Are smart grid projects worth the cost?
Were one to wake up today after a long sleep - think Rip Van Winkle - it might appear that electric utilities are at the mercy of protean forces.
The federal government is making substantial grants to develop and test smart grid technologies, roiling the so-called "free market" and upending market-based plans. Vendors are pushing individual technologies. Consumers are confused and threatened by change in a formerly monolithic electricity delivery system; suddenly they have to pay attention to prevent higher bills.
Taking a series of individual steps to test and implement smart grid concepts, technologies and practices - especially in this formative period - while remaining a responsible, results-oriented business with an eye on costs and benefits appears to be a tightrope walk under the glare of regulators' and the media's spotlights.
If you are part of the smart grid value chain you have your own formula for creating a value proposition, but it may behoove you to peruse a new report from the Electric Power Research Institute (EPRI), "Methodological Approach for Estimating Benefits and Costs of Smart Grid Demonstration Projects." (Co-funded by the U.S. Department of Energy (DOE) and EPRI.)
The report was initiated by DOE to assess the costs and benefits of nine disparate demonstration projects funded in 2008, many of which focus on renewable and distributed system integration (RDSI), using a single framework.
The concepts in the new report were developed at the same time that the DOE's funding opportunity announcements (FOA) were made in June 2009, according to the report itself. So, I get a sense that this report guided DOE's request for applicants to identify and quantify the benefits of their proposed projects, for which funding was announced last fall. The methods in the new report may also be used to span the gap between demonstration project results and plans for larger-scale deployment.
Later this week we'll hear from EPRI representatives on this report's practical impacts. For now, I'll just touch upon the concepts set forth here and conclude with the upshot.
The report attempts to map functions to benefits and rightly value those benefits, balanced against costs, using a 10-step approach. The report also addresses uncertainties and the issue of extrapolating demonstration project results to large-scale implementation.
To help readers grasp the mosaic of myriad smart grid technologies and their relationships, EPRI's new report offers a simplified figure with four boxes linked by integrated communications (IC): sensing and measurement, advanced control methods, decision support and advanced components.
Naturally, for the layperson, this initial figure presages the typical devil's-in-the-details drop off the proverbial cliff - there's certainly a level of analysis and economic detail I'm not qualified to convey, nor could I stuff it into a readable column. But here are a few salient points.
Benefits can include lower electricity costs to consumers, lower transmission and distribution losses, lower operation and maintenance costs, reduced transmission congestion, fewer power interruptions, improved utilization of assets, etc.
One example of the reasoning on benefits: "Reductions in peak load reduce a utility's generation and delivery costs as a result of greater efficiencies and improved utilitization of assets . providing cost savings. These saving are the benefit, not the peak load reduction in and of itself."
The four categories of benefits - economic, reliability and power quality, environmental, security and safety - can be outgrowths of one another. For instance, reducing T&D losses (an economic benefit) can reduce emissions (an environmental benefit). Beneficiaries are defined as utilities, customers and society.
The ten steps refer to characterizing the project at hand (its elements, functions and characteristics), estimating its benefits (mapping functions to benefits, define a baseline, obtain data for baseline and benefits, quantify and monetize benefits), estimate costs and crunch the cost/benefit ratio.
All this creates a matrix in which a technology or method (say, dynamic capability rating via sensors) can be defined by the benefit category (say, economic), a more specific sub-category (say, T&D capital savings) and a very explicit, quantifiable benefit (say, deferred T&D capacity investment), which can be monetized and matched with one or more beneficiaries. Methods for gauging uncertainties are reviewed.
Presumably, after locking teams of well-meaning people into windowless rooms for months at a time, someone will stagger forth with the desired analysis. The manager, of course, thanks the odoriferous employee, takes the executive summary and says:
"Yes, but how do we make the business case for building a smart grid?"
"Can we extrapolate from our local demonstration project to full implementation?"
"Can we simulate an integrated system from consumers up to the wholesale power markets?"
I'm sorry to give you the "stay tuned" closer, folks. Really. According to EPRI, however, while some tools already exist (readers?) the National Energy Technology Laboratory and the Pacific Northwest National Laboratory are working on tools that would link simulations to business case assessment. And, given the hoopla over meters, those tools won't arrive a minute too soon, eh?
Phil Carson
Editor-in-chief
Intelligent Utility Daily
pcarson@energycentral.com
303-228-4757
Comments
As I may have stated in a
As I may have stated in a prior response, I was professionally into "energy cost control" (on an industrial level) before it became sexy. Not as "theory" I might add, but as the engineer, designer, installer and financier of numerous projects that were carefully vetted for after-tax ROI in advance of committing a single client dime. Given my background, I find the whole "smart grid" trend to be ill conceived, ill applied, mostly a lie and frankly, a distraction born of Big Green.
In my considered estimation, the "smart grid" is little more than a collection of "answers" seeking calibrated "questions". Can you say "creating demand"?
Here's my calibrated question: how much residential energy waste remains and of that, how much is economically savable and assuming all of that were actually saved, are there any pragmatic/measurable benefits to the "grid"?
The notion floated is that kWh data will somehow achieve what the consumer's self-analysis of dollar billing has not and that the resulting energy savings will benefit both sides of the meter. I challenge anyone/everyone to make the net-net case in favor of "smart metering" on this basis....or any other.
If commercial electricity had been around at the time of Christ, Peter would have been doing all he could to reduce costs (possible robbing Paul?). To be clear, at no time in history has anyone claimed electricity as "cheap" (in spite of evidence to the contrary). Is it then still possible that consumers of every stripe have yet to do what they are willing and able to do toward energy cost savings?
I submit that waste still exists and some of it can be saved but as evidenced in Boulder, CO of all places, there are limits to what residential consumers are willing to do (short of governmental coercion) in return for practically invisible monthly cost savings.
At the risk of being labeled a crank, I believe the entire trend is expensive folly. I'm open to literal proof, but I fear the "proof" will be all too much like the "proof" of AGW: too theoretical, too abstract and based on manipulated data.
"Energy" has become a political football of the left with Big Green assuming the role of imposing referee. Meantime, conservation-as-generation, a concept hatched by utilities that have essentially abdicated their historical role, is offered as an answer to looming generation deficits. At some point, you simply cannot reliably (much less economically) squeeze out any more consumer efficiency. I believe we're at that point given all the emphasis on energy savings since EPACT 1995. That being the case, utilities need not further appease Big Green at the expense of doing what must be done: adding conventional generation and supporting infrastructure. By chasing conservation rainbows, we make the inevitable significantly harder to achieve.
Help us by defining 'Big Green'
Sir,
I gotta say, "Big Green" sounds an awful lot like "a vast right-wing conspiracy."
How do you define your term?
I just don't get theories that posit conspiracies or large, coordinated movements among thousands of people in finance, government, industry and the media. Certainly specific ideas tend to get cachet, but alot of very smart people are risking very large sums of money on smart grid-related initiatives.
Sober reports by EPRI, funded by the electricity utilities, are establishing ROI methodologies for practical business cases. Is EPRI in on the "Big Green" scam too?
They're all just getting rolled by "Big Green"? Who are the prime movers here? (And for the sake of sanity, please don't mention Al Gore!)
Regards, Phil Carson
Plenty of Fruit to Pick
On one point the author and I agree, which is that electricity may be too cheap. Capital investments that might save energy are compared based on their current costs with grid power based on historical costs. I'm not an economist but the disconnect is pretty easy to see,
There are still ways to improve energy efficiency in all customer classes, particularly with air conditioning. Residential customers in California have to install units with a minimum COP of 13, but systems with COPs of 18 are available for a modest additional cost. At the commercial building level, most operating engineers would be thrilled with a brand new plant using VFDs that consumers 0.8 kW per ton of cooling, but a very cost-effective add-on control system can yield up to a 50% reduction and pay for itself within 3 years.
Utilities are not necessarily abdicating their historical role. In some cases, intense public oppostion to any new energy infrastructure is making new build difficult. In other cases, utilities are realizing it's more cost-effective and less financially risky to change customer behavior than to build expensive new power plants and transmission lines.
Much of the proposed customer-facing Smart Grid functionality doesn't pass either economic or common sense tests. However, if electricity was priced closer to current cost, there are still lots of efficiency projects that would make great sense.
Great title to your post
Thanks Jack,
Whatever the size of the efficiencies available, for me it's long past time to focus on the concept of "use what you need," because we know supply is constrained, at least by time.
Americans are long overdue to adopt the notion of limits. Living within our means, not wasting precious resources, means only that we can sustain a great lifestyle further into the future. It's that simple.
And I'm confident that immense energy savings are available through a little EE at home and work and a new ethic that doesn't reward waste. Waste just makes no sense at all.
Phil Carson