Post # 63 - Two New Reports Highlight the Benefits (and Costs) of Smart Grid Development

The past week saw the release of two major studies that emphasize both the benefits of fully implemented smart grid technologies and the costs of implementation.

First, and from an international perspective, a new report from the International Energy Agency (IEA), an autonomous organization of 28 member countries (including the U.S.) created to pursue reliable, affordable and clean energy initiatives, says that widespread smart grid deployment can play a significant role in enabling nearly all clean energy technologies, including renewables, electric vehicles and energy efficiency.

The IEA report, Smart Grids Technology Roadmap, provides a consensus view from more than 200 government, industry, academia and consumer representatives on the current status of smart grid technologies, and charts a course for expanding their use from today to 2050. As well as addressing current concerns with existing electricity systems, such as ageing infrastructure and increasing peak demand, the IEA report highlights smart grid technologies as important elements for expanding the use of a number of low-carbon technologies, such as electric vehicles. The report also outlines the potential for smart grids in rural areas of developing countries further down the line. Small "remote‟ systems - not connected to a centralized electricity infrastructure and initially employed as a cost-effected approach to rural electrification - could later be connected easily to a national or regional infrastructure. Further, smart grids could be used to get electricity to sparsely populated areas by enabling a transition from simple, "one-off" approaches to electrification (e.g. battery-based household electrification) to community grids that can then connect to national and regional grids.

IEA recommends greater international collaboration in sharing experiences of pilot programmes and in leveraging national investments in the development of required technology. It also stresses a need to develop common standards between countries that will help optimise and accelerate both the development and deployment of necessary technology while at the same time, reduce costs for all stakeholders - governments, industry, and the public.

But, as a second (and pro-smart grid report) indicates, there is a price tag. The Electric Power Research Institute (EPRI), an independent, non-profit company that conducts research and development relating to the generation, delivery and use of electricity, has just released a broad assessment of the costs and benefits to modernize the U.S. electricity system and deploy smart grid technologies.

The EPRI assessment, Estimating the Costs and Benefits of the Smart Grid, factors a wide range of new technologies, applications and consumer benefits the investment needed to implement a fully functional smart grid ranges from $338 billion to $476 billion and can result in benefits between $1.3 trillion and $2 trillion.

EPRI's estimate reflects new technologies related to the grid, information, and communication technologies; market structures; demands of an increasingly digital society; more widespread deployment of renewable power production and its integration into the grid; expansion and maintenance of existing infrastructure; and technologies and systems to address grid security. The report balances costs with benefits, which include: (1) more reliable power delivery and quality, with fewer and briefer outages; (2) enhanced cyber security and safety with a grid that monitors itself and detects and responds to security and safety situations; (3) a more efficient grid, with reduced energy losses and a greater capacity to manage peak demand, lessening the need for new generation; (4) environmental and conservation benefits, better support for renewable energy and electric-drive vehicles; and (5) potentially lower costs for customers through greater pricing choices and access to energy information.

The analysis updates EPRI's 2004 EPRI assessment, which estimated the cost of implementing a smart grid at $165 billion. The updated analysis assumes steady deployment of smart grid technologies beginning in 2010 and continuing through 2030.

Post # 28 - Smart Grid Speed Bump in Ohio: PUCO Says "Yes" But FirstEnergy Says "We Can't Afford"

In an interesting development, the Public Utilities Commission of Ohio last week approved implementation of a smart grid project by FirstEnergy Corporation. However, because the PUCO declined to act on the company’s request for associated retail rate increases, FirstEnergy’s Ohio initiative is now in limbo.

Coming on the heals of the Maryland Public Service Commission’s rejection of Baltimore Gas and Electric’s request for smart meter cost recovery (see Post # 25), this may be evidence of heightened regulatory sensitivity to shifting smart grid costs from utilities to their customers.

To return to FirstEnergy, on June 30, 2010 the PUCO approved the company’s Smart Grid Modernization Initiative – a three-year pilot program involving 44,000 customers in the service territory of the Cleveland Electric Illuminating Company (a FirstEnergy subsidiary). The program would credit participating customers for power they did not use during times of high demand for two weeks in the summer. The credits would be calculated at electric rates up to seven times higher than standard rates.

But there is a catch. The program also involves the purchase and installation of expensive and sophisticated smart meters, switching equipment, and communications devices. The total projected price of the pilot program is over $70 million, and while FirstEnergy won $36 million in project funding from the U.S. Department of Energy, the company sought to recover the remaining costs through retail rate mechanisms. However, while approving the project itself, the PUCO elected to hold off addressing cost recovery issues until some future time. In response – and almost before the ink was dry on the PUCO’s June 30^th order – FirstEnergy suspended the project (see here, here, and here).

In announcing the suspension, the company argued that the project “has potential benefits for our customers and would bring capital investments and jobs to our region.” Given “the widespread support we received for our federal stimulus application,” FirstEnergy also expressed surprise that the PUCO declined the company’s request for an associated rate increase. FirstEnergy said that “without [PUCO] approval of the matching funds, we are not in a position to move forward.”

But consumer groups had argued that further study was required to ensure that smart grid costs are allocated on the basis of kwh use – because, in the judgment of many consumer advocates, larger customers benefit most from a reliable distribution grid. Consumer groups also asserted that FirstEnergy should not receive lost revenues during this pilot program because FirstEnergy will not likely have any during the pilot program. They also argued that FirstEnergy should be required to credit its operational savings against the costs of the program before FirstEnergy collects any of the costs from customers (see, for example, the comments filed with the PUCO by Ohio’s Consumer Counsel).

As in Maryland after the BGE decision, it’s not clear what happens next – particularly since the PUCO (like the Maryland PSC) apparently remains supportive of the smart grid concept and the use of smart meters. Indeed, the PUCO may not have expected FirstEnergy to suspend its initiative in response to the June 30^th order. It will thus be interesting to see the PUCO’s response to AEP Ohio’s recent request for approval of smart meter-based dynamic pricing, see post # 26.

Certainly, the current PUCO/FirstEnergy stalemate is one more indication that the journey to smart grid nirvana is still very much at the starting point. As utilities move forward with actual smart grid implementation, regulators will ultimately have to address the key question: who pays?

Post # 20 - Report: Consumer Acceptance and Behavior Still a Smart Grid Challenge

A report produced by the telecom research firm Maravedis in partnership with the Telecommunications Management program at the University of Maryland University College finds that the current level of utility commitment to smart grid widely varies, while consumer buy-in remains a major challenge.

Entitled “Smart Grids and the New Utility,” the report concludes that -- for all the smart grid buzz over the past few years -- most roll-outs to date have been in secondary markets involving small clusters of trial users. Among the report's principal findings:

• New levels of standards protocols need to be agreed on, from device to network, and especially across utilities (investor-owned, municipally-owned, coops, etc.). Since the different utility classes are regulated differently, Maravedis identifies a need for “utility‐agnostic” devices.
• While most smart grid focus is on “micro‐energy management” within households, the "onslaught" of Plug‐in Hybrid Electric Vehicles (PHEV) will require new “macro‐energy” levels of management.
• With respect to wireless issues, the report reached two principal conclusions. First, use of licensed spectrum is preferred over unlicensed spectrum. This will place WiMAX (Worldwide Interoperability for Microwave Access, a telecommunications protocol that provides fixed and fully mobile internet access) at an advantage for wireless smart meter communication and the backhauling of aggregated usage data. Second, wireless carriers believe that smart grid initiatives will help machine‐to‐machine (M2M) services and, like Kindle and the iPAD, “offer new opportunities in monetizing 3G wireless services.”
• Maravedis concludes that utilities likely will not emerge as a new breed of wireless carrier even after embracing IP technologies, wireless access and intelligent 2‐way devices. However, Maravedis says it uncovered “some interesting examples of electricity coops rolling out triple play services that include Internet access, television and wireless solutions.”
• Due to the enormous costs, complexity, standards, and regulatory needs a truly operable smart grid will require, “[t]he government’s role is paramount in moving Smart Grid initiatives forward.”

Maravedis also highlights a major challenge frequently discussed in this blog: the jury is still out in the key areas of consumer acceptance and consumer behaviors:

"A Smarter Grid will turn the utility business model inside‐out, but will smart meters create smarter consumers? Do consumers really care to micro‐manage their electricity usage? There is a populist back‐lash against smart metering trumpeted by notions of higher rates, horribly‐managed roll‐outs, ideas of big brother hovering, and who will own (and get to utilize) the volumes of near real‐time usage data. Smart metering is only the start to the Smart Grid transformation, and if its value isn’t properly communicated then household, township, state‐wide and nationwide economies will end up being the largest challenge to Smart Grid initiatives." [Emphasis added.]