Here’s why smart grid hardware is only as good as the applications running on it

Here’s why smart grid hardware is only as good as the applications running on it
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Smart metering devices are already a multi-billion dollar industry, despite their high cost. At up to $400 per unit, these sensors are still too expensive for a lot of homes and businesses, but strong sales in the US and China promise to drive down prices. As the devices proliferate, the focus will shift to a far more profitable business: selling software services on top of the hardware.

For customers, services represent far more value than the smart meters themselves. After all, smart devices aren’t that smart. While they can generate data about their surroundings, they can’t crunch any of that information toward a useful end.

To be effective, smart devices need to be able to share data with one another and instruct other devices how to behave. In short, they need grid-hosted software applications to warehouse and process this data, allowing the automation of responses normally made by humans.

One popular use-case would be service calls. With the proper grid applications in place, your natural gas company could turn power on or off without dispatching a service crew. So while the devices that generate the data are already working, the applications that make them useful have yet to mature.

Efficiency and flexibility will be the two main goals for grid apps, but providing real value will demand near perfect uptime and analysis. A small miscalculation or hiccup could go a long way toward destroying a customer’s low average operating cost. The routers, antennas, range extenders, and sensors that comprise advanced metering infrastructure simply aren’t worth the investment if they can’t sense abnormal activity, self-optimize, and move to prevent faults without human supervision.

In the intervening time, human expertise will be more important than ever. But older workers are retiring rapidly, causing brain drain during an important transition. Grid applications can help here, too, by allowing senior employees to “teach” best practices and processes to machine learning algorithms, which can, in turn, help the next generation of engineers and operators avoid long-forgotten pitfalls.

Because utilities themselves will benefit most immediately from hardware upgrades, these grid apps are still nascent. In fact, their appearance may lag up to five years behind the rollout of the advanced metering devices. When device prices drop, profit margins will shift to the network layers, namely the smart-grid app vendors.

One of these vendors is Itron, which is becoming vital to customers who seek to diversify their array of smart metering devices in an attempt to avoid being locked in to undesired hardware. Itron’s software analyzes data coming from all these disparate devices, teaching customers how to optimize each power use at every step in their value chain—from manufacturing to logistics to customer support.

The biggest beneficiaries of grid apps? Oil and gas. Usage insights will let the industry operate predictively and preventatively, causing outages to decline and, in the long term, garnering enough efficiency gains to push down energy prices. Those lower prices will be passed on to customers in the form of lower power bills.

The improvement is projected to be so substantial that it might even have an impact on business plans. With enough savings, an energy provider could defer the build-out of new power generation and transmission infrastructure for years, focusing instead on becoming a platform for services. That would reduce the cost to consumers even further, keeping overheads more predictable as utilities and municipalities transition to smart grids.

Read more from HP Matter’s Energy issue here.

This article was produced on behalf of HP Matter by the Quartz marketing team and not by the Quartz editorial staff.