Smart Grid - Without HAN, There Will Be No Demand Response?

Joao Batista Gomes | Jul 15, 2010

The problem is not in product design, but in its daily operations, is where the challenge is presented. Utilities and Consumers will have to find different paths, but both convergent and this will not be easy, alone, technology may not be able to establish or even bring the expected benefits.

The Utilities will have to show shareholders and consumers that the benefits outweigh the costs to gain approval for new investments. The modern grid can not exist without an effective integrated communications infrastructure, and also can not exist if there is the commitment of all its stakeholders -- Government, Utilities and Consumers.

Several communication technologies are presented daily in the market, but that instead of helping just bringing more uncertainties, and consumers know that the string always breaks toward the weaker, and weaker side is always the consumer.

The Utilities can recognize a good project for AMR and AMI and its integration with the area of IT, but using and sharing it with consumers, they have no idea. The HAN area must be taken now as a priority, because without its implementation, I do not see how we will develop Demand Response. Renewable Energy is also closely linked to the development of HAN and Demand Response.

"Area coverage, capacity and cost are three requirements, but are treated as one, because many solutions require the participation of three. Wireless solutions can meet these two requirements, but the costs of the third. For utilities that require both coverage large footprint, and capacity -- with broadband and real-time applications, cost becomes the tradeoff, that is, Can cost rise dramatically to satisfy the coverage and capacity required".

One of the differences between residential environments and commercial/industrial environments is the level of sophistication and customer participation that can be assumed in configuring premises networks to achieve interoperability of Smart Grid communications. Many homes have one or more data networks linking computers or consumer electronics devices. However, this does not reflect all consumers. Moreover, even in homes that have data networks, consumers may not have the expertise suitable rooms for configuring a home network or may not want to spend time or money setting up a machine as a clothes dryer to communicate through your home network.

It should be possible for consumers to get some kind of benefit of energy savings without the need they have a local area network or expertise in setting data networks.

In the end, what we can all do for the development and deployment of all segments of the Smart Grid is useful and can reach all the intended goals.

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Utility companies are never going to bear the cost of equipping consumers with HAN equipment, or smart appliances that can communicate with one. The consumer must, but most consumers won't invest in them until they first are convinced there is something in it for them, and secondly any new HAN system they set up is easy to use for those consumers with little technical expertise. The latter I'm sure are the majority of residential consumers.

Consider what happens with CATV or telephone companies and consumers. These industries have a long history of successfully marketing basic services plus optional services and optional in-home equipment to use them. They are characterized typically as having strong sales and marketing to "sell" consumers on buying the optional stuff. They also have consumer telephone and on-line technical support to help educate consumers on how to use their optional stuff, plus they have armies of field technicians that will do house calls on demand for setting up any in-home equipment for any consumers that need it, or house calls to fix problems when they arise.

Now picture electric utility companies doing the same. They offer a basic service of providing energy to homes as usual, and then sell optional stuff like HAN equipment and communications with their smart grid to enable consumer demand responses. They also offer consumers the technical support and help and education on how to use them, plus, most importantly, educate consumers about why and how the consumer can benefit financially by buying into them. They could even offer consumers incentives like discounted energy rates when they first buy into it, just like CATV and telcos often do when you agree to buy into a new optional service or new provider.

If the utility companies were clever, they could even potentially make extra money beyond their energy billing doing this sort of thing, just like the CATV and telephone companies routinely do getting extra money from those customers that sign up to optional services. This would effectively mean an end to uniform billing rates for all their customers.

Too bad utility companies have little interest in doing this sort of thing. Most generally want nothing to do consumers' lives beyond selling energy and simply using their service meters to bill everyone as usual. Maybe this situation has something to do with regulators (or governments) not permitting them to change beyond business as usual. Among other things under current regulatory regimes, most utility companies must bill all their customers the same way with uniform rates.


You're probably right to some extent about the willingness to utilities to reconsider their business models. However they also have to deal with regulators, who try to keep prices low. Moreover, there's a mindset among utilities, regulators and the public that any useful expenditures are entitled to cost recovery.

Fred Banks is probably going to object, but if "we", meaning society, want utilities to transform themselves, the first step has to be a significant departure from the existing regulatory model. Expecting utilities to think and behave like competitive businesses doesn't work when they're still regulated like monopolies.


I agree completely with your comments here. Indeed a big obstacle is that regulators try to keep prices low, since any increases in regulated rates tends to cause economic ripples throughout the economy i.e. higher costs for everyone.

My analogy to CATV and telephone companies though suggests that if uniform rates for all customers were abandoned, any increases in service charges would affect ONLY those consumers who opt to sign up for optional services or equipment. And if the consumers who do so are educated on how to minimize their energy bills using demand response technology, accompanied by Time-Of-Use or real-time pricing, then overall those consumers would, potentially, pay less over time for energy than if they did nothing. So in essence the idea would lower overall energy costs for the public as a whole.

It's good also in that only those consumers that can afford to invest are the ones most likely to first make the initial up-front investments in HANs, smart appliances, and optional services from utilities.

Furthermore, just think of the potential marketing competition it would open up for domestic businesses selling demand-response-equipped appliances. Home Depots and appliance retailers alike might even be willing to pay utility companies advertising fees for pushing their latest hi-tech demand-response-equipped appliances directly to utility customers with mailers or on-line ads. Utility companies in this scenario have it made because they have a direct communication marketing pipeline to every customer through their billing systems. It would be an advertising company's dream to have widespread public coverage simply by tapping into the utility's customer list. In fact, those lists probably have research data associated with them too about customers' profiles that could be sold to retailers. e.g. retailer might be willing to pay an advertising premium to access ONLY those customers addresses who have signed up for HAN equipment and demand responses.

And of course there would be other economic spin-offs of creating much more technology in my electronics industry. It would be a mass market boom opportunity akin what the PC market opened up, and a welcome boost to America's Silicon Valley too.

You're right, Bob. If we can't get the silly regulators to support and promote some of the required changes eg. by implementing IMEUC, then can we at least get them to get the heck out of the way by not actively blocking the changes?


Probably the only way to get regulators “out of the way” and permit the changes is to get their governing politicians to change their mandates. Easier said than done I'm afraid.

Here in Ontario our local utility companies are distribution only, while our generators are separate companies. Our electricity bills are split detailing energy charges and, among others, distribution-only delivery charges, with the former simply a pass through to the Ontario grid operator for compensating Ontario's generator companies, and the latter pays our local distribution-only utility company according to some formula function of the total energy used in the billing period. Changes to either of their rates are subject to Ontario regulatory approvals, and I'm sure the situation is similar in other parts of North America even if a utility company is both a generator and the local distributor.

In my proposal above the rates for delivery charges could still be strictly regulated to an upper limit but allow utilities the flexibility to offer time-limited discounts for anyone signing up to any optional smart-grid stuff. They could make their extra money by charging small monthly fees for the optional services, such as providing communications with their smart grid (or providing communications with generators under an IMEUC system), plus money from advertising fees and / or profit sharing of sales of optional in-home equipment. Customers who don't sign up to any optional stuff would still pay the usual regulated energy rates and the regulated upper limit for delivery charges.

Over time the local distribution utility companies might even be able to make extra money from commercializing residential renewable source micro-generators. They could help individual customers with buying a rooftop solar PV or solar thermal, or geothermal system. They might even make money with clever marketing by e.g. offering consumers discounts like described above, and / or possibly free electrician help to hook-up to their local grid in return for the getting a piece of the action i.e. a share in the profits whenever the consumer’s micro-generator sells power back to the grid.

All of these ideas would require a revolutionary shift in a utility company’s business model, and much more involvement commercially with their customers’ lives than simply selling energy. So as much as I hate to admit it, it is probably pie-in-the-sky dreaming on my part.

- Bob

Bob, you are an optimist. Many people are spending as much for entertainment services as for electricity these days, or nearly as much. That is because cable & communications companies offer something people value and have to do something to get. What can utilities offer? Save 3%, maybe 5%? How can people afford to spend hours of their time plus invest in equipment for such measly returns? They can't. The transaction costs and investment required will need to be reduced to near nil to interest enough people for residential response to have any significant impact. The HAN will need to be transparent to the user to make it work. That is, the average person will have to answer questions about it with: "HAN? What HAN? Don't know that I have one. What is a HAN?"

And don't expect much different from the technology geeks. My son's fiance is a self described "code monkey" for a software start up. At home she uses an Apple mini and laptop. She just wants it to work without thought when out of the office. My son is pretty much the same way, and it appears their contemporaries in Silicon Valley seek balance in life by adopting similar attitudes. A 10% or 20% reduction in even a California energy bill is not worth their time to bother about.

Green energy is about to make managing energy in California much more difficult and complex. The ISO is recognizing that it needs to develop massive ramping capabilities to accommodate green resources. It may turn out that building enough ramping resources will result in lots of spare capacity to meet the AC peak. How many consumers are dumb enough to walk into exposure to such massive complexity and uncertainty by paying real time rates? Consumers will be wise enough to KISS.

The way utility bills are structured today there almost is disincentive for energy conservation, including possible savings through the use of a smart grid. If you look at your electricity bill you will see taxes, fees, charges for maintaining the power plants, charges for maintaining the distribution system and finally a kw-hr use charge.Even if your kw-hr charges were zero, you still might have to pay a hefty price for all these other costs.My latest bill from Con-Ed of New Tork for a time period when I was away, came to $36.85 of which $7.68 was for the 89 kw-hrs I used and a delivery charge of $8.25, also tied to usage. The remaining $20.92 were not related to usage. This represents 57% of my vacation electricity bill. Other times of the year the non-usgae percentage is lower, but still significant. Perhaps the way electric utilities bill theircustomers is worthy of an overhaul.

Dean, I've read reports from others on this website claim 10% savings is possible with demand responses and HANs, and more depending on how you program them and how much one is willing to alter lifestyles. If savings were at best only 5% or 3%, I agree many consumers would have little interest in doing it as long as electricity remains cheap. But I believe that over the next 10 years or more, the rates for electricity will skyrocket to pay for the growing gap between demand and supply.

That 5% or 3% savings will grow more important to average consumers over time. Consider how you might react if your monthly electricity bill was double or triple what it is today, comparable to say your mortgage payment. In that scenario you just might go out of your way to shave a few percent off it, just like people routinely do now in shopping for mortgages and food.

Save your pennies Dean, we're going to need them.

Bob, electric bills have been soaring, or about to soar, since the mid 1970s. The overall result is that my garbage and water bills are catching up with the electric bills, which are not a financial problem even here in California. The rational thing for a consumer to do is to maximize the return on any efforts and expense to utilize the smart grid by waiting until prices do soar. The costs of HANS will be down by then and the discounting of benefits while waiting for bills to soar will be avoided. Most consumers waited out the rise in energy costs in the 1970s, and were rewarded with a big drop in the 1980s. And history keeps telling us that the sky refuses to fall, so perhaps the most likely wait time is longer than our life spans. Expect most to wait.

Dean, the future of electricity price escalations probably won’t follow past trends for the simple reason of peak oil. Among other things the resulting widespread appearance of plug-in electric cars will place unprecedented demands on expanding grid supply and on expansion of local distribution grid capacities. Unless a heck a lot of the population gives up driving to avoid it, the costs to the public one way or another will be staggering, with unavoidable impacts on electricity rates. You don’t have to be an electrical engineer like myself to understand that recharging a plug-in electric car at home is equivalent to the homeowner of adding another central air conditioner to his power demand and energy consumption.

What do you think that distribution transformer on your block is going to do when say 1 out of 2 or 3 of all your neighbors eventually gets a plug-in car and are wanting to recharge on a hot summer afternoon as soon as they return home from work at 5:00pm, with their central air conditioners all running full blast at the same time. You can bet there will be unpleasant demand responses in that transformer, and others alike.

You're probably right though, most of the public are reactive, not proactive. Many will wait until they can no longer bear the price of gasoline before buying electric cars, and most will wait until electricity bills have soared before doing anything about HANs. The question is how fast will these trends unfold, and I'll bet it happens in our lifetimes, perhaps within 5 to 10 years.

I hate to admit it but I hope I am wrong about all of this, since we have had it extremely good growing up with cheap plentiful electrical energy on demand. But this luxury is already changing as record levels of renewable source generation rolls out across North America, especially where you live in California.

Bob, a major point of the smart grid ( and the dumb TOU meter that has been on my house for about 20 years) is to discourage big new loads during AC hours. If we do get electric cars and they create a significant load on system peak that will be a complete failure by the industry. If they mainly charge at night, no big deal.

Now, here is a sneaky idea. We have plenty of natural gas for the next few decades. Buy a natural gas fueled car instead of an electric. Its cheaper and its fuel is cheaper. Its more efficient than using the gas to make electricity at about 50% efficiency (at best), losing more energy in electric T&D ( which is much less efficient than gas T&D), and losing another 25% charging & discharging a battery. Greater efficiency means better environmental performance. And auto companies already do produce some natural gas cars. Its existing technology. Just do it.

Dean, there's an interesting line of comments about natural gas powered vehicles on this webstie to the other article "BP's Gulf of Mexico Disaster - Palinology Versus Geology". Apparently the vehicle manufacturers are more in favor of electric vehicles for a variety of reasons, so your "Just do it" advice is likely falling on more deaf ears than you and others would like.

Furthermore, you're right Dean, a major point of smart grid is SUPPOSED to be to discourage big new loads during AC hours. But keep in mind the vast majority consumers value the convenience of using their vehicles on demand at will much more than many realize. Drivers will want to recharge their electric vehicle batteries off the grid at ANYTIME, specifically whenever their batteries are depleted. It's no different than when you go to the gas station to fill up when you almost run out of gasoline in your tank, not when some smart network says wait until it’s OK to fill up.

There is definitely a "complete failure by the industry" in the making, don't kid yourself into believing otherwise.

Manufacturers of consumer appliances are acutely aware that equipping their products with DR controls and HAN interfaces will add costs to them. Not much extra cost, perhaps only a few dollars if that, but in the consumer products manufacturing world, every penny of product cost matters. These industries will only add HAN and DR functions to them if consumers are prepared to bear the extra costs when they purchase them.

They also know most consumers are not likely to ditch their existing appliances before their end-of-service-life simply to buy and use the latest models with HAN and DR technology built into them.

The quickest and best way to get HAN and DR technologies deployed in the field with large numbers of residential customers is to have manufacturers develop products that can retrofit, where possible, existing appliance products. This would also be far less costly to the consumer than having to replace their appliances. Adding a HAN would then be as easy as buying and setting up a wireless network in the home akin to a wireless computer network.

Utilities also need to bite the bullet and provide the necessary HAN communications from their smart meters or from their smart grid systems into any customer’s home on request. If this is not made available to all customers on request, most customers are likely consider buying into the in-home products or HANs as a waste of time and a waste of their money.