Telecom powerhouse Cisco Systems has staked its claim on the Smart Grid, and, trite as it may sound, the world may never be the same.  I’ll outline what Cisco is proposing, consider the implications for the electricity industry as a whole, and conclude by identifying who stands to lose from Cisco’s plans.

From Generation to Home and Everything in Between

Cisco Systems, the San Jose, Calif.-based networking and communications giant, today revealed that it intends to provide “an end-to-end, highly secure network infrastructure solution” for the Smart Grid and everything it touches. 

Cisco’s strategy is to ensure that there is one, consistent, IP-based infrastructure for the electric power industry – a standards-based foundation that will ultimately be able to connect any device to any other anywhere at anytime. In other words, an Internet for electricity. Cisco will provide some of the hardware, most of the networking software, and a few of the applications that run on top. It will turn to partners for the rest. Since Cisco intends to build on open standards, both vendors and customers will be free to build their own applications, just as they do today over the Internet.

 The Cisco Approach

Cisco’s constellation of Smart Grid solutions consists of four parts: T&D automation, security, smart meter and endpoint communication, and business and home energy management.

• Transmission & distribution automation. Cisco will deliver substation-hardened routers and switches, embed legacy protocol translation, and work with equipment manufacturers to achieve interoperability based on Internet protocols.
• Smart Grid security. Cisco will provide the architectural framework for security as well as other security solutions such as firewalls, IPS, VPN, identity, access control. Physical security will include video surveillance, alarms, and hardened network devices. The system will feature real-time monitoring, management, and correlation.
• Smart meter / endpoint communication. Cisco partners will handle the smart metering technology itself with Cisco providing the backhauling communication infrastructure. Cisco pledges interoperability on both the software and protocol (IP) level.
• Business & home energy management. Cisco will promote IP as the standard for business and home energy management and work with equipment manufacturers to ensure interoperability with this standard. The company plans to develop a home energy control appliance and manage these services in conjunction with its partners.

Why Go Public Now?

In her briefing to SGN, Cisco VP of Network Systems and Security Marie Hattar identified utilities as the primary customer for the company’s Smart Grid solutions. A widely reported example is Cisco’s involvement with Florida Power & Light’s ambitious “Energy Smart Miami” project (see SGN News Roundup for April 21). Those utilities want Cisco to lay out its future vision to inform their own long-range planning. 

So What?

As the company that gave us the tools for keeping hundreds of millions of people online at once, Cisco has the experiences and the resources to repeat that success in the Smart Grid world. Indeed, Cisco is promoting their Smart Grid role with an Internet analogy.  “It’s like building an Internet in the electrical system,” says Hattar. “We’ve been clear leaders in Internet and will do the same for Smart Grid.”  In the long run, Hattar expects Cisco’s Smart Grid business to eclipse the company’s Internet services in number of access points, since more people are tied to the electric power network than to the Internet. 

And let’s not forget that Cisco has also built very strong businesses in the telecomm and cable industries as well. It has lots of practice remaking networks. 

Implications

The entrance of Cisco, with its broad and ambitious vision, entering the Smart Grid space has several far-reaching possibilities:

• The dial tone effect. Today, grid connectivity is a patchwork cobbled together with a bunch of proprietary technology, each system different from the next. Tomorrow, we will see a true end-to-end "Internet for electricity," where any device can talk to any other device at any location.  Thanks to Cisco and the competitors that will follow it, it will be as reliable and familiar as the dial tone: You pick up the phone and there it is. 
• Calming and energizing. Such consistency and reliability will have a calming effect on customers, and “revving up" effect on entrepreneurs and innovators. It's like when Microsoft announced Windows 95 or Apple opened up the iPhone for applications. Customers could feel more secure that they would have a robust solution with lots of choice. And entrepreneurs could see that they would soon have a standard platform. By writing for that platform they could reach tens of millions of customers. 
• The electricity economy. As a result, the future of the electricity industry may look more like telecomm 2.0 (think iPhone) and Web 2.0 – a networking foundation that carries applications and services. Once this possibility exists, the Smart Grid turns into the next vast infrastructure for delivering products and services and conducting commerce anywhere on the planet. It is that vision/possibility that has Google salivating. 
• Misunderstood. Some people think Cisco wants to run the Smart Grid over the public Internet. That will rarely be the case. Instead, you will probably not send the signal over the same line that brings in your broadband Internet. Most utilities will probably use a separate (usually wireless) connection. Using Internet protocol (IP) doesn’t mean using the Internet itself. 

Winners and Losers

Cisco is exceptionally skilled at working with and manipulating the standards process. In the cable world, Cisco worked with partners to help establish the DOCSIS standard for carrying data over cable lines.  The move greatly benefitted Cisco, while companies that waited too long to get onboard went out of business. The same thing could happen to manufacturers of smart meters, substation equipment, and intelligent electronic devices. Although Cisco’s announcement specifically includes plans for legacy protocol translation, it’s unwise to bank on Cisco maintaining those indefinitely.  

The message for vendors is clear:  Engineer your equipment to work over IP or risk being shut out of Smart Grid communications.  Similarly, utilities need to plan for an IP-based infrastructure. Any company who does not follow Cisco’s lead in communications protocols is putting their financial health at risk. 

In addition, the list of losers could also include the following:

• Alcatel and Cisco's other networking competitors who may get to the party too late.
• Utilities who may be disintermediated once it becomes easier to reach around them and go directly to energy customers.
• Small companies attempting to create the platform in the center, because they won't be able to match Cisco's speed and strength.

Jessee Berst is the founding editor of Smart Grid News where this story originally appeared. 

2030. It's one of those years you see goals pegged on a lot these days. California, for instance, wants to update the building code so that new commercial buildings will be net zero on energy by 2030.

Now, the IEEE, the large and influential standards body, has set forth a program entitled IEEE P2030 to come up with standards for smart grid interoperability and two-way communication.

2030 is not when the first planning meetings will end. It is, ideally, when these things can be implemented.

The first P2030 meetings will take place at Intel headquarters in Santa Clara on June 3 through 5. Turn right at the Marriott and keep going. It's the blue building on the right.

General Electric execs have estimated that 41 gigawatts could be wrung out of the grid just by making it 5 percent more efficient.

Fresh on the heels of landing a key U.S. contract for its superconductor fault current limiter device, Zenergy Power (AIM: ZEN) has raised £9.5 million ($13.8 million) to help it compete for American smart grid stimulus funding.

Specifically, the London-based company is looking to use the funding from new and existing investors to get its superconductor equipment into stimulus-funded projects, according to a Friday briefing from CEO Jens Mueller.

Superconductors — materials that can carry far more electricity than traditional copper wires — are being used in a number of new ways for electricity grid operations, both as experiments and on a commercial scale (see Superconductors for the Grid).

One such use is as fault current limiters, or cables that can prevent current surges from damaging the grid. That's because some superconductors start resisting current when that current grows too great, making them useful both for transmitting and for stopping the flow of electricity.

Earlier this month, Zenergy announced a contract to provide a superconductor fault current limiter to Consolidated Edison, its first U.S. utility deal. That's part of the $39 million, Department of Homeland Security-funded project HYDRA, meant to help New York City's power grid withstand disruptions.

Zenergy is also working on developing the technology for California's power grid. In 2007 its San Mateo, Calif.-based subsidiary SC Power got $500,000 from the California Energy Commission and $11 million rom the Department of Energy for that purpose. 

American Superconductor Corp. (NSDQ: AMSC) also has been landing superconductor grid contracts. It is supplying superconductor wire to national utility Korea Electric Power Corp., and has supplied wire for superconductor projects by American Electric Power and the Long Island Power Authority. It also got $21.7 million from DOE in 2007 to work on fault current limiter and power delivery equipment.

Both companies are looking to smart grid projects — and the $4.5 billion in federal stimulus funding set aside for matching smart grid project grants — to help them reach profitability.

Zenergy this week announced a 2008 loss of €5.3 million ($7.03 million) on revenues of €2.03 million ($2.7 million), compared to a loss of €5.2 ($6.9 million) on revenues of €268,000 ($355,000) in 2007. 

And American Superconductor in February reported a loss of $17.9 million on revenues of $109.8 million for the first nine months of fiscal year 2008, compared to a $23.6 million loss on revenues of $62.5 million in the same period in 2007.

Both companies have other lines of business. American Superconductor makes most of its money from supplying designs and parts to wind turbine manufacturers (see American Superconductor: The Quiet Wind Player).

And Zenergy last year installed its first superconductor induction heating device in a manufacturing plant of an unnamed customers, and is delivering superconductor coils to utility E.On for a hydropower project in Germany. 

Itron Inc. (NSDQ: ITRI) reported Wednesday that its first-quarter 2009 revenues fell amid a shrinking 12-month pipeline for new smart meter contracts — a sign that $4.5 billion in smart grid stimulus funding isn't enough on its own to counteract the ongoing recession and utilities' conservative spending plans.

The Liberty Lake, Wash.-based company reported first-quarter revenues of $388.5 million, below analysts projections and down 19 percent from revenues of $478 million in the same quarter in 2008.

And while Itron's long-term backlog for smart meter contracts rose to a record $1.5 billion — up from $683 million in the same quarter last year — its shorter-term, 12-month backlog fell to $471 million in the quarter, down from $552 million in the same quarter last year.

That was due to the wrapping up of a number of contracts in 2008, as well as "the expected timing of future AMI shipments," Itron told investors Wednesday.

And therein lies the rub. Itron is a market leader in two different kinds of advanced meters — the older, automatic meter reading (AMR) kind that send but do not receive data, and newer "smart" meters with two-way communication capabilities to link utilities with their customers.

But those newer AMI (advanced meter infrastructure) deployments aren't happening as fast as previously predicted. San Diego Gas & Electric, which has a $260 million contract with Itron, has scaled back its deployment plans for this year (see Security Concerns Behind Slowdown in Itron Rollout?).

Another big Itron customer, Southern California Edison, is also expected to deploy fewer smart meters this year than previously planned (see SCE Preps $1.63B Smart-Meter Program). Itron has two other large-scale AMI contracts with Texas utility CenterPoint Energy and Michigan utility DTE Energy.

Analysts have been concerned about utility spending on smart meters for some time (see Itron Reports Strong Third Quarter). Utilities can be slow to adopt new technologies and must get regulator approval for big projects like building smart meter networks.

"We see Itron's results as not much of a surprise given the weak macro-economic backdrop," analysts with Thomas Weisel Partners said in a research note.

The ongoing recession has utilities postponing decisions on how fast they will deploy smart meters, Itron told investors. That has led the company to withdraw any earnings guidance for 2009, beyond predicting that annual revenues will be about the same or slightly lower than those in 2008.

And the much-vaunted $4.5 billion in smart grid stimulus funding might not be such a big help for smart meter makers as previously predicted, observers have noted.

That's because the Department of Energy has put a tentative $20 million cap on individual grants for commercial-ready projects, while many of the larger-scale smart meter deployments run into the billions of dollars (see Smart Grid Stimulus: What to Expect).

Under pressure from utilities, DOE might decide to lift that cap for certain projects, the Washington Post noted last week.