TODAY’S STUDY: THE VALUE OF THE SMART GRID

Realizing the Value of an Optimized Electric Grid
February 2012 (GridWise Alliance)

EXECUTIVE SUMMARY

Today’s electric grid is vital to our society and economy. It’s fundamental to our education, manufacturing, retail, transportation, and financial systems. However, today’s power grid is aging, inadequate for the new and increasing demands being placed on it, and outdated in many respects. The grid is being challenged to integrate new energy resources, such as wind and solar; and new demands, such as plug‐in electric vehicles. In order to meet these challenges, the “business‐as‐usual” approach is no longer an option. Investment is needed to improve its material condition, to ensure adequate capacity, and to enable it to address the expectations of the modern customer. As we confront these challenges, it is necessary to recognize that the main beneficiaries of grid modernization are the energy customers and society as a whole. As such, we will need to build an intelligent, flexible, and sustainable grid that is both customer‐centric and capable of balancing societal values, customer needs, and system operation constraints. In order to realize this vision and value of a modernized electric grid, all stakeholders must seek common agreement.

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The GridWise® Alliance and Quanta Technology conducted research to report on the state of grid modernization and to quantify the benefits of a modernized electric grid. Detailed data was gathered through in the first‐person interviews with selected industry representatives to discuss their experiences and results. Public information research of existing documents was also conducted by the research team. Based on the results from the interviews and research, the following six key technical domains that categorize smart grid implementation activities were identified:

Technical Domains:
􀂃 Renewable Generation and Distributed Energy Resources Integration
􀂃 Grid Control and Optimization
􀂃 Transportation Electrification
􀂃 Customer‐Side Applications
􀂃 Workforce Effectiveness
􀂃 Communication Architecture and Integration

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In addition, the following five major categories of key benefits and values of grid modernization were identified:

Key Benefits and Values:

􀂃 Grid Reliability and Security
􀂃 Customer Energy Management Opportunity
􀂃 Asset and Resource Optimization
􀂃 Health, Safety, and Environment
􀂃 Productivity and Economic Growth

Grid modernization is still in its beginning stages. As such, much of the literature and discussions are based on expected benefits, but quantitative data is becoming increasingly available. Moreover, concrete examples of demonstrated benefits of grid modernization have been captured. They include examples of improvements to electric reliability, energy savings, and customer engagement among others.

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This report contains case study examples and in these examples provided in Section 3, both quantitative and qualitative values have been captured. From these examples, a list of more than 20 different ways in which benefits can be and are being assessed were identified. These case studies demonstrate consistent realized or expected benefits across all of the technical domains and value categories. The assessment techniques used in this research are also being successfully used by utilities to demonstrate the benefits and progress of their grid modernization efforts. Some examples include:

􀂃 Oklahoma Gas and Electric has demonstrated energy savings improvements by implementing volt/VAR optimization on its electric system. Reducing voltage by 2% on an automated circuit has been shown to make a corresponding 1‐2% reduction in demand/energy consumption. As a result of this smart grid investment in distribution automation and volt/VAR control, Oklahoma Gas and Electric has been able to delay the need to construct a new power generation plant to outside of their 10 year planning horizon.

􀂃 Southern California Edison has shown improvements in system reliability as a result of its advanced distribution system. As a result of distribution automation, Southern California Edison has achieved a 33 minute reduction in average Customer Minutes of Interruption. This represents a 47% improvement. Similarly, total Customer Minutes of Interruption were reduced by 18,949 minutes or approximately 17%.

􀂃 Pacific Gas & Electric launched its SmartRate program which is a critical peak pricing tariff option that requires internal meter data to implement. During the 2010 summer season, Pacific Gas & Electric Company called thirteen (13) Smart day events during which SmartRate participants reduced energy consumption by 14.1% on average. An analysis of the programs finds that 88% of the respondents experienced lower costs as a result of SmartRate participation.

It is believed that many customer and social benefits from smart grid can be realized through efficient deployment plans. As with most large scale investments and policy issues, it is necessary to find the right balance in sharing costs, benefits, and risks. In any case, to provide sustained momentum for utilities to continue smart grid deployment, regulatory support is required both from both a policy and a financial perspective. During our interview, two regulators, from the District of Columbia Public Services Commission and the Illinois Commerce Commission, respectively, provided their insights on the urgency and necessity of grid modernization.

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From our research, several observations and challenges regarding successful grid modernization were identified, namely:

• Technology readiness;
• Market readiness and risks;
• Realization of potential benefits;
• Impacts of financial support; and
• Customer engagement.

As evident from the case study examples, many benefits of a modernized grid can be realized and the challenges overcome as technology is deployed and experience is gained. As we progress, it is imperative to transition grid modernization initiatives into “normal course of business.” Our electric grid is a vital strategic asset that requires investment to bring it into 21st century technology.

Moving forward, the challenges we face and the issues raised in our observations should be addressed jointly by regulatory policymakers, utilities, and customers to ensure the successful implementation of grid modernization projects. The GridWise Alliance stands ready to facilitate this collaboration among stakeholders in order to achieve the important goal of transforming the electric system to achieve a sustainable energy future for the public good. Optimizing our energy resources, energy delivery, and energy consumption is made possible by modernizing the United States’ electric grid.

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INTRODUCTION

The Current State of the Electric Energy Industry

In the U.S., there are more than 142 million electric customers demanding over 4,200 billion kWh of electricity annually. Despite the recent economic downturn, the nation’s customer base is expected to grow 16% over the next 20 years to more than 165 million customers, and increased demand to approximately 5,200 billion kWh [6, 9, 58]. Today’s power grid needs to be upgraded because it is aging, inadequate for new demands being placed on it, and outdated in many respects. Investment is needed to improve its material condition, ensure adequate capacity, and enable it to meet modern customer expectations, such as service reliability, additional usage information, innovative energy management opportunities, etc. Even more challenging is the need to integrate new energy resources and demands. It is anticipated that approximately 200 GW of renewable energy generation, both centralized and distributed, will be added by 2020, primarily via wind turbine and photovoltaic systems [40]. Introduction of these generation resources creates challenges to grid operations due to the intermittent characteristics of these resources and the complexity of interconnection to the transmission or distribution system. On the demand side, adoption of plug‐in electric vehicles (PEVs) is expected to increase dramatically, with an estimated 20 million PEVs in use by 2030 [40]. With each PEV requiring high demand of power for charging, this variable load, if left unmanaged as to when and where it occurs, could further stress an already‐stressed grid.

The “business‐as‐usual” approach is not an option. High customer expectations with respect to power reliability and quality should be addressed by advanced automation, monitoring, and power protection technologies. Based on research conducted by the Electric Power Research Institute (EPRI), overall reliability can be improved by 40% through a fully automated distribution system [6]. The intermittency introduced by renewable generation can be mitigated by advanced energy storage or optimal profiling of solar and wind generation. The growth of energy demand requirements, including demands from PEVs, should be managed through effective demand response or other demand‐side management programs, such as dynamic pricing, direct load control, and integration with customer home area networks (HANs). Based on Federal Energy Regulatory Commission (FERC) estimation, effective demand side management programs can cut peak demand by up to 20% within 10 years [15]. More grid modernization efforts should be conducted. As discussed in the recent International Energy Agency (IEA) report, “Smart Grid Technology Roadmap,” the electric energy industry needs dramatic changes and widely deployed new technologies to modernize the grid in order to address the challenges it faces [41].

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The Momentum of Smart Grid

The intention of “smart grid” is to modernize grid infrastructure and build in intelligence to power grids and delivery systems, and their interfaces to customer premises as illustrated in Figure 1. The perspectives range from an emphasis on infrastructure to an emphasis on new paradigm‐shifting applications. The recent smart grid initiatives can be considered the single largest grid modernization investment in American history. Multi‐billion dollar investments from both government and industry are fueling major activities over the next several years, providing the greatest momentum in transforming the energy industry in decades. With this investment in grid modernization research, development, and implementation, regulators and policymakers are trying to understand the costs and benefits of these efforts.

As smart grid development proceeds, it is necessary to understand that the final recipients of grid modernization benefits are the energy customers and society at large. In the long term, we will need to address how to build an intelligent and sustainable grid that is both customer‐centric and capable of balancing multiple factors (e.g., societal values, customer needs, and system operation constraints). Policymakers and regulators are faced with the challenge of reconciling the large and complex investments required to modernize the electrical system and to develop a better way to connect the end customer to the electricity markets in a manner that allocates benefits and risks between customers and providers.

EPRI provides high level estimates of the costs and benefits of aggregate smart grid investment in the U.S [6]. As summarized in Table 1, the total benefit of all attributes for the smart grid is estimated to be between $1,294 billion and $2,028 billion for the period from 2010 to 2030. Based on EPRI’s report, once all of the attributes and benefits of a smart grid are identified and analyzed, estimates of the total benefit may increase even more. It is estimated that the net investment in smart grid produces value that significantly outweighs cost, resulting in a benefit‐to‐cost ratio range of 2.8 to 6.0, based on the underlying assumptions discussed in the EPRI technical report. The report indicates an investment level of between $17 billion and $24 billion per year will be required over the next 20 years. These costs include the infrastructure to integrate distributed energy resources (DER) and to achieve full customer connectivity, but does not consider the cost of additional generation, the cost of transmission expansion to add renewable energy and to meet load growth, nor a category of customer costs for smart‐grid‐ready appliances and devices. In addition, renewable generation could also help society by reducing annual carbon emissions by between 60 and 211 million metric tons of CO2, or equivalent to converting 14 to 50 million cars into zero‐emission vehicles each year [7]…

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CONCLUDING REMARKS

Our nation depends on a robust and reliable electric grid to power our economy and society. The electric system is fundamental to our quality of life and it is a critical component of many industries such as financial services, transportation, construction, manufacturing, retail, and education. It is imperative to modernize the power grid to its next generation now. The first phase toward achieving this goal was developing a common understanding of what the smart grid would be, and what its applications and benefits are. Not that long ago, a number of people equated smart grid with AMI or smart meters. While smart meters are a component, they are just a small piece in an overall optimized electric network.

It has become apparent that smart grid requires a holistic approach addressing all technical domains and broad coverage of benefits themes, as described in this paper. Grid modernization has now moved to a second phase, namely deployment, as documented through a large number of implementation projects supported by multi‐billion dollar investments. Consistent benefits, both realized and expected, can be seen in all of these projects, either quantitatively or qualitatively. This deployment phase will continue in the next few years as applications and associated benefits are clearly demonstrated from the results of the projects.

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Success of these deployment projects will set the direction for further steps in developing the grid of the future. For example, most Smart Grid Investment Grant projects in the U.S. will be completed by mid‐2013, resulting in major implementation of smart grid technology and benefits that will create a framework for how the grid will be designed and operated going forward. As a result, the next smart grid phase should encompass transitioning more and more grid modernization initiatives into “normal course of business.” In addition, results achieved and smart grid infrastructure deployed will uncover new applications and benefits that may not have been considered before. As is evident from case examples, many more potential benefits can be identified and realized as technology is implemented and experience is gained.

Building an optimized grid does not happen in a vacuum. Engineers and system operators clearly see the value of grid modernization. However, there are significant policy and financial issues that must be addressed prior to engineers building this technically advanced, flexible and optimized system. As with most policy issues, the key is to find the right balance in sharing costs, benefits and risks. The responsibility for achieving this balance lies with regulators and, in some cases, legislators, but must include input from all stakeholders. To provide momentum for utilities to continue smart grid investment, regulatory support is required, both from a policy perspective and financial perspective. To this end, a thoughtful deployment plan that includes cost benefit analysis or a successful pilot project that confirms expected benefits is an important component of the evaluation. Furthermore, to accelerate to the next grid modernization level, customer outreach and engagement is an essential success factor.

The business case for smart grid is positive. Benefits and success stories are being captured. A “business as usual” or “slow go” approach is not in the nation’s best interest. Moving forward, the challenges faced by all stakeholders in the electric energy ecosystem and the issues raised in our observations should be addressed jointly by regulatory policymakers, utilities, and customers to ensure the successful implementation of a modernized electric grid for the United States and its prosperity.