I want to argue that next-generation smart electricity infrastructure will take-off in the developing world first because that’s where there’s a clear business case for them.
It is revealing that rich nations have progressed slowly in the implementation of smart electricity distribution systems over the last decade. One of the reasons is the significant upfront cost of installation, the cost of a real-time data collection system - Advanced Metering Infrastructure (AMI). The cost of implementing AMI for a region may reach 60-100% of the annual power supply costs of that region. And in the stable and developed electricity grids of rich nations, upgrades of this type cannot be recovered via increased efficiency savings.
My argument is that the low tech and not properly maintained distribution networks of developing countries, like Latin America or India, would provide the business case to justify these investments.
This is because AMI solves a very real issue faced by energy providers in developing nations: ‘commercial loss’. This is an industry term for a variety of network shortcomings, from ‘tap-offs’ where unregistered users can steal power, to physical equipment failures and losses from estimated or inaccurate metering – for some districts “bad paying” reaches 50-70% of total energy generated. AMI can reduce these thefts by up to 50%, while building wider acceptance of a reliable, paid-for service. AMI does this by identifying where power is being drawn, where unregistered use might be happening and can trigger responses from management.
This way AMI allows operators in developing economies to cut supply costs by 20-30%. The inherent intelligence the technology facilitates also provides confidence to private investors who will help power companies fund the purchase of AMI technology. This leads to the conclusion that the worse a network is today, the better the potential return with AMI installed could be. The technology’s ability to promise sustained improvements in billing and earnings from the grid mean adoption is likely to be spear-headed in developing nations.
Converting weakness into opportunity
In Russia, a country reckoned by the World Bank to face ‘commercial losses’ of around 6-8% of power generated, two-thirds of the unpaid-for power is lost to outright theft. This is hard to correct and manage in an ageing grid that lacks the intelligence of AMI. Arup’s experience in delivering AMI projects in Russia demonstrates that the public-private partnership model is compelling for private investors, who can realize up to 15-20% return on investment in AMI. For countries faced with even weaker infrastructure like Venezuela or Nicaragua, total losses can hit 25% of power generated. The potential gains of using AMI, for investors and end-users, are likely to be even greater than in Russia.
Beyond the purely commercial returns of AMI, there are wider benefits to recommending this technology. An electricity network that is fair, reliable and commercially viable is at the centre of a successful society - something we take for granted in the developed world.
By offering SMART grid consultancy services, advising on the necessary software tools and infrastructure, engineers can both empower energy providers and the societies they serve while doing a great and wider service to the developing world.