By Jesse Berst
If I had to pick the two things most important to the future of utility automation, I would say regulation and economics. Until recently, both areas often acted to slow progress. Regulators typically distrusted new technology and wouldn’t allow it in the rate case. At the same time, utilities didn’t know how to make the business case and demonstrate the full economic value. As was the case with conservation in the ’80s, the smart grid concept suffers from a lack of financial modeling tools and examples.
This month, I want to point you to two reports that, taken together, show how regulation and economics are beginning to line up in support of automation. The first deals primarily with the transmission system and how regulation may hasten modernization. The second deals largely with the distribution network and new concepts for evaluating the business case.
NERC Reliability Assessment
In its latest 10-year forecast, the North American Electric Reliability Council (NERC) warned of problems ahead. In the U.S., demand is set to increase by 19 percent but supply by only 6 percent (13 percent and 9 percent in Canada). NERC says North America urgently needs new generation, new transmission and more demand response.
To be sure, NERC has warned of problems in the past. This time, however, it is releasing a report as an official Electric Reliability Organization-one that will have enforcement powers as of January 2007. What kinds of action will NERC mandate and enforce? I suggest that this report gives a clear indication.
NERC called for “traditional” remedies such as more generation and new transmission. But it is also argued for new approaches, including a more centralized, coordinated planning strategy; upgraded (modernized) transmission; and demand-side measures such as demand response and energy efficiency.
NERC points out that generation and transmission take many years to bring online. Demand-side resources can be added relatively quickly, but they require upgraded hardware and software. And most demand-side measures occur at the distribution network, not at the transmission grid.
So what does the NERC study teach us? For one thing, this increasingly influential body will push for grid modernization. For another, many of its mandates will have repercussions at the distribution level, even though NERC is ostensibly focused on the bulk transmission system.
San Diego Smart Grid Study
Released by the Energy Policy Initiatives Center at University of San Diego, this study reported that a $500 million investment in grid technologies could yield up to $3 billion in benefits. Here’s the key: The report considered both the benefits to the utility and to the community at large.
The study applied concepts developed by the U.S. Department of Energy’s Modern Grid Initiative. It identified 13 high-value technology upgrades needed for an intelligent grid. It also suggested a timeline for implementation and conducted a cost/benefit analysis.
The cost/benefit numbers (for a 20-year period) looked like this:
- Capital Cost: $490 million
- Annual O&M: $24 million
- Utility Benefits: $1.43 billion
- Community Benefits: $1.40 billion
- Annual O&M: $24 million
The utility benefits consisted of the usual suspects: reduced congestion; fewer blackouts, outages and interruptions; faster restoration time; lower operations and maintenance; and reduced peak demand. The community benefits put dollar values to such things as increased reliability and fewer outages. It also valued job creation, increased gross regional product and environmental benefits. This is one of the first attempts to put numbers to the previously vague societal benefits, and to suggest that regulators should consider those benefits when making technology and rate decisions.
It will take more than a single study to establish an accepted template for evaluating the system-wide impact of grid modernization. The idea of including community benefits is sure to find skeptics. Even San Diego Gas & Electric, which co-funded the study, worried publicly that the benefit estimates might be “a bit optimistic.” Whether or not you agree with the specifics, however, you will want to look over this study for its approach and to see which ideas might apply to your region and your utility.
If you want to know where utility automation is headed, I believe these two reports are required reading. They demonstrate how two areas that were previously roadblocks to the smart grid-regulation and economics-are gradually becoming forces in its favor.