Getting a Start on the Smart Grid: Why Smart Meters are Critical

By Dave Turner, Gestalt LLC

The 2003 blackout in the northeastern U.S. and Canada put a spotlight on the need for a more reliable, interconnected electric grid in the United States. There was talk of a smart grid or “intelligrid” even before that fateful summer, but in recent years those conversations have reached a fever pitch. What’s certain at this point is that virtually everyone agrees that the U.S. electric system must become “smarter” to support a new value chain from generators to consumers. What’s still up for debate is how and when that will be achieved.

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The timing issue seems like a no-brainer. Simply put, the time is now.

We are in the midst of the proverbial perfect storm in the energy sector. There is a convergence of high fuel prices and environmental consciousness, along with a growing gap between electric supply and demand that certainly make this the appropriate, if not ideal, time to start making the smart grid a reality.

Some utilities are afraid that smart grid standards are not fully vetted or that technologies are not where they need to be. There is some validity to those concerns, but those are the kind of broad-based arguments that will always be available as a crutch for those in the industry that are reluctant to make the strong moves necessary to ensure the integrity of our nation’s electrical supply.

The longer these internal debates go on regarding when to begin deploying smart technologies, the less action takes place and the problem worsens. New advances in power delivery, communications and information technology have laid the groundwork for a smart grid, and research and tests have already demonstrated the positive impacts of smart technologies. So why wait?

It Starts with Smart Meters

The final configuration of the smart grid is still somewhat undefined, but most experts agree that the widespread implementation of smart meters is a major step in the right direction.

Advanced meters can no longer be classified as “bleeding edge” technology. In fact, a number of proactive companies are working today to select and deploy advanced metering infrastructures (AMI) and smart grid enabling technologies to ensure they are properly positioned for the future. A recent article in the Wall Street Journal (“New Ways to Monitor Your Energy Use,” June 29, 2007) reported that billions of dollars are being spent by utilities to install advanced meters that track the amount of energy consumed at different points of the day.

At the same time, however, some utilities have adopted a common argument against implementation of AMI that serves as a fundamental building block of the smart grid. These utilities argue that they must wait until smart grid standards are further along or a clear technology leader emerges. They feel it will simply cost them extra money and time to re-deploy more advanced technologies down the road.

Others argue that while technology will continue to advance, it is not too risky to begin deployment now. Products which are based on robust standards, remotely re-programmable, and capable of communicating across multiple communications platforms are available. These are the technologies that will ultimately drive the smart grid. Forward-thinking utilities realize that there is real business value in implementing AMI as soon as possible.

The Business Value of Smart Meters

The benefits of using smart meters to offset traditional meter reading costs and allow time-of-use pricing are a start. But, smart meter deployment will not create the monumental breakthroughs for utilities and customers that are possible if we don’t continue to push for new ways to leverage the information they provide and the communications capability they enable. The real value of smart meters will be recognized when they are used to enable distribution automation, demand response, load management and real-time pricing. The closer we get to those capabilities, the closer we are to realizing the smart grid.

One key to unlocking this additional value will be turning interval meter data into information. Automated metering systems generate unprecedented amounts of data. For the true benefits of automated metering to be realized, utilities have to properly manage and leverage this new wealth of data.

By leveraging and managing meter data effectively, utilities can positively impact their businesses in a number of ways, including:

1. Increased operational efficiency through integration of the data with customer care, call center, outage management and work management systems. (More data means better decision making.)

2. The ability to market specific offerings to qualified customers based on their usage history and personal preferences. (More data means improved understanding of the customer.)

3. The ability to leverage time-of-use rate making and other pricing programs to enable more effective demand-side management. (The information can now be made more visible to customers.)

Given the tangible business benefits of smart meters along with the real possibility of a smart grid, why aren’t more utilities going full speed ahead with conversion? It really comes down to one thing: cost.

Coping with Conversion Costs

While there is clearly a need for and a focus on smart grid technologies, many utilities are faced with financial disincentives when it comes to smart meter conversion.

Many utilities may have millions of dollars invested in existing electro-mechanical metering technologies. They are scheduled to recover those investments over 30 years based on the existing funding equation. If a wholesale transition to advanced metering technologies takes place, not only does it require a huge investment in the new meters, but it also creates lost investment in the old meters. That’s a double hit and a double financial disincentive to make the switch.

There is a possible solution to this issue. State regulatory agencies have the authority to provide incentives to make the transition to smart metering technologies more financially palatable. Regulatory agencies can change the funding structure and allow accelerated depreciation on existing meters. That could be the extra push that utilities need to make the conversion.

Many utilities are eager to make the switch, but the business case is not attractive under current regulatory conditions. In the long run everyone will benefit from these technologies and in the short-term everyone must work together to make sure they are implemented.

Where do We Go from Here?

As it is now, our power grid often operates dangerously close to reliability limits. The inability to fund and site new generating and transmission capacity are creating long-term reliability and security issues. The time to adopt smart grid enabling technologies and advance the transition to a smart grid is now.

Consumption of electricity and natural gas in the United States is growing at a rate of around 2 percent a year. That growth is enormous in the context of the volumes of energy being consumed. In fact, according to EIA, we will need approximately 428 gigawatts of new capacity to meet increased electricity demand in 2025.

Using “smart technologies,” utilities can enable real-time analysis of distributed loads, remote control of distributed devices, and automatic management of customer demand. In effect, utilities can develop a portfolio of “demand side” tools to help bring the electric supply and demand equation back into balance. There is a real opportunity to move forward, but progress is dependent on decisive and coordinated action from the industry as a whole.

There are already large scale automated metering projects underway in California and Toronto. Hopefully these projects will be the case studies and the catalysts that lead to much broader adoption of smart grid enabling technologies.

Smart meters are the first step in a larger utility evolution, but how those meters are used and leveraged will the be the last word on how quickly we achieve the intelligrid and bring the energy sector into the 21st century.

Dave Turner is the senior vice president of Gestalt LLC’s energy practice.

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