route using real-time traffic conditions. You arrive without a hitch and take a high-definition web conference call from your tech officer in London: he’s positively elated about registering a new cloud computing service for the company, ensuring your data will never be lost again.

An array of promising new information and communication technologies (ICT) like this lie just around the corner, poised to touch many aspects of our lives as part of an impending Clean Revolution. A landmark 2008 study called SMART 2020, by The Climate Group,  outlined ICT’s massive potential: it concluded that by 2020,  ICT could unlock savings worth US$946 billion per annum and reduce global carbon emissions by a whopping 15% – close to the entire US carbon footprint.

These enormous benefits have attracted similarly enormous efforts to study, demonstrate and roll out innovative ICT applications. No application has  more promise than the ‘smart grid’ (ICT applied to the electricity grid) and the strong early push into investigating smart grid technologies means their opportunities and challenges are  increasingly well understood. As such, it provides an instructive example of how the potential of smart ICT might be realized.

The smart grid is a cornerstone of the efficient ICT vision—underpinning, for example, smart-charging electric vehicles, automated building demand response and ultra-reliable self-monitoring grids—and presents vast opportunities for the companies that pioneer these solutions. McKinsey and Co found that a smart grid could unlock more than US$130 billion in annual savings through functions such as peak demand reduction and energy conservation. On Australian shores, a National Energy Efficiency Initiative study determined that, at bare minimum, a smart grid would save AU$5 billion per year.

So how far have we come to making this potential a reality? Going by the numbers, smart grid investment is laying a solid foundation: in the US, public support worth US$7.1 billion in 2010 leveraged several billions more in private funding, supporting more than 200 projects. Europe is also leading, with Spain pursuing innovative non-proprietary telecom platforms, Denmark linking electric car charging to wind energy and the UK allocating £500 million to upcoming ICT projects that demonstrate carbon and energy savings. However, as in many other low carbon industries, China is number one; its public investment reached US$7.3 billion in 2010 alone.

While initially lagging, Australia is beginning to pick up the pace. Following an assortment of small-scale CSIRO studies, the Federal Government recognised the critical need to demonstrate an integrated technology mix at scale, including smart meters with in-home interfaces, an intelligent distribution system, distributed solar power and electric vehicles with various charging technologies. The AU$100 million ‘Smart City, Smart Grid’ program will be testing these technologies in Newcastle, providing Australia’s first view into the future of the grid.

By far the most significant Australian commitment is the AU$35.7 billion National Broadband Network, a project that will form the bedrock upon which the smart grid and ICT systems across waste, health, transport and water can develop.

Major barriers to smart grid implementation still remain though. To begin realizing its potential at scale, we need to speed up the transition from a public stimulus funding model to one attractive to the private sector. Significant groundwork needs to be laid.

Firstly, uncertainties about the business cases for various stakeholders need to be minimized  through further demonstration projects. Initially, projects will require public investment to reduce commercial risks and push them forward at scales sufficient to test integrated technology mixes. Their economic, environmental and behavioral impacts will all need to be closely monitored over the medium-term, to build knowledge among city planners, businesses and regulators. The Newcastle ‘Smart City, Smart Grid’ is a good start, but Australia will need further investment to keep competitive. This is especially true of less studied applications, such as ICT for health and waste systems.

Secondly, regulators will need to address split incentives, which can prevent investors from recovering the value they create. If investing in smart meters, for example, helps consumers reduce electricity use and therefore cuts electricity sales, which should boost a utility’s value, not eat into their profits.
Lastly, and perhaps most of all, smart grid advocates need to maintain focus on creating value for the end user. This demands interoperability of solutions, to provide consumers with maximum choice and flexibility as the industry develops. It also demands that smart grid promoters avoid ‘selling solutions looking for problems’ and maintain focus on making value concrete for consumers.

In advancing smart ICT, we have no time to waste. An aging population, water shortages, spiralling electricity costs, growing high-tech industries reliant on ultra-high-quality power – all of these challenges are becoming commonplace across the globe and will certainly test Australia in the coming decades. A Clean Revolution in the ICT sector will provide many of the solutions we need, as well as a path to greater wealth and a better quality of life.

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