China has begun testing smart-grid technology that could eventually be deployed nationwide to make the delivery of electricity more reliable and efficient. It might also serve as a way to deliver high-speed Internet, TV, and telephony to the farthest reaches of the country.

The State Grid Corporation of China (SGCC) is running the smart-grid project using passive optical networking (PON) technology—a high-bandwidth data wiring that can be run inside electric power cables without interference. Around 86,000 premises in China have so far been connected to the grid; if the project goes nationwide, it would cost around $2 billion to deploy.

Smart grids use computer networking to let utilities monitor everything from electricity use in customers’ homes to the performance of generators at power stations in real time. The concept has gained much attention in the United States but has been slow to catch on. This is partly because regional utilities have different ideas about how to best connect the last mile of the smart grid to users’ homes, says Rajit Gadh, a professor in UCLA’s School of Engineering and Applied Sciences.

“We have about 3,000 utilities in the United States compared to two main utilities in China,” Gadh says. “In our infrastructure, there is a mix of technologies that has been deployed for communications and that ranges from broadband to wireless.”

China’s nascent smart grid could help spur development of the underlying technology. “This is the largest utility company in the world, covering most of China, so it could potentially have a huge influence on the opportunities for equipment and component vendors,” says Julie Kunstler, author of a report, The Merger of China’s Smart Grid and PON—A Potential Perfect Storm, published recently by analyst firm Ovum. “The SGCC has a lot of money.”

The SGCC is certainly spending big on smart-grid technologies, announcing plans in 2011 to throw $100 billion at related projects. It has 286 million customers and plans to achieve 100 percent smart-meter penetration by the end of 2015, according to Ovum.

Aside from local players like Huawei, ZTE and FiberHome, U.S. companies like Broadcom, Qualcomm Atheros, and Marvell that manufacture media access controller (MAC) chips for PON systems could benefit from the venture, according to Kunstler.

The question is whether the project will go nationwide. The SGCC has been looking at LTE and other communications alternatives that are cheaper than fiber for the data communications side of the effort. The use of fiber in smart grids requires networking technology to be redesigned to meet the SGCC’s strict redundancy requirements, adapted to interface with other parts of the power grid, and modified for use outdoors.

Ovum’s Kunstler describes the use of fiber as “unusual” in smart-grid rollouts, which normally employ Power Line Communication (PLC) or some form of wireless communications, and notes that the larger bandwidth it offers is simply not necessary in most scenarios. This would seem to point to the possibility of SGCC’s plan to deliver Internet using the same technology, she says. It could apply for a service provider license, or potentially lease to an incumbent like China Mobile, which currently lacks significant fixed line infrastructure, in a bid to share costs.

Figures published in July 2012 by the China Internet Network Information Centre put the total number of Internet users in the country at 538 million with over half—388 million—on mobile rather than fixed broadband. So there is a huge opportunity for SGCC to improve both Internet penetration (beyond the current 40 percent) and the quality of Internet services to citizens by offering fixed line fiber to its users.

The entire project could also serve as a test case—showing utilities in the U.S. and elsewhere whether such a costly, large-scale project is achievable, and perhaps pointing to a novel solution to nationwide super-fast broadband coverage.

“Utilities touch every home, so why not take it a step further and say, ‘If I already have a customer service relationship with you, let’s take it to the next level and become your communications service provider,’ ” says Kunstler.

The main barriers in the U.S., however, are still cost-based rather than technological. Utility EPB is using fiber for its smart-grid network in Chattanooga, Tennessee, but nothing on the scale of a potential nationwide SGCC rollout. And utilities already have fiber cabling running alongside electrical power cables—but only in high- and medium-voltage areas, so there are major expenses associate with adding in fiber for residential and business subscribers, especially to underground power cabling, says Kunstler.

Some academics have also voiced skepticism that the approach could work in the United States. Michael Caramanis, a professor in Boston University’s College of Engineering, says the synergy between fiber and smart grids is debatable. “It is not clear that the PON communications tech is a direction that we should mandate and subsidize in the U.S.,” he says.

Clive Longbottom, founder of analyst firm Quocirca, goes further, arguing that America’s free market economy may not be the right climate to foster such a radical, large-scale plan.  “This is where [China’s] pseudo-capitalist, centrally controlled system has its strengths, against the entrenched capitalist system we have here where the concerned parties tend to see ownership as being power, rather than capability,” he argues.

UCLA’s Gadh is more optimistic, however. Despite the different market conditions in the U.S., he believes utilities there may benefit from observing the SGCC pilot—although it would be down to each individual company to decide whether to follow suit. “I am sure there will be research and trial and error, and there will be lessons learned from the project in China,” he says. “Based on lessons learned, American utilities would be able to determine if the technology is suitable for them.”