By Stuart Borlase, GE Energy T&D
The smart grid buzzword is out, and utilities and vendors are hanging out their smart grid banners. However, when the dust settles, questions remain around why utilities are clamoring to put smart grid programs in place, and what the impact is of the smart grid programs from the regulatory and consumer perspective. The smart grid is the future of the new power industry. Smart grids provide a platform for enterprise-wide solutions that deliver far-reaching benefits for both utilities and their end customers. Utilities that adopt smart grid technologies can reap significant benefits in reduced capital and operating costs, improved power quality, increased customer satisfaction and a positive environmental impact.
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Utilities looking for a long-term strategy and roadmap to the smart grid need to look beyond advanced metering infrastructure (AMI) pilots to leverage synergies across the various applications of the smart grid architecture, and drive their decisions to deploy grid intelligence around a strong business case that is appealing to the public utility commission or municipal or cooperative utility committee.
Signs of a Smart Grid: Me, First! Me, Too! Pilot it is.
So, what constitutes a smart grid? Numerous utilities are making claims to be first with a smart grid. While these claims may be true in the sense of the name, most smart grid stories today are focused on responding to metering regulations and some kind of pilot as a showcase under the smart grid banner. A well-designed smart grid implementation can benefit from more than just AMI. Numerous technologies now touted under the smart grid banner are currently implemented to various degrees in utilities. The smart grid initiative uses these building blocks to drive toward a more integrated and long-term infrastructure than is intended to realize incremental benefits in operational efficiency and data integration while leveraging open standards. For example, building on the benefits of an AMI with extensive communication coverage across the distribution system helps improve outage management and enables IVVC (integrated volt/VAR control). In addition, a high bandwidth communication network for AMI provides opportunities for enhanced customer service solutions, such as Internet access through a home area network (HAN) and a more attractive return on investment. New smart grid driven technologies, such as advanced analytics and visualization, will continue to offer incremental benefits and strengthen a renewed interest in the consumer interface, AMI, DSM (demand-side management) and other customer-centric technologies, such as PHEV (plug-in hybrid electric vehicles). Are we going to get down to the granularity where we want to control each appliance in the house, based on TOU (time-of-use) signals? Probably not in the near future, but energy demands may drive it to this point. And, the capability is available, at least on the HAN side of the smart grid technology solution.
How smart is a smart grid? Must it be smarter than your honor student? It must be smart in the eyes of the customer, shareholder and regulator. Smart grid is not an off-the-shelf product or something you install and turn on the next day; It is an integrated solution of technologies driving incremental benefits in capital expenditure, operations and maintenance (O&M) expenses and customer and societal benefits. A well thought out smart grid initiative builds on the existing infrastructure, provides a greater level of integration at the enterprise level and has a long-term focus. It is not a one-time solution. It is a change in how utilities look at a set of technologies that can enable both strategic and operational processes. It is the means to leverage benefits across applications and remove the barrier of silos of organizational thinking.
Which of the following responses are correct reasons for looking at smart grid initiatives in a utility?
- It will benefit our operations.
- It will benefit the customer.
- It will benefit our shareholders.
- The regulators told us to do it.
- My boss told me to do it.
All of the above are correct as long as you know why your boss told you to look at smart grid and you understand how smart grid technologies can bring benefits to both your utility and your customers. (See Figure 1.)
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Where’s the Beef?
Various components come into play when considering the impact of smart grid technologies. Utilities and customers can benefit in several ways. Rate increases are inevitable, but smart grids can offer the prospect of increased utility earnings, together with reduced rate increases (plus improved quality of service). Viewing smart grid programs in the context of, for example, a “green” program for customer choice, or a cost reduction program to moderate customer rate increases, can help define utility drivers and shape the smart grid roadmap. A smart grid program should have a robust business case where numerous groups in the utility have discussed and agreed upon the expected benefits and costs of smart grid candidate technologies and a realistic implementation plan. In some cases, the benefits are modestly incremental, but a smart grid plan should minimize the lag in realized benefits that typically occur after a step change in technology. A smart grid deployment is also intended to allow smoother and lower cost migrations to new technologies and avoid the need to incur “forklift” costs. A good smart grid plan should move away from the “pilot” mentality and depend on wisely implemented field trials or “phased deployments” that provide the much-needed feedback of cost, benefit and customer acceptance that can be used to update and verify the business case.
Regulatory Impact of Smart Grid Business Cases: May be “Subject to PUC Approval”
One of the greatest obstacles in smart grid initiatives is approval from public utility commissions (PUCs) when a rate case is required by utilities to fund smart grid programs. The rates that regulated utilities are allowed to charge are based on the cost of service and an allowed ROE (return on equity). Once base rates are established, the rates remain fixed until the utility files for a rate change. Throw in an environment where power generation has been deregulated and the business case for a wires company still under regulation is more challenging. An additional challenge is presenting a rate case where the total system load decreases with demand response and energy efficiency programs.
Utilities are looking for that magic “easy” button for smart grid deployments, but smart grid plans may be “subject to PUC approval.” Therefore, it is important to have not only a solid business case internally but also a business proposition around the view of regulatory approval (See Figure 2). The focus on the business case should also show regulators:
- How smart grid technology maintains low customer bills. (Benefits may include: reduced O&M costs through lower meter related and outage costs; reduced energy cost through DSM and IVVC; reduced capital expenditures through monitoring and diagnostics, DSM and IVVC.)
- What smart grid does to secure the “green image” of the state or service territory. (Benefits may include: lower carbon emissions through reduced energy consumption and field force drive time via DSM, IVVC, AMI and FDIR [fault detection, isolation and restoration]; renewable energy source integration, facilitated by DSM and DER [distributed energy resources] to help with renewable energy intermittency; distributed generation and plug-in hybrids facilitated by AMI and distribution automation.)
- How the smart grid improves poor reliability. (Benefits may include: significant SAIFI [System Average Interruption Frequency Index] and SAIDI [System Average Interruption Duration Index] improvement through AMI, FDIR, integrated OMS [outage management system] and FFA [field force automation]; improved power quality for an increasingly digital economy; ongoing M&D will further improve reliability; improved customer service through billing accuracy and reduced outages.)
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Customer choice, energy efficiency and customer value are key to a successful smart grid implementation platform and the likely acceptance by regulators. The opportunities lie in leveraging the foundation of AMI to support a more comprehensive smart grid program. In response, utilities will be looking to regulators to provide incentives for smart grid programs, such as accelerated depreciation and higher returns for rate cases.
Bottom line for regulators and consumers: Look for smart grid initiatives that are likely to reduce long term bills as well as emissions and outages. (See Figure 3.)
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“Your Mileage May Vary”
The business case is intended as an overall guide for utilities in developing a long-term strategy. The business case relies on system estimates, sometimes educated guesses on benefits and costs, and compares the net present value of phased implementations of smart grid candidate technologies. While some parallels can be drawn between utility service areas and served customers, not all utilities are at the same level or phase of technology implementation, and, therefore, expected benefits and costs will vary. Industry standards, such as reliability indices, can be used as an overall comparison of the operations of a utility, but the comparison of smart grid implementations and expected benefits can vary widely across utilities with a similar number of customers. Not all business cases are the same–”your mileage may vary.”
While current smart grid initiatives are driven by regulatory pressure and tend to focus more on the meters as a direct impact on consumers, more technology-rich initiatives after well-proven smart grid evaluations (“staged deployments”) are likely on the horizon.
Smart grid is not so much about doing things differently than the way thing are being done today, but more about sharing communication infrastructures, filling in product gaps and leveraging existing technologies to a greater extent while driving a higher level of integration to realize the synergies across enterprise integration. As with other projects, spending should focus on how it benefits the shareholder and how it benefits the customer.
Utility smart grid efforts should focus on these three items.
1.) Developing a business case–a systematic approach to understanding utility business and operating issues.
2.) Providing new customer interfaces–new customer portal, connection with the HAN, new services and options, energy choice and control, new rate structures, easier to participate in demand response, simplified billing and trending.
3.) Looking at technology investments from a systems point of view–integrating applications and devices and implications for communications, security, data management, etc.
The regulatory view focuses on the consumer. Discussions with regulators should:
- Encourage regulators to shift discussions towards “where’s the value” away from “must comply.”
- Include reliability directives and green initiatives.
- Subtly emphasize the value of long-term, integrated smart grid components and not just short-term, individual projects to realize the synergies of satisfying multiple objectives.
- Reinforce the message of scarce options for new generation and the importance of energy efficiency, demand management and load shifting programs in order to add urgency to the need for smart grid initiatives.
Stuart Borlase is a member of the smart grid solutions team at GE Energy T&D, helping utilities understand the benefits and synergies of smart grid technologies and integrated solutions. He received his masters of engineering and doctor of engineering degrees from Texas A&M University and is a senior member of the IEEE. Borlase can be contacted directly at email@example.com.