TODAY’S STUDY: WHAT THE PEOPLE WHO WILL USE THE SMART GRID THINK ABOUT IT

Change has to start somewhere. For the Smart Grid, it has started at the utilities. But many studies of utility professionals show the same thing: Though they are pushing ahead on the Smart Grid, the utilities are not yet comfortable with the enormous undertaking.

It is, therefore, not surprising that the utilities’ customers have not yet grasped the value of the Smart Grid. As detailed in the study highlighted below, building owners and the people who build and manage their electrical and heating-cooling systems are not clear about how good or available energy efficiency investments are. Most do not see Smart Grid improvements taking hold in the foreseeable future.

The utilities have not figured out how to reach these customers. They are selling Smart Grid features as a means to prevent blackouts and integrate New Energy but the people they are selling to are primarily interested in their bottom lines. It is a shame the utilities are missing this point because the return-on-investment for smart efficiency measures is impressive.

Most studies suggest efficiencies save $2-to-$4 for every dollar spent. That kind of savings produces appealing pay-back periods and provides money and motivation for building further efficiencies and for installing New Energy.

Utilities will come around when they see that reaching their customers will benefit them. That means decoupling utilities’ profits from rising power sales and instead rewarding utilities for reducing their customers’ demand.

It also means imposing a federal Energy Efficiency Resource Standard (EERS) and a federal Renewable Energy Standard (RES) on utilities so that meeting requirements motivates them to find better ways to reach their customers.

The marketplace never looks like it is going to change until right after it starts changing. The utilities have begun the work. Despite obstructions by recalcitrants allergic to change, policy makers are working on incentives. And entrepreneurs are pouring billions into a race for the best technologies.

Everybody in the value chain has a steep learning curve ahead of them, but learn they will. That it is a noble cause and the quickest way to beat climate change helps. That it enhances energy security and grid reliability helps. That it facilitates the integration of New Energies and provides lots of jobs helps.

But the real reason Smart Grid is coming is that everybody in the value chain will profit from going up that steep learning curve.

Industry Research & Report: Smart Grid
June 2011 (The Ivanovich Group via Danfoos)

Executive Summary

Today, billions of dollars are being spent in the United States by electric utilities, product manufacturers and government agencies to establish policies, protocols and products that will ultimately improve grid reliability and restoration efforts; integrate intermittent renewable resources such as wind and solar; use “managing appliances” in homes and businesses; and provide sophisticated energy management technologies and services.

But is this how commercial building owners view the smart grid? Are building owners, consulting engineers and heating, ventilating, and air-conditioning (HVAC) product managers on the same page as smart grid proponents? This population of smart grid stakeholders is important. According to the U.S. Dept. of Energy, commercial buildings are responsible for about 18 percent of the total U.S. energy budget, spending approximately $139 billion annually for electricity alone, and this does not take into account the billions of dollars that utilities and building owners are investing in technologies and services that help to make facilities more energy efficient.

The researchers of this study, commissioned by Danfoss to illuminate how building owners, consulting engineers and HVAC managers in North America perceive the smart grid, and what would motivate them to make smart grid investments, interviewed 30 industry professionals -- 10 people each from three sample sets: commercial building owners, independent consulting engineers and commissioning providers, and HVAC and controls manufacturers.

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The key findings include:

1) Increased communication is needed between utilities and their customers on the value of smart grid deployments and how customers can tap into those savings. Survey responses indicate there is widespread skepticism and little awareness on what the smart grid is, what it can do and how much it will cost.

2) The value proposition for building owners needs clearer definition. Utilities need to know what their customers are expecting from the smart grid as their wants, needs and expectations will vary considerably. Some customers are primarily concerned about reliability, while others may be focused on power quality and others may be most worried about costs. The study confirms that any smart grid investment made by building owners has to compete with other potential investments, from increased insulation to new tile in the foyer; smart grid programs are amongst the heavy competition for owners’ dollars.

3) There are technology issues with building controls, as buildings will interact with the smart grid through building automation and energy management systems, which will respond automatically or semi-automatically to messages sent by utilities to curtail energy usage at scheduled times. However, many buildings do not have the control systems or do not have properly designed, installed, operated or maintained systems, resulting in poor control. Retro-commissioning or retrofits may be needed first in order to ensure a return on investment on smart grid technologies.

4) HVAC and buildings controls manufacturers have taken an early interest and leadership role in smart grid developments and relevant products well before data communications protocols and other foundational elements are in place.

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Introduction

The transformation of the current infrastructure for generation, transmission, distribution and consumption of electricity to that of the smart grid is underway. The smart grid is being positioned as a modernization of an electrical grid to meet the requirements of today’s economy: improving reliability and restoration efforts; integrating variable renewable resources; using managing appliances and other “smart” devices to help operate the grid more efficiently; avoiding, or at least deferring, huge infrastructure investments; providing consumers with the information and tools to use energy more efficiently and at lower cost; and enabling utilities and their consumers to work together in ways never before possible to ensure the most efficient balancing of utility supply options with consumer demands. The smart grid also promises to support the national goal of energy independence by helping to move away from foreign oil to increased reliance on electric transportation fueled by renewable and domestic resources.

The U.S. transformation was kick-started in 2007 by a $4.9 billion infusion of American Recovery and Reinvestment Act (ARRA) stimulus funds, which was designed to support “shovel ready” smart grid projects and regional smart grid demonstrations. The governments of China, Japan, South Korea, Germany and the U.K., among others, are also investing in smart grids for their respective countries. This raises the stakes on the United States to remain competitive in the development of smart grid technologies and to make its electric grid as reliable and environmentally friendly as possible.

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Manufacturers of grid equipment, such as power-line sensors, or end-use devices, such as home appliances and commercial HVAC equipment, have begun to develop smart grid products, as well as leadership positions and marketing strategies to propel their products into the marketplace.

Consumer and trade media have also begun to become interested in the smart grid market. Hot-button issues, such as privacy and security concerns, and visually stimulating images of plug-in electric vehicles, solar arrays and wind farms make for great press. New advertising campaigns from manufacturers and utilities are also supporting greater media attention to the smart grid.

But lost in all of this activity has been the value proposition for commercial building owners. Is there a perceived need for the smart grid? Are they willing to pay any costs for smart grid technologies? What are the benefits to building owners, and are the benefits more compelling than the barriers? What are manufacturers and consulting engineers thinking? And, since they respond to owners seeking independent guidance and quality products for their facilities, what are engineers and manufacturers hearing from owners, and how are they preparing to respond to their customers’ inquiries?

This research project aims to shed light on these questions through interviews with a total of 30 owners, engineers and manufacturers in the non-residential buildings industry. The results of this study will help all smart grid stakeholders understand how owners, and those who serve them, view benefits and barriers, and what would stimulate them to make investments or discourage them from doing so.

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Summary Conclusions and Insights

Numerous insights resulted from this study, which could help accelerate development and adoption of the smart grid, especially among commercial building owners. The following are conclusions and recommendations for companies and individuals that endeavor to accelerate the development and adoption of smart grid technologies.

Regarding Owners

A major emphasis of this study was determining what owners perceive as barriers and benefits of the smart grid, what will motivate them to invest in smart grid technologies for their buildings, and what technologies they view positively. The following are insights based on analysis of the data.

In the immediate future, utilities need to expand communications with owners. Owners need more instruction on what the smart grid is or will be, and what the value proposition is for them, their buildings and their tenants. As part of the instruction, owners need specific information on first costs and operating costs and an accounting of what the benefits will be so they can make decisions based on return-on-investment, payback or whatever criteria they use.

The data show that most, but not all, owners will expect financial incentives to buy down procurements first-cost and operating expenses. Owners are not dwelling on security and privacy concerns. They view these as starters, not motivators.

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Currently, smart grid communications from utilities emphasize reduced power outages and durations of power outages, and the ability to integrate solar and wind generators and facilitate plug-in electric vehicles. By and large, owners are not highly motivated by these capabilities. Other than cost considerations, owners were more responsive to enhancements to energy-usage reporting that would help them operate their buildings better.

One interesting data point worth paying close attention to came from the COO of a pharmaceutical plant. He voiced many complaints about power quality, saying that it caused premature wear-and-tear on expensive equipment that then had to be replaced more quickly than it should at high capital expense. He also said that other industrial owners are having similar experiences and, altogether, industrial building owners show widespread disapproval of the quality of the U.S. electrical grid.

Data indicate that both operational and financial issues equally weigh on owners. In addition to fixing controls, some buildings may need operational refinements such as staff training and development of new managerial functions and accounting systems. Having available time may also be an issue, however, as one respondent opined, “If it’s important enough, owners will make time for it.”

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Regarding Utilities

Utilities were not included as a sample set in this study, but the findings will help them develop and administer smart grid programs to serve owners. Here are a few conclusions that would benefit utilities in particular.

Owners are very interested in obtaining more energy-usage data, which they could use to improve operations. Utilities may want to develop enhanced energy reporting services and promote them as a service enhancement reserved for customers enrolled in smart grid programs.

Utilities need to differentiate. Not all owners have the same needs, sensitivities, priorities and resources. There is a clear need for utilities to develop smart grid solutions and methods of communicating them to niche markets.

Utilities can apply lessons learned from other growth markets for energy services. To get buildings to integrate well with the smart grid, their controls in many buildings will have to be improved first; otherwise, smart grid strategies could exacerbate building conditions such as comfort and indoor air quality, and even energy consumption. Given the surge in retro-commissioning activity in the United States over the past five years, utilities may want to consider providing rebates for smart grid audits similar to the rebates they provide for audits and studies associated with retro-commissioning.

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Regarding Engineers and Commissioning Providers

The smart grid provides a structure for buildings to respond to price signals if the buildings’ settings and control systems are optimized to respond to these factors. Building designers and OEMs will need to have a thorough understanding of control strategies and technologies for demand response, pre-cooling, demand limiting, etc. in order to capitalize on the full potential of the smart grid.

Commissioning providers will also require supplemental training and education on smart grid related control strategies and technologies. Providing “smart grid services” will become a growth market akin to the growth of LEED consulting and the fields of commissioning and retro-commissioning.

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Regarding Products and Technologies

While there appears to be traction on the smart grid’s promises involving renewable energy and plug-in electric vehicles, owners would more widely appreciate a focus on the development of a value proposition that reduces first costs and operating costs.

HVAC equipment and controls firms are actively engaged in smart grid product development. Most offerings are or will be focused on enhanced communications capabilities, leading to better integration with networks tied to the smart grid. Some of these networks may not involve building automation systems.

Thermal storage systems positioned in the market as a smart grid technology for shifting electricity consumption associated with comfort cooling to nighttime (off-peak) rates. Although it scored highly overall as a motivating technology, data show that a high fraction of building owners are either unaware of how thermal storage works, or they believe that thermal storage is not appropriate for most buildings.

Manufacturers are hard at work making their products smart grid capable, which, to them, means they will be able to communicate on networks beyond building automation systems, will be more efficient at part-load conditions and will be able to ramp up and down as needed in a controlled fashion. As one manufacturer put it, the smart grid will “end the control panel as we know it.”

However, the capability of allowing large equipment to communicate directly with the smart grid via Internet connections ranked low among perceived benefits, indicating that integrated systems and internal networks controlled by the owner are more desirable at this time.

While owners, engineers and manufacturers view demand response as a technology that will accelerate smart grid adoption, they caution that owners will not want to relinquish control of their facilities to utilities. Utilities offering automated demand response programs, which are among the most important smart grid technologies, will need to carefully tailor program rules and communications to consider.

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Smart Grid Market Developments

The data show engineers will try to keep smart grid integration tied to building automation systems. The data also indicate that some will have the knowledge, experience and customer support to integrate smart grid approaches with sustainability or green-building approaches. These approaches will push the envelope of integration by using smart grid sequences of operation (such as demand response and precooling) to involve natural/passive cooling and ventilation approaches.

These approaches will require very high-end controls solutions reserved for signature buildings. When such projects appear, they should be carefully studied for performance before being publicly declared winners; otherwise, attempts to recreate them in other buildings may be premature (the systems in the signature buildings will not work) or the subsequent installations will not be properly engineered, installed or operated. Early failures can do more harm than the good intended by premature ballyhooing of smart grid technology application.

However, as some owners mentioned, appearing trendy or cutting edge can benefit the real estate value or performance of a building, so having signature buildings publicize smart grid capabilities could inspire other building owners toward smart grid solutions that are not as high-tech, but smart grid nonetheless.

The smart grid trajectory for market penetration will likely follow the Everett Rogers Technology Adoption Lifecycle (Figure 6). It is difficult to guess where commercial building owners will place on the curve for smart grid technology. Certainly, it will vary by state and by utility district. Regulations will play a roll, as well, such as whether time-of-use pricing structures are allowed. It can be assumed that the leading states would be in the early adopter to early majority levels for commercial buildings, and most of the other building owners in the late majority.

Many of the respondents mentioned that equipment standards, communications protocols and other foundational elements for technology development and application have not yet been completed. The National Institute of Standards Technology (NIST) is leading the development of these standards and protocols. Adoption of the smart grid will accelerate as these foundations are built and released to the public.

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Final Insight

Although 52 percent of the interviewees said they were activity engaged in smart grid activities, only 13 percent said the full potential of the smart grid would be a reality in United States in the next three to five years, and 43 percent of them said it was unlikely. These figures illustrate that the smart grid is seen as being very early in its development, and, in some ways, that’s very true. For example, NIST is still working on many of the technology and protocol standards; however, demand response, pre-cooling, thermal storage and demand limiting are practiced widely in many regions of the country. From a building perspective, much of what commercial building owners will need to do to be smart grid compatible is already possible. But, as one engineer said regarding thermal storage, “We don’t use them technologies we have now to shift loads.”

For that matter, the same is true for building technologies across the board for energy efficiency, indoor air quality, acoustics, etc. Unless smart grid adoption is compulsory, smart grid technologies will be competing with all of the other things buildings owners can invest in to make their buildings better, including gold-plated plumbing fixtures and marble floor tiles.

Therefore, establishing a credible high-ROI value proposition for building owners for investing in smart grid is critical. Additionally, that value proposition has to be communicated widely and frequently to building owners so they get the message. They are looking for this value proposition now, but what they are finding is that the promises and descriptions of advancements to come are not important to them today.