TODAY’S STUDY: WHAT SMART GRID GROWTH NEEDS

Investing in the Smart Grid dropped off drastically at the beginning of this year. Everyone is now watching with baited breath and wondering whether it is an anomaly of a trend.

From $188 million in the last quarter of 2010, venture capital for the Smart Grid went to $76 million in the first quarter of 2011. Deals fell off from 18 to 13. It was the Smart Grid’s worst performance since the third quarter of 2009, the heart of the Great Recession.

The most popular explanation for the drop off is lack of consumer understanding. A recent Harris Poll showed that more than half of the U.S. (56%) had not heard of the Smart Grid (66% of women, 46% of men) and only 38% were aware it will make more New Energy possible. 60% thought it might increase the cost of electricity and 24% were sure it will.

In the face of the resistance this lack of understanding is likely to drive, investments in Smart Grid technology are unlikely to pay off big or fast and result, as the report highlighted below makes clear, in a delaying of the New Energy future the Smart Grid’s potential to drive Energy Efficiency would make possible.

An alternative explanation for slowed venture investing in Smart Grid technology is that investors are waiting for electricity demand to catch up with the slowly recovering economy. The recession curtailed electricity use. As business and consumer consumption returns, use will rise. Investors may be waiting to expand their commitments until returning electricity demand does not obscure the technology’s impacts.

A third theory is that money that would have gone to Smart Grid investment is, for the time being, going into the roll out of battery electric vehicles (BEVs). Such thinking foresees a return to Smart Grid investing as the conjunction between the vehicles and the wires that are their lifeline becomes more vital.

There is a more unquantifiable possibility. Demand Response (DR), Advanced Meter Infrastructure (AMI) and all the allied innovations that will serve dynamic pricing and its many and varied adjuncts may simply be too complicated. A public struggling to cope with socioeconomic turmoil and unrelenting energy sector volatility needs simplifications, not complications.

The many temporary impediments to a smarter transmission system can be readily addressed but if perceived limited benefits as weighed against perceived complexities explain the falling interest, those hoping for the emergence of a New Energy economy may have to wait longer than they thought.

Technology Roadmap; Smart Grids
April 2011 (International Energy Agency)

Key Findings

The development of smart grids is essential if the global community is to achieve shared goals for energy security, economic development and climate change mitigation. Smart grids enable increased demand response and energy efficiency, integration of variable renewable energy resources and electric vehicle recharging services, while reducing peak demand and stabilising the electricity system.

 The physical and institutional complexity of electricity systems makes it unlikely that the market alone will implement smart grids on the scale that is needed. Governments, the private sector, and consumer and environmental advocacy groups must work together to define electricity system needs and determine smart grid solutions.

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 Rapid expansion of smart grids is hindered by a tendency on the part of governments to shy away from taking ownership of and responsibility for actively evolving or developing new electricity system regulations, policy and technology. These trends have led to a diffusion of roles and responsibilities among government and industry actors, and have reduced overall expenditure on technology development and demonstration, and policy development. The result has been slow progress on a number of regional smart grid pilot projects that are needed.

 The “smartening” of grids is already happening; it is not a one-time event. However, large-scale, system-wide demonstrations are urgently needed to determine solutions that can be deployed at full scale, integrating the full set of smart grid technologies with existing electricity infrastructure.

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 Large-scale pilot projects are urgently needed in all world regions to test various business models and then adapt them to the local circumstances. Countries and regions will use smart grids for different purposes; emerging economies may leapfrog directly to smart electricity infrastructure, while OECD countries are already investing in incremental improvements to existing grids and small-scale pilot projects.

 Current regulatory and market systems can hinder demonstration and deployment of smart grids. Regulatory and market models – such as those addressing system investment, prices and customer participation – must evolve as technologies offer new options over the course of long-term, incremental smart grid deployment.

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 Regulators and consumer advocates need to engage in system demonstration and deployment to ensure that customers benefit from smart grids. Building awareness and seeking consensus on the value of smart grids must be a priority, with energy utilities and regulators having a key role in justifying investments.

 Greater international collaboration is needed to share experiences with pilot programmes, to leverage national investments in technology development, and to develop common smart grid technology standards that optimize and accelerate technology development and deployment while reducing costs for all stakeholders.

 Peak demand will increase between 2010 and 2050 in all regions. Smart grids deployment could reduce projected peak demand increases by 13% to 24% over this frame for the four regions analysed in this roadmap.

 Smart grids can provide significant benefits to developing countries. Capacity building, targeted analysis and roadmaps – created collaboratively with developed and developing countries – are required to determine specific needs and solutions in technology and regulation.

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Introduction

There is a pressing need to accelerate the development of low-carbon energy technologies in order to address the global challenges of energy security, climate change and economic growth. Smart grids are particularly important as they enable several other low-carbon energy technologies, including electric vehicles, variable renewable energy sources and demand response. This roadmap provides a consensus view on the current status of smart grid technologies, and maps out a global path for expanded use of smart grids, together with milestones and recommendations for action for technology and policy development.

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What are smart grids?

A smart grid is an electricity network that uses digital and other advanced technologies to monitor and manage the transport of electricity from all generation sources to meet the varying electricity demands of end-users. Smart grids co-ordinate the needs and capabilities of all generators, grid operators, end-users and electricity market stakeholders to operate all parts of the system as efficiently as possible, minimizing costs and environmental impacts while maximizing system reliability, resilience and stability.

For the purposes of this roadmap, smart grids include electricity networks (transmission and distribution systems) and interfaces with generation, storage and end-users…While many regions have already begun to “smarten” their electricity system, all regions will require significant additional investment and planning to achieve a smarter grid. Smart grids are an evolving set of technologies that will be deployed at different rates in a variety of settings around the world, depending on local commercial attractiveness, compatibility with existing technologies, regulatory developments and investment frameworks. Figure 1 demonstrates the evolutionary character of smart grids.

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Rationale for smart grid technology

The world’s electricity systems face a number of challenges, including ageing infrastructure, continued growth in demand, the integration of increasing numbers of variable renewable energy sources and electric vehicles, the need to improve the security of supply and the need to lower carbon emissions. Smart grid technologies offer ways not just to meet these challenges but also to develop a cleaner energy supply that is more energy efficient, more affordable and more sustainable.

These challenges must also be addressed with regard to each region’s unique technical, financial and commercial regulatory environment. Given the highly regulated nature of the electricity system, proponents of smart grids must ensure that they engage with all stakeholders, including equipment manufacturers, system operators, consumer advocates and consumers, to develop tailored technical, financial and regulatory solutions that enable the potential of smart grids…

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Conclusion: Near-term roadmap for stakeholders

Smart grids are a foundational investment that offer the potential to substitute efficient use of information for more conventional "steel-in-the-ground" investments in the electricity system, at considerable cost savings to consumers, as demonstrated by early results of pilot projects. Smart grids will also change how power system planning is done, and how wholesale and retail electricity markets are co-ordinated. The information collected through smart grids will not only empower customers to manage their electricity consumption but will enable electricity system operators to better understand and meet users’ needs.

The roles of the government and the private sector are often misunderstood, at times by themselves and often by each other. The broadness and complexity of the electricity system (technologically and from a regulatory and market perspective), and its importance to society in general, increase the necessity to understand who should perform the actions outlined in this roadmap. Neither the government alone, nor the private sector alone, can accomplish the goal of modernising the electricity system. Collaboration is vital…In most cases, a broad range of actors will need to participate…