APPENDIX 7.2

PRESENTATIONS DURING THE

KICK-OFF MEETING 10-12-2013

KICK-OFF MEETING 10-12-2013 AGENDA

1. THE INOGATE Programme(by INOGATE)

2. THE INOGATE EXPERTS (by INOGATE)

3. THE AJERENERJI TEAM (by Azerenerji)

4. OVERVIEW OF AMI TECHNOLOGY (by INOGATE)I HNOLOGY

5. OVERVIEW OF AMI TECHNOLOGY IN EU & US (by INOGATE)

6. AMI BUSINESS CASE (by INOGATE)

7. THE PROJECT (by Azerenerji)

8. INOGATE SCOPE OF WORK(by INOGATE)

9. INOGATE SCHEDULE OF WORK (by INOGATE)

10. INFORMATION REQUIRED FOR THE STUDIES (by INOGATE)

11. KEY STAKEHOLEDRS OF THE PROJECT (by Azerenerji)

12. SCHEDULE OF SITE VISITS AND MEETINGS

13. STUDY TOUR

14. DISCUSSION

2

1. The INOGATE Programme

What is INOGATE? An EU-funded programme for regional energy cooperation

between the European Union and its Partner Countries

in Eastern Europe, Caucasus and Central Asia

12 INOGATE Partner Countries: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan,

Moldova, Tajikistan, Turkey, Turkmenistan, Ukraine and Uzbekistan.

INOGATE in numbers 1996-2011

Pro

ject

s &

Su

pp

lies • Over 60

projects implemented

• Over 40 million EUR in small-scale emergency equipment and supplies

Aid

• 125 million EUR in technical assistance

• Policy changes & legislative support

• technologies

Peo

ple

• Over 7,000 persons trained

INOGATE - Targeted energy sectors

Electricity Renewable Energy Energy Efficiency

Gas Climate Change Statistics

New ITS - Fact Box

• Project title: INOGATE Technical Secretariat (ITS)

• Budget: € 16.5 million • Duration: 36 months (02.2012 – 01.2015) • Partner Countries:

– Eastern Europe - Belarus, Moldova, Ukraine, – Caucasus - Armenia, Azerbaijan, Georgia – Central Asia - Kyrgyzstan, Turkmenistan,

Kazakhstan, Uzbekistan, Tajikistan

• Four Project Components (A,B,C,D)

New ITS - Project Components

A - Coordination

• ITS operation

• Communication Strategy

• Investments policy

• Monitoring

• 18%

B – Electricity & Gas

• Regulation

• Standards

• Cross-border trade

• Losses

• Infrastructure

• 34%

C- Sustainable Energy

• RES

• EE

• 24%

D – Energy Statistics

• Energy Statistics

• Energy balances

• 24%

Topics of Component B

EU best practices and advice in the field of E & G primary and secondary legislation

Harmonisation of electricity and gas standards and codes

Support to a framework improving energy cross border trade and cooperation

Sustainable and efficient energy transit infrastructures

2.The INOGATE Experts

The INOGATE experts

• Achilleas Gekas Senior Task Manager

• Nick Tourlis Senior Electrical Expert

• Ananth Chikkatur Senior AMI & MDM Expert

• Saleh Nasir AMI expert

• Petros Senior Information

Papadimitriou Technology Expert

• Zaur Mamadov Local Expert

11

3.AZERENERJI TEAM ---

12

4. OVERVIEW OF AMI TECHNOLOGY

AMI Overview

14

Source: EPRI

AMI Overview (cont’d)

Networks

(BPL, GPRS, PLC, RF etc.)

15

Source: eMeter

Focus on Full Utility Perspective

16

Source: Levy Associates, 2005

AMR vs. AMI System Element /

Feature Manual Automatic Meter Reading

(AMR) Advanced Metering Infrastructure (AMI)

Meters Electromechanical Hybrid. Hybrid or solid-state

Data collection Manual, monthly Drive-by, monthly Remote via communications network, daily or more often

Data recording Total consumption Total consumption Time-based (usage each hour or

more often)

Primary applications

Total consumption billing

Total consumption billing Pricing and Customer options

Utility operations Emergency demand response

Key software interfaces

Billing and customer Info

system

Billing and customer Information system

+ Customer data display; Outage management; Emergency demand

response

Additional devices enabled

None None Smart thermostats; In-home

displays; Appliance controllers

Other Advantages None Tamper detection + automatic alarm notification

Power quality

Stakeholders & Benefactors

Base

Meter reading; Customer Service & Field Services;

Billing, Accounting, Collections

+ T&D Operations+Engineering IT & Metering

Marketing & DSM 17

5.OVERVIEW OF AMI EXPERIENCE IN EU & US

US AMI Experience

• Electric industry has always been debating on how to efficiently and optimally charge customers for electricity

• Key solution is Metering Technology – Low-cost period-based metering was lacking until about 10 years

ago

– Now, costs of interval meters, communications networks, and back-office systems necessary to maintain and support them (i.e., advanced metering infrastructure or AMI) are dramatically lower

• American Recovery and Reinvestment Act of 2009 included $3.4B for the Smart Grid Investment Grant (SGIG) program – USDOE co-funded 10 utilities to undertake 11 Consumer Behavior

Studies using randomized controlled experimental methods to assess how best to get AMI deployed and get regulatory approval

19

Characteristics of US Studies

Opt-In Opt-Out CPP TOU VPP CPR Cleveland Electric Illuminating Co.

Detroit Edison

Green Mountain Power

Lakeland Electric

Marblehead Municipal

Minnesota Power

NV Energy – Nevada Power

NV Energy – Sierra Pacific Power

Oklahoma Gas & Electric

Sacramento Municipal

Vermont Electric Cooperative

TOTAL 11 3 8 7 2 2

20

CPP: Critical Peak Pricing TOU: Time of Use Pricing

CPR: Critical Peak Rebates VPP: Variable Peak Pricing (TOU, but prices change daily)

Source: US DOE , June 2013

US Consumer Recruitment

• Recruitment rate: Number of recruited customers divided by the number of solicited customers

• Differences in recruitment rates often reflect the amount of time and effort devoted to market research, customer education, and effectiveness of marketing materials and strategies

• US consumer behavior studies suggest that opt-out offers are best for recruitment (78-87% recruitment vs. 5-28% for opt-in)

• For opt-out offers, type of time-based rate offer does not substantially affect recruitment (e.g., flat rate with critical peak pricing or TOU with critical peak pricing)

Source: US DOE , July 2013 21

Lessons Learned for Utilities

• Utilities found that focus groups, surveys, and other research on customer preferences were vital components for test-marketing terms and concepts for convincing customers to participate in solicitation efforts

• Opinions of utilities about what would be effective marketing frequently differed from what customers thought would be effective

• Validate focus group results with other test marketing and survey efforts and cover a variety of customer segments to build a comprehensive profile of attitudes & awareness

• Need for effective training for installation personnel and contractors who interact with customers at their homes

Source: US DOE , July 2013 22

EU Context – Definitions (1)

• Automated Meter Reading

• Advanced Metering Infrastructure

• Automated Meter Management

23

EU Context – Definitions (2)

24

General Directions:

• Automatic reading, processing and transmission of metering data,

• Possibility of bidirectional data communication in real-time (or with only a small time lag),

• Support of additional services and applications, e.g. home automation, remote (dis-) connection of supply or load limitation, and

• Remote update of meter firmware to enable new services, communication protocols, etc.

How EU is doing (Vendor’s perspective) ?

25

CBA outcomes (JRC, Jan 2013)

26

Share of Smart Meters in Smart Grid

27

6. AMI BUSINESS CASE

AMI Deployments are Expensive

Typical Cost Breakdown by Type

29

Source: EPRI

AMI Deployments are Expensive

30

Source: EPRI

Why Invest in AMI? • Typical Drivers for Utility AMI

– Cost control

– Loss reduction and revenue recovery

– Customer service issues

– Conservation

– Reading frequency

– Labor or management issues

• Traditional Benefits of AMI Implementation

– Reduced Operating Costs

• Reduced labor / vehicles

• Fewer re-reads

• Readily available finals

– Improved Accuracy / Increased Frequency

• No estimates needed

– Enhanced Customer Service

– Leak, theft and tamper detection

– Advanced load control applications (e.g. peak shaving demand reductions)

– Enables cost-effective energy efficiency programs such as conservation voltage reduction

– Enables a whole range of products via advanced customer analytics data

– Benefits multiply as it enables a host of other technologies (e.g. eV and EMS)

31

Utility Benefits Are Significant

Theft

32

Source: Adapted from CH2M Hill

• Improve safety and reliability through faster and precise outage notification and a reduction in the damage caused by illegal electricity diversions. Improve asset equipment health, maximize asset utilization and life, and optimize maintenance, capital and O&M spending by providing detailed information to engineering team.

• Enhance customer service by reporting electricity use more accurately, eliminating estimated bills, simplifying the process of opening and closing an account when moving, and reducing the need for onsite visits by field crews.

• Reduce electricity theft that currently amounts to roughly $50 million a year in lost revenue (assuming US$ 0.05/kWh)—costs that are borne by all legitimate Azerenerji customers.

• Improve operational efficiency and reduce wasted electricity through voltage optimization. Lower operating costs are passed on to all customers in rates.

• Support greater customer choice and control by offering optional in-home feedback tools that provide direct and timely information to customers about their electricity consumption.

• Help modernize Azerenerji ’s electricity system by replacing nearly obsolete meters, and creating the foundation for supporting new uses of electricity such as electric vehicles, customer generation and microgrids.

Smart Meters Provide Substantial Benefits Overall

33

Big Question – Is AMI Right For You?

• Is something “broken”? • Does the project have senior-level

advocacy? • Never a “trivial” effort

• Will there be political backlash from staff cuts?

• What is the condition of your existing meters?

• Is there flexibility in your procurement process?

STOP

34

Source: Adapted from CH2M Hill

Avoid Technical Misdirection

35

Source: Adapted from CH2M Hill

Business Case - Objective

36

Source: Levy Associates, 2005

Emphasis On Holistic Approach

37

Source: Levy Associates, 2005

Maximizing Value

38

Source: Levy Associates, 2005

Need for Comprehensive Cost-Benefit Analysis for Azerenerji

3-Step process for evaluating costs and benefits of project post-implementation

39

Source: EPRI

Cost Savings Increase Over Time and With Penetration

40

Source: Levy Associates, 2005

NPV Analysis to Determine Feasibility

41 Source: BC Hydro

Business Case Result – AMI Evaluation Example

42

Typical AMI Project Pitfalls • Preferred Vendor or Premature Product Selection

– Favorable negotiations rely on perceived competition

• Developing Performance Specifications

– How do you translate expectations (and vendor promises) into contractual obligation?

• Warranty is not a Guarantee

– What is the true cost of FAILURE?

• AMI Installation success relies on data tracking and QA/QC practices

– If meters were ‘switched’, would you EVER know? Tamper detection is important!

• Interface with billing system

– Who will ensure that data is usable, and that staff is trained properly?

• More FINE PRINT…

– What are STANDARD CONDITIONS?

– What is REPLACEMENT COST?

– Who’s responsible for _______?

43

Key Take-Aways

• AMR/AMI Technology has great potential

– meters & billing are the most direct connection the utility has to its customers

– a successful program can enhance customer relations

• Get educated…or retain an objective third party to advise you

– vendors aren’t paid to know what’s best for you

• Create a comprehensive business plan!

– understand what features you need and when, and how you can get there; understand the costs and benefits of each option, and consider both short- and long-term costs and benefits.

A well-designed and well-managed procurement & installation process is the difference between failure and success

44

7. THE PROJECT ---

45

8. INOGATE SCOPE OF WORK

46

INOGATE Approach

• Learn from Azerenerji the current state of the system: – The state of the pilot projects and the existing MDMS

– The evaluation form as it is currently written

– Any other relevant information in preparation for trip

– (Details will be discussed in the next Agenda Item)

• Perform high-level analysis of Azerenerji customer footprint – Customer geographic concentration

– Customer classes

• 1st trip to Baku – Presentation of SOW to Azerenerji

– Assess existing MDM systems

– Understand expectations from and drivers behind investment to develop criteria for evaluation of pilots

– Discussion on Azerenergi on key design criteria elements

• Evaluate state of pilot projects – Summarize benefits, challenges, and lessons learned from each project

– Evaluate performance of meters, MDMS, and communications and billing systems

• Provide assessment report on Azerenerji’s current MDM systems

47

INOGATE Approach (cont’d)

• Assess proposed AMI design options against technical requirements and pricing constraints. Work with Azerenerji to develop AMI system design

• One ITS expert will travel to Baku to complete and confirm data collected in first visit

• Study tour to a European electrical company which has AMI and MDMS

• Provide report listing options analyzed by team, include recommendations on selecting the optimal AMI infrastructure and MDMS for Azerenerji

• Third visit to: – Discuss the conclusion of the technical study for the chosen AMI system, and recent

developments in smart metering

– Present the evaluation of the equipment and software of each manufacturer of the pilot projects, and discuss alternative solutions

• Work with Azerenerji to finalize second phase of support.

Second phase: – is subject to EC approval

– includes support for procurement of selected AMI system (RFP development)

– supervise AMI system implementation

48

9. SCHEDULE OF WORK

49

Stages of AMI Project

• Study & Planning – Business Case (formal or informal)

– Strategic Plan

– AMI Master Plan

• RFP Development

• Contractor Selection & Negotiation – Proposal Review

– Demonstrations/Interviews

– Site Visits & Reference Checks

• Implementation Start-up – Pilot Programs

– QA Protocols

– Billing System Interface

• Meter Replacement & AMI Installation

50

Schedule of INOGATE Work

51

Tasks

Weeks

5/11-

6/12

9/12-

12/12 16/12/2013-10/1/2014

16/1-

17/1 20-31/1/2014

5-7/

2/2014

14/2/

2014

Preparation of 1st visit

1st visit, Kick-off

meeting, data collection

Desk Work

2nd visit, collection,

verification of data

Submission of the

reports

3rd visit, presentation

and discussion of

conclusions

submission of the final

reports

----

10.INFORMATION NECESSARY

FOR THE STUDIES 52

Scoping the Azerenergy client base in relation to this smart metering project

What is the structure of electricity consumption?

53

Consumer Groups Number Consumption

Share on

total

consumption

(%)

Metering

obligatory ?

Billing

Collection

rate (%)

Average electricity

tariff per category

(AZN/kWh)

Residential ?? ?? …

Industrial ??

Agricultural …

Commercial/Tertiary

Public Sector

Total

?

?

?

Are there any consumer categories specified by law as “special groups” ?

54

Considerations i.e.:

Are there vulnerable consumers in the country?

Are there any special billing and settlement procedures foreseen for them?

…

Ownership and access to metering points

55

• Who pays for the meter at the time of first connection? (is this issue dealt with in the new connection charges regulation of the tariff council? – can we get a copy?)

• Who owns the meter?

• Is there a common approach in locating the meter in the property i.e. at the connection substation for large users, or near the building entrance for households?

• How is sub-metering organized in a) in household complexes b) in commercial complexes (e.g. shopping malls)? Who is responsible for gathering the metering data? the property owner/manager or the electricity company directly by its customer?

• Who can get access (for maintenance or accuracy validation) to the metering point? Does it require a permit from the electricity company to enter the users’ installations?

What is the breakdown of T&D losses in the Azernenerji System?

56

Losses

Technical Non-technical

kWh % of Electricity

Supply kWh

% of Electricity

Supply

Transmission

network ?? ?? ..

Distribution

Network ??

Total ..

Metering data collection, handling and storage

57

• Who is responsible for collecting the metering data?

• Who is responsible for validating the metering data?

• How storage and billing system is organized ? (particularly how data from the regional offices are concentrated and delivered to a central repository -data centre) Please provide the main features of outsourcing the billing activities.

• How frequent are the metering data collection campaigns? How frequent is the billing invoice issuing?

• Are there any data privacy laws in the country that regulate the metering data handling and storage? Who has access to data once retrieved?

Business Case Information

• Need Business Case Report from Azerenerji: – Need information and the basis for the valuation analysis of:

• Amount of theft – kWh, $ (by month/year, location, customer type (if known))

• Un-served energy (e.g. due to outage or repair) – kWh, $ (by month/year, location, customer type)

• Savings on meter reads (truck rolls) – $ (per month/year, location)

• Remote re-connect automation – Number and $ (per year, location)

• Voltage optimization (e.g. conservation voltage reduction) savings - $ (per year)

• Improve information to customers (e.g. reduced customer service call duration) – hours, $ per year

• More accurate and timely billing (e.g. fewer disputes, quicker investigations) – hours, $ per year

• Potential customer conservation:

– Capacity savings from time-of-use rates (kW by location)

– Energy savings from in-home feedback tools (kWh by location)

58

Business Case Information (cont’d)

• Other aspects about Business Case: – What valuation sensitivities were considered?

• High and low estimates for various target metrics

– What are the Phases of implementation • Current: Smart meters + MDMS

• Future (?): HANS and operational gateways (Advanced Distribution Operations, Advanced Transmission Operations)

– How will the investments be funded? • Financing vs. Ownership

• Cost of capital

• Depreciation benefits

• Regulatory policies

59

Strategic Planning (Design Elements)

– What is the long-term vision for AMI? • Foundation for overall grid modernization – is there flexibility to meet anticipated future

needs?

– What standards is Azerenerji considering? • For example, open standards help future-proofing hardware

• Ensures interoperability

• Avoid stranded investments in case of vendor failure

– What was the decision-making process in choosing the communications medium? • Geographic variability

• Customer concentration

• Customer type

60

Strategic Planning (Design Elements) (cont’d)

– What are the key factors will drive the choice of smart meter? Need to prioritize • Customer type

• Geographic variation

• Voltage tolerance

• Measurement and sensing capabilities (e.g. voltage, temperature, tamper detection etc.)

• Remote upgrades/patches

• Antenna radio strength

• Power requirements

• Uptime and reliability

• Error %

• Standards and interoperability (with other devices, and with MDMS)

• Warranty and replacement; after-sales service

– Have new staffing requirements been considered? • While field staffing may be reduced due to automated readings, recruitment of technical

talent in other fields (MDM systems management, OMS, GIS, etc.) may be increased

• Issues with lay-offs

• Training staff – time and cost

61

Strategic Planning (Deployment)

– What is the deployment strategy? • Deployment timeframe (can change by location)

• Phased? If so, where to start?

– Surgical e.g. high cost to read areas, high volume customers, high loss areas

– Opportunistic e.g. all new construction, customer turnover

– In conjunction with new projects e.g. replacement of aging meters

• Migration strategies

• How many rollouts are necessary for economies of scale to kick in?

• Who will install?

• What is the maintenance strategy?

62

Performance of Pilot Projects

• What is the current evaluation form Azerenerji has prepared?

• What technical elements were considered as important by Azerenergi during the pilot stage? – Successes and failures: What worked? What failed? Why?

– What are the lessons for larger deployment?

• Were there any reliability issues? – Meter outages and/or data loss due to

• Communications errors (e.g. module faults, signal strength)?

• Battery failure?

• Accidental reboots/software glitches?

– Tampering?

– Calibration measurements; any issues?

– MDM Systems performance

• Software instability (what happens to data acquisition?) – resiliency?

• Are there any backup/redundant systems?

• Were there any problems with measurement and sensing capabilities? What measures are in place to account for them, or will be needed in the future? – Gaps in data acquisition (missing data)

– Faulty or erroneous data (incorrect data)

63

11.KEY STAKEHOLDRS OF THE PROJECT

---

64

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12.SCHEDULE OF SITE VISITS

AND MEETINGS

65

Schedule of the ITS visit • December 11, 2013

• 10:00-13:00 Meeting with Azerenerji Team

• 14:30 – 15:20 Meeting with Azerfon (mobile oper.)

• 15:30-16:20 Meeting with Bakcell (mobile oper.)

• 16:30-17:00 Meeting with Azercell (mobile oper.)

• 17:15-18:00 Meeting with Partner Bank

• December 11, 2013

• 10:00-18:00 Visit to Pilot Project Sites

• December 12, 2013

• 10:00-16:00 Visit to Pilot Project Sites

• 17:00-18:00 Wrap up meeting with Azerenerji Team

66

13.Study Tour

STUDY TOUR Company –Location-Topics

• ENEL- ITALY

• One day Milan, One Day Rome

• Topics • AMI Italian case history

• AMM Telegestore System Infrastructure

• AMM demonstration

• AMM central software functionalities by ICT

• Visit to AMM central control room (in ROME)

• Visit to AMM test site where you’ll see hundreds of meters in a field test replying real environmental conditions (in MILAN)

68

Study Tour Additional Information

• Number of Participants

• Specialties of Participants

• Dates for the visit

69

14.Discussion

THANK YOU!