By John McDonald, IEEE Fellow
With each day that passes, smart grid technologies evolve, governmental regulations come closer to enactment and stimulus incentives become a little more focused, each enabling us to better understand the direction that will best lead to our desired destination. What have we learned throughout this process? We must achieve a common understanding of the needs of all involved to help steer smart grid evolution in the right direction—to realize its potential as a key enabler of energy independence and economic vitality. To establish a common understanding, it will take an open, collaborative approach among utilities, governmental regulators, businesses and, most important, consumers.
Key areas of concentration necessary for the industry to achieve smart grid success are: consumer education, education about consumers, understanding utilities and the big picture, shifting focus to a cutting-edge approach and moving to larger-scale deployments.
Consumer Education: a Top Priority
Consumer education and engagement is a top priority for reaching a common understanding. Without consumer education, we cannot achieve consumer buy-in, and without consumer buy-in, we will not realize the full benefits of a smarter grid. Consumers must understand that smart grid will benefit their society, economy, environment and wallets. Because most smart grid pilots will begin as opt-in programs, consumer education can serve to encourage consumers to opt in. For example, General Electric Co. (GE) has conducted analyses demonstrating that increasing consumer participation in demand-response programs from 5 to 20 percent could increase utility savings by $15 million annually and reduce CO2 emissions equivalent to removing 9,000 automobiles from our nation’s highways, based on GE’s analysis using a McKinsey model. Consumers armed with this knowledge likely would choose to participate in utility-sponsored smart grid pilot programs, driving up participation figures and further demonstrating smart grid benefits.
The methods used for educating consumers also will be critical to helping them gain a common understanding. Whether it is done via Web sites, e-mails, home mailings, notices enclosed with monthly utility bills or word of mouth, consumers will need to feel empowered with the knowledge to make better energy-related decisions.
Utilities must educate themselves about their customers’ needs and preferences. Consumer segmentation will play a key role in reaching a common understanding, as utilities will need to move from the current business model of selling more electricity to increase revenues. A GE consumer segmentation study demonstrates that 84 percent of consumer energy decisions are driven by cost, while 16 percent are driven by methods of controlling energy usage. Within each of these categories are subcategories with priorities ranging from obtaining pure cost savings to obtaining pure comfort. As utilities gain a better understanding of their consumer segments and move into their homes with smart technologies, the utility business model must shift to more of a service provider role, offering different plans for different lifestyles, much the way cell phone companies and cable and satellite providers operate.
Like most other businesses, selling more product means making more money—essentially a volume business. Utilities must understand that they must change their operational culture and transform themselves into holistic energy providers. Top-level executives must mandate this change and reorganize into cross-functional work groups that recognize and develop holistic solutions to steer smart grid success. Departments that formerly did not need to communicate with one other now must become partners.
Independent, function-based operational decisions can stifle smart grid success, as this siloed way of thinking creates disparate solutions and directs limited resources into redundant systems. Utilities must break down barriers between departments and functions and adopt a new approach to energy delivery where there are no territories and boundaries. The industry must broaden its traditional focus on safety, reliability and supply to include environmental sustainability, consumer empowerment and, most important, energy efficiency.
Understanding the Big Picture
Regulations and policies enacted at state and federal levels will have a profound impact on steering smart grid success, and these policies must be conceived with an underlying, holistic understanding of the needs of the nation’s energy consumers and providers. Stimulus funds will help propel large-scale smart grid deployment, but those funds must be backed by smart regulations and policies to steer smart grid in the right direction.
Progressive federal energy legislation supporting smart grid, including the American Clean Energy and Security Act (ACES) and the American Clean Energy Leadership Act (ACELA), is under consideration in Congress. Both bills include provisions that inherently facilitate smart grid deployment, such as giving the Federal Energy Regulatory Commission (FERC) authority over interstate transmission siting decisions for certain high-priority transmission projects and establishing policies and programs to promote clean energy and energy efficiency technologies, such as federal renewable energy portfolio standards, demand response programs, dynamic peak management control and time-of-use (TOU) pricing, and support for the use of plug-in hybrid electric vehicles (PHEVs).
Regulated utilities in most states make more money by selling more electricity; so no financial incentive exists to encourage utilities to begin implementing energy efficiency programs and technologies. States must reach the common understanding that they, too, are part of the common solution and begin exploring policies such as decoupling to break from the current utility business model. More than half the states have renewable portfolio standards (RPS), requiring specific percentages of energy from renewable resources such as wind and solar. Incorporating efficiency standards such as dynamic pricing into these renewable standards would drive state-regulated utilities to deploy smart equipment and technologies and essentially endorse statewide smart grid implementation.
Shifting From Proven Technology to Cutting-Edge Solutions
While we have had success steering smart grid forward on several critical fronts, including gaining government commitment through stimulus funding, promoting utility participation, and growing business collaborations to deliver an ecosystem of solutions, we must continue pursuing technological advancements to continue steering our way to success. A host of smart grid technologies exist and are well-proven, though the focus to date has largely been on implementation of these existing technologies rather than on the creation of new technologies that bring cutting-edge benefits, promote the creation of new jobs and offer enhanced environmental benefits.
New, available technologies can gather and analyze data more effectively and will play a critical role in further smart grid evolution, particularly for utilities as they begin to roll out consumer education and segmentation programs.
There is good news. Through American Recovery and Reinvestment Act dollars, smart grid demonstration grant money (a little more than $600 million) will help us evaluate more cutting-edge solutions. In grants awarded Nov. 24, the Department of Energy underscored the importance of investing in innovative, smart grid solutions to expedite the advancement of the commercialization of these transformative technologies. These demonstration projects will help establish a proving ground for next-generation smart grid tools, techniques and solutions—from advanced energy storage to smart appliances, to the integration of PHEVs. These grants support regional demonstrations that combine technologies to form holistic solutions proving the business case for large-scale deployments. The demonstration money will fund new technologies and approaches, helping establish the United States as a global leader in smart grid advancement and opening doors for U.S. companies to become net exporters of advanced smart grid solutions—an additional bonus.
The DOE also awarded $3.9 billion in investment grants in October, which will contribute to projects based on “commercially available” products. While these pilots will test technologies that are known, they will do so on a larger scale, further validating the business, economic and environmental benefits of a smarter grid.
Moving to Larger-scale Deployments
While we have gained valuable experience with the deployment of small-scale pilot programs, the focus must shift now to city-scale deployments—and stimulus dollars will help, as mentioned. Pilot projects are well-suited to test effectiveness and functionality, but they cannot fully test the technology or consumer reaction on a scale large enough to gauge success. It is time to move smart grid from serving 10,000 consumers to serving a million or more.
We must reach a common understanding to realize on a national scale the benefits of the smarter grid. Government, utilities, businesses and consumers must understand their respective roles and the roles others must play to continue steering smart grid to success. Working together to pursue innovative technologies and creative ways to educate and understand one other, we can understand and meet the energy needs common to a nation.
McDonald, P.E., is an IEEE fellow and past president of the IEEE Power & Energy Society, co-vice chairman of IEEE Standards Coordinating Committee 36, a member of IEC Technical Committee 57, Working Groups 3 and 10, and vice president for technical activities for the U.S. National Committee of CIGRE. He is also general manager of marketing for GE Energy T&D.