A more compelling justification
Proponents of the smart grid often cite reduced carbon emissions through integration of renewable energy and empowered customers as a significant business driver for the smart grid. Although this argument provides a good "warm and fuzzy" for all of us who are interested in reducing carbon emissions, it is too imprecise in value to achieve much traction with utility executives or regulators. A better and much more precise driver for the smart grid is the operational efficiencies that utilities can and should achieve as a result of newer and better technologies.
Utility investments are typically made after the development of a sound business case that is complete with return on investment calculations. One of the profound weaknesses of the stimulus grants and resulting investments is that there is little visibility into the business cases that support them. While this has been helpful to get the ball rolling, so to speak, it will not be sustainable. Regulators and utility executives will demand a solid business case for future investments. Identifying return on investment for reduced carbon emissions and speculation about changes in customer behavior is difficult and subject to interpretation, variability and debate. In short, it will not result in a good business case. If rates are to be increased to help fund smart grid investments, consumers and regulators will demand more precision.
The good news is that the operational benefits of the smart grid are easier to calculate, less subject to variability and present compelling reasons for investment regardless of the reduced carbon issues. Consider, for example, the smart meter, which many believe to be a primary enabling technology of the smart grid. A smart meter may or may not actually lead to reduced power consumption and carbon emissions through changes in customer behavior. It is simply unknown what actions customers may take in response to price signals and how predictable and sustainable those actions will be. But, with a smart meter installed, the utility can operate much more efficiently. Common examples include: remote meter reads; remote on and off orders; outage diagnoses (determining which side of the meter the outage is on) and outage scope and location analysis.
Each of these operational activities has a cost associated with it. For example, a utility knows what it costs to assign a crew and roll a truck in response to a report of an outage at a customer location. If that outage happens to be on the customer’s side of the meter, it is a lost cost for the utility in many jurisdictions. The utility also knows how many times that activity occurs each year. The same is true for the other examples. Because these are defined and repeated activities, they are predictable in terms of how much they cost and how much could be saved with the implementation of smart meters. Of course, smart meters are just one example of smart grid technologies that produce operational efficiencies.
Much of the regulatory and media commentary focuses on the carbon based benefits of the smart grid. Those should certainly not be ignored, but we need to recognize that our understanding of them is simply not sophisticated enough yet to help support a good business case. The specific operational benefits of smart grid technologies present us with much more compelling reasons to be excited about the smart grid.