Smart grid: This too will pass (A little age perspective on utilities)

Warren B. Causey | Dec 27, 2009

Share/Save  

I was having a private luncheon earlier this week with a couple of senior executives of a major U.S. software company when I was reminded once again that there are some advantages to being in the sixth decade of your life. One of them is that you have a lot more to remember.

One of the executives asked me this question: "When you think of smart grid, what company do you think of? Which one stands out?" I considered the question over a few bites of my lunch (another advantage of being older is you are allowed to mull things over before answering a question) and then replied: "All of them."

That required a little explaining because the executive obviously was wanting to know what he could do to ensure his company stood out. Since this individual is not too far behind me in age, I took us through a little review of history:

"Remember the dot-com bubble?" I asked.

"Remember DSM (demand side management) back in the 1990s?"

"Remember the deregulation/competition movement?"

"Remember the rush for utilities to create new ancillary businesses, most of which are now closed?"

"Remember Y2K?"

"Remember Enron and Sarbanes-Oxley?"

My answer about how to make his company stand out amidst all the smart grid hoopla was this: "Don't."

"Your company is large, successful, solid, delivers good products to most utilities and has been doing so for a very long time," I continued. "That is your strength. If I were you, I wouldn't even attempt to try to out-shout the rest of the world on smart grid. I would look to my strengths and look to the next major noise-making hype, this one already is at full-throttle and there's no way to get ahead of it. Get ahead of the next one, because there will be a next one."

Right now there is a great deal of political and media hype about global warming, the need for utilities to install smart meters and implement demand response, deploy renewable energy, etc., etc. However, already I am seeing signs of this great movement beginning to wane. Some common sense seems to have accidentally broken out in Copenhagen and no global economy-devastating new mandates emerged. What came out was more of a whimper.

Despite tremendous hoopla around renewable energy, it is becoming apparent to more and more people that most renewable technology just isn't ready to replace carbon-based generation on a very large scale, at least not for a few more decades. There still is a lot of basic science and engineering needing to be done before renewables, or electric cars for that matter, will be ready for prime time.

Yes, the current political line-up may put policies in place that will drive those technologies forward, including the smart grid. But technology can only move at the speed of scientific and engineering breakthroughs and some of these still require breakthroughs against fundamental scientific principles (such as reducing carbon dioxide, a ubiquitous natural gas from coal-fired generation). Fundamental science and engineering breakthroughs come much more slowly. Political alignments also change and there already are signs this one may do the same in the relatively near future. Surveys show 70 to 80 percent of the general public just hasn't signed on to a lot of things that are being pushed, especially a major change in their domestic lifestyles to save the environment.

This newsletter is named Intelligent Utility Daily, an adaptation of the Intelligent Utility Enterprise, which I wrote about several years ago. Utilities will continue to grow more technologically intelligent, they have been doing that for generations and they won't stop now.

In speaking with my colleague, former utility CIO Bart Thielbar, about this issue, he added something I agree with: "I do think the smart grid movement will get right-sized. As an example, the dot-com bust really wasn't a bust as much as it was a right-sizing. Things had been so over-hyped then when compared to reality -- not unlike the smart grid space today -- however, today more commerce than ever is done over the Internet. Similarly, the smart grid will get right-sized, probably some time in 2010, but it will continue to move forward because it is a better way of doing business."

I also was reminded of a comment made more than a year ago by another now-retired utility CIO friend of mine, Gene Zimon, formerly with NSTAR. Noting that smart grid, renewable energy and remaking the industry all is cost-prohibitively expensive, he said utilities will "move at the speed of value." Nothing, barring a complete nationalization of the U.S. utility industry, will change that. Utilities will continue to have to operate within fiduciary and economic principles of common sense. State-level public utility commissions are there to ensure they do, and they still have considerable influence over what utilities do, despite all the noise from Washington.

The current smart grid super-hype will fade into memory, just like all the other industry-changing hyperboles I reminded my friend of at lunch. Some change will take place, some advances will be made, but the hype itself mostly will be relegated to the dust bin of history and the memories of a few of us aged-challenged individuals. And that is a good thing. 

I stand by my advice to my luncheon guest, if you are strong, solid and have history and a future, just move at the speed of value and wait for the next hype wave. You can always catch that one, if you want to. This one seems to be already in the "curl" phase.

Related Topics

Comments

SmartGrid - Just a Fad like the Internet

In 2001 I went to work with a small internet company named Yahoo!  At the time you could not find a single favorable article about the internet in the mainstream press.  It was all Dot Com Bomb and everyone who did "internet" was stupid.  The fact in 2001 was that every day more people used the internet, more time was spent on the internet and more people were getting high speed internet access.  What the internet is today is even more important than we thought in 2001.

The same exact dynamic exist today with renewable energy and smartgrid.  More people are embracing solar and energy innovations everyday.  Solar is working all over the world and it is working at very large commercial and utility scale projects.  Just check out the new 25 MW FP&L project in DeSota Florida.

Yeah the SmartGrid is a Fad.  Just like the Internet.

DR - The Smart Grid element which make sense (and cash) today

We all know that Mark Twain said, "All generalizations are false . . ." so we need to look deeper than the broad statement that the Smart Grid concept and related companies will mostly go the way of Y2K into the dustbin of history.

A sustainable energy solution which provides, at no cost or risk to the commercial and industrial energy user, (i) real time visibility into electrical consumption, in order to squeeze out inefficiencies in daily operations, (ii) advance notice of impending brownouts, blackouts and voltage reductions, (iii) substantial cash payments (as much as hundreds of thousands or more per facility, hundreds of millions in the aggregate) to the same customers for reducing load to the extent possible to avoid the same blackouts/brownouts, (iv) support to local electrical grids to efficiently reduce gridwide load during the most stressed days of summer, and (v) a growing number of additional technology driven energy management solutions funded by the demand response solution, should at least warrant some consideration.  EnerNOC provides these benefits and more today, independent of, but consistent with, the Smart Grid initiative.  

All the best for a great 2010.

Brian Gallagher

 

History will tell ....

History will tell us where we are heading. 

It took utilities 80 years to move from paper meter reading documents to electronic handheld devices and no sooner were those introduced as the talk of the town was one way fixed networks and AMR. It took AMR 20 years to permeate the industry in any meaningful way and there remain utilities that never adopted the technology waiting for the next better mouse trap. Utilities are notoriously frugal and slow to adopt technology.  There are a few exceptions, of course, and those are the companies that study the problem and can home in on the value of a technology separating the hype from the practical and economical while accepting the value proposition of cost reduction over value-added. 

The US is a prisoner of its own politics where time and again we fail to approach things from a foundational market perspective jumping right to the regulatory driven low fruit.  An example is how willing we are to put hundreds of thousands of toxic batteries into the environment while complaining about the hazards of nuclear energy and its waste as a means for reducing carbon footprint.  Does anyone other than me wonder where the millions upon millions of batteries end up? 

Global warming, since it seeped into this discussion as one of the drivers of Smart Grid, is an example.  Governments are so busy trying to out manuever each other and get wealthy nations to finance the developing nations to mitigate global warming that those nations that can afford to move to cleaner energy through existing technology is scraping that which can get us there in lieu of creating costly legislation to force the issue. 

What works in industry is the profit motive [plain and simple] and while someone in this blog mentioned paying the engineer or technologist six figures while paying some derivative creating banker 30 million is an accurate mis-use of funds ~ it is profit that drives the behavior.  Only free enterprise and the ability to make money while reducing all the nasty things we pump into the air will truly work to move Smart Grid or Smart Grid deaux forward. Two years ago Advanced Metering Infrastructures were no more than AMR on steroids and now today we are trying to control distribution network devices and refrigerators over the same meter data collection network.  This is driven by government... by consultants ... and by markets, but not in any particular order of importance or motive.

Right now, the big players are trying to corner the market ahead of the innovators, but that will level out as government funds for buying the technology dry up in lieu of the free market's application of driving cost out of the product while improving efficiencies and capabilities.  For example, if smart appliances and smart homes permeate our lifestyle do we really even need smart meters since these "smart" devices can measure and report their consumptions to the utility over its communications network.  We would merely need the software to bring it all together in the appropriate buckets for billing purposes [do you think we can make utility bills even more complicated and convoluted?].  From that perspective we really begin to see what these things cost and can develop rates appropriate to drive efficiencies and consumption behavior at the core level which is outflow from the consumer level and savings from the business level [read profits].  This is likely to be a very slow process because if there is one thing that people rebel against it is forcing us to behave in a certain manner when it comes to our lifestyle.

One thing is for certain,  I will see the significant changes and shifting of sands in the next decade as I have seen in the previous three decades with everyone chasing the better mouse trap or trying to draw their lines around their piece of the pie.  Ultimately, the consumer wins in most cases and that is a good thing.

Smart Grid and the Coming Decades

Warren and Don, I am also old enough to remember the lists of things that were over hyped but I believe these items should also be measured by the importance of the resulting changes they advanced. For example Y2K proved that we as an industry could respond effectively to what were real problems with our systems. Further, for many utilities it brought new ERP, WM, and other system enhancements.  

When we consider the dot-com bubble, we must also recognize that the level of communication and information exchange we are experiencing today was accelerated by technology from the bubble.  

When we consider the major blackout and the devastating storms, we can spend our time lamenting the weather and things not done or we can use the events to improve our control systems and to make our systems more reliable.

There is a fundamental difference between may of the things Warren brought up and the Smart Grid situation today.  Many of our brightest people believe in global warming and are warning that we may be too late now to avoid some of the impact. Coal fired generation is one of the dirtiest forms of energy generation whether from the point of view of climate change or the environment.  From its mining to the final puff of carbon dioxide it does immeasurable damage.  Smart Grid implementation provides some of the early steps to implementing renewable energy sources.

One fundamental difference between Smart Grid and the hyped issues of the past is that the real costs of unheeding global warming and continuing to rape our environment far exceed the costs of Smart Grid.

Warren told me that he was very concerned that America was losing its leadership position in the world.  He stated a number of reasons which he can share if he wants.  In my view we have lost our manufacturing, we are not as innovative (that may be just a view of an older man), we are not the leaders we were, and we are not as financially strong.  We have distorted the value of some of our executives as compared to the people who actually do the work.  As someone said recently when we pay a leading engineer a hundred thousand and a financial banker thirty million or more there is something wrong with our financial system and we can't afford the long term results.

So how can our electrical industry help return us to financial strength and meaningful leadership.  We have to find ways to create value and to reduce our costs while retaining our standards of living.  

Oil is a good example.  How much does oil contribute to the costs to produce our GNP?  Oil products not only power our transportation, but also, are essential in may of the chemical process used in industry today.  Oil is much more valuable as a chemical than as a fuel where we have the technology to reduce its use. Will our grandchildren wonder why we burned our oil reserves down to an unacceptable level when we had technology to reduce the burning of oil?  Will our short term greed overwhelm our long term good sense? Will they ponder how it felt to use the "last drop" as Jared Diamond ponders how it felt to cut the last tree down on Easter Island.

Smart Grid will enable our country to reduce its dependency on oil by replacing gasoline powered cars with electric powered cars.  These cars may also provide energy storage devices to reduce the peak energy costs.

If we continue to expand our electrical usage (and we will if we retain our standard of living and don't do anything to control electric usage), we will become less competitive.  As Warren, Don, and others have pointed out we will not replace our dependence on coal in the next decade.  However there is some evidence we can reduce our energy consumption by 20% by implementing Smart Grid, revised pricing, and other incentives.  Whether Smart Grid actually provides the savings or just the environment that causes us to reduce our usage in our homes is an open question.  However, if there are not incentives to reduce energy usage, we won't reduce our usage.

If we don't reduce consumption and balance peak usage, we will build more generation and our total cost of energy will rise.  Smart Grid provides some of the infrastructure to control peak usage.  However, I agree with others that we don't yet have the public support, the complete infrastructure, or the financial models to accomplish this on a large scale.  We are taking the first important steps.

As a name and a driving force Smart Grid is probably a "flash in the pan" that has been over hyped.  However, these issues and others will not go away so we must find the will to accelerate toward value based energy solutions.  Our value and position in the world is dependent on solving these problems.  The difference between some of the past issues and Smart Grid is that Smart Grid enables real solutions to the critical issues of our time.  In the future we will surely call Smart Grid something else but the initiatives started under the Smart Grid name will be fundamental to our future.

Smart Grid at the Speed of Value

Warren, my good friend. Note -- for the record -- I didnt say old even though we are old friends...mostly because old soldiers like you dont really age they just get more battle hardened!   

First off, I think we can agree on a couple of key points. Namely that many US utilities have long suffered from a lack of adequate investment in not only certain physical infrastructure upgrades needed across the system (in everything from nuclear plans we should have been building for the past 25 years, to transmission and distribution infrastructure as well), but also a lack of system investments generally speaking in automation and digital and sensory awareness/control relative to other comparable industries. These points are well agreed across the spectrum from advocates of the supply side status quo to those in favor of distributed/renewable energy resources and rate decoupling for example. I think this is one key reason "smart grid" isnt a fad we should all "wait to pass." If we are going to build -- and we must --lets "build smart" and that includes embracing new opportunities like electric vehicles, wind energy, and solar which will actually increase the value proposition of electric power and the integrated smart grid relative to other forms of energy.  

The line in your story that I think does a great job capturing what each and every utility should be looking at with respect to smart grid "hype" is the notion of "smart grid at the speed of value."  This is a phrase that Southern Company has been using as they describe their smart grid strategy across the full continuum of (generation) "source" through to "socket" (the home) for a holistic "smart energy" strategy.

But I completely disagree with your contention that "smart grid" is yet another fad akin to the DSM movement of the 70s/80s that utilities should view with the pastoral counsel that "this too will pass." Clearly, I grant you there is a deafening amount of bandwagonism and hype around smart grid with many parties attempting to equate it strictly to specific things to suit their own agenda or to hawk their wares both new and old. You cant blame marketers for this - we are creatures of habit! 

Nevertheless, the underlying opportunity for the utility industry at large to drive forward key new investments and new and innovative operational paradigms to improve energy efficiency, reliability and power quality should not be dimissed out of hand just because of this bandwagonism which I grant you is painful at times. I think we saw in 2009 that smart grid passed what can be best called the 'tipping point.' The fact that goverment and consumers are increasingly interested in -- and paying increasing attention to -- the key role of electric power in our economy and how it can be produced and consumed more responsibly, efficiently and reliably (smartly if you will) are all very good things in aggregate.

So lets try a form of metaphoric decoupling. Whether we agree -- or agree to disagree -- on the effects that CO2 is having -- or is not having -- on the environment, lets agree to decouple the opportunity that overall smart grid interest presents for the utility industry to make needed investments from the larger debate on global warming. Conflating these two terms as two sides of the same coin fails to embrace the notion that each utility should approach smart grid "at the speed of value."

Lets not chuck the smart grid band leader out with the smart grid hype bandwagon just for arguments sake!

Regards,

Don McDonnell

 

 

         

 

 

Smart Grid Hipe

I too have my doubts about the value of smart grid. Smart meters are frequently considered an element of smart grid. Smart grid seems even more costly and of less benefit than smart meters, because the main focus is a reduction in consumption versus faster restoration. Has anyone seen a reasonable cost / benefit analysis that compares (1) the cost of smart meters and associated meter data management and such to (2) controllable thermostats with new tariffs with materially higher rates for those that opt to not have a controllable thermostat? Smart thermostats do not require smart meters. Smart meters and the resulting data are high price and high complexity. The studies I have seen show less than 20% peak reduction when end users have access to interval data available from interval smart meters. Might new standard tariffs for controllable thermostats with optional more expensive tariffs to opt out be a far better value? I could see Obama pushing for smart thermostats and new tariffs versus smart gird.

Smart Grid: This too will pass

The author is correct.  Smart Grid is just another fad and like the Dot Com mania, the commotion will soon fade to a dull roar.  I think the whole Smart Grid initiative was a little misdirected to begin with.  Grid Smart customers are the secret to much of what Smart Grid is supposed to accomplish behind the meter, but as is so common in this industry, customers seem to be an afterthought.  There's a sizable opportunity here to better leverage existing production and transmission assets while dealing with some of the more vexing issues around limiting carbon emissions fr those who are willing to change some long-held beliefs..