Smart grid costs: moving target

Cost and benefit estimates range widely, invite questions

Phil Carson | May 31, 2011

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Last week we looked at a cost/benefit study by the Electric Power Research Institute and at least one reader suggested that EPRI's numbers were suspect. See "EPRI: Smart Grid Costs/Benefits."

"Today, the cost of smart grid-related upgrades in the United States are pegged at $340 billion to $480 billion, while the value of benefits is estimated at $1.3 trillion to $2 trillion," I wrote, "or roughly 3x to 5x the investment. These estimates apply to the 2010-2030 timeframe."

Perhaps I should have used more circumspect language, though I think it was abundantly clear these are EPRI's own estimates and not chiseled in stone. One of the reasons I tend to trust the folks at EPRI is that they do a pretty good job at explaining their methodologies and assumptions in generating numbers around what everyone acknowledges is a moving target.

By the same token, I always welcome a dash of cold water, especially on claims about return on investment. So it was good to hear from Bob Johnson of Smarter Grid Consulting, who had posted a brief essay on his site titled, "Smart Grid to Cost $400 Billion, So Who Cares?" A provocative headline I admired. Because, obviously, I personally don't have $400 billion laying around here, at least not in spare change.

Johnson suggested that residential consumers will in fact foot the entire bill for "smart grid"—yes, it's perilous to discuss that notion as if it's homogenous and well-defined—so they should have an active, up-front voice in the spending.

"I would suggest direct participation by the consumer should begin now, before the smart grid is installed, by making informed choices concerning how and when we implement smart grid technology," Johnson wrote.

Johnson cited the U.S. Energy Information Agency's "Annual Energy Outlook 2010" that holds that electricity consumption is not going to sharply increase, over the next 25 years average kWh price increases will be incremental and that electric vehicle uptake will not materially impact those forecasts.

"The take away here [is that] we are not currently in a crisis situation," Johnson wrote. "If the current version of the smart grid never comes to pass, energy will flow to our homes and businesses much as it has in the past."

Okay, now anyone who suggests that nearly anything in this world will remain the same and doesn't have to change is presenting a counter-intuitive argument, in my view. But Johnson added another point that certainly resonates here (given my rants about Xcel's SmartGridCity cost recovery efforts):

"Consumers and their advocates should become informed and insist that changes to the network be justified with tangible benefits."

Now we're on the same page for sure.

Johnson returned to his critique of EPRI's work by focusing on what he characterized as a dubious but oft-repeated number—that power interruptions cost the nation about $80 billion per annum. He cited a 2004 study by the U.S. Department of Energy and Lawrence Berkeley National Laboratory whose authors suggested that $50 billion might be an overstatement, because loss mitigation—particularly by commercial/industrial customers—could not be quantified. Johnson suggested the number is less than half that amount.

Okay, we're in the weeds here now. But the gentleman has good instincts and despite the "moving target" difficulties, the point is that anytime you see a slew of zeroes to the right of a dollar sign, you'd better sit up and assess who's doing what to whom.

In my view, however, the attempt to calculate aggregate costs and benefits may miss the mark. That is, the aforementioned call for tangible value and consumer buy-in is a local matter of much more limited scope. Each utility has a different model for how grid modernization will meet a need and how that value will accrue to its customers. In that more limited, local sense, I'd agree that early stakeholder involvement is appropriate and that each utility must make its case to consumers as well as regulators.

Readers, are big picture numbers really valuable? Or are local problem solving and cost/benefit analyses more appropriate?

Phil Carson
Editor-in-chief
Intelligent Utility Daily
pcarson@energycentral.com
303-228-4757

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Comments

What is the cost? It depends!

The cost of the smart grid is like anything else - it depends.  What does a car cost?  I can buy a compact car for $15,000 - or a Lamborghini for $600,000!  (Well, someone can.)  The better question is, "How much does it cost to implement a smart grid project to obtain a defined set of benefits?"  An example could be, "How much does it cost to implement a project to achieve meter reading operating savings via remote reading, peak demand reduction via dynamic pricing, and energy conservation via consumer information feedback?" That would be smart meters with the requisite IT systems and communications. A grid-oriented example might be, "How much does it cost to achieve a reduction in line losses through dynamic balancing of feeders?"  Costs and benefits; they go hand in hand.

Real Costs, Uncertain Benefits

I agree with Mr. Johnson regarding EPRI's estimates for economic losses.  If those estimates were correct, we'd be seeing a wholesale move toward self-generation.  Put another way, $80 billion per year is 25-30% of the power industry's retail revenues, and probably a large fraction of the total amount spent by industrial customers on electricity.  Remember too that EPRI is not a disinterested party in this debate - they're dependent on membership dues that support R&D projects that lead investment that add to utility rate base that add to utility earnings.  If it wasn't for the Smart Grid initiative, EPRI would be looking for something else to sell.  In other words, trust EPRI's estimates, but verify them too.

There are certainly a lot of worthwhile investments that could be made in grid modernization.  the questions are a) whether they are really necessary or whether they're just fancy gadgets, and b) are they worth the cost.  I'd say decision-making mostly has to be local.  Let's not focus too much on the top-down analysis.

Jack Ellis, Tahoe City, CA

 

 

Good point

Thanks Jack,

Apologies for late attention to these comments. I'm well aware of EPRI's constituency and business model, but I do laud their transparency when it comes to methodology.

Trust but verify -- indeed.

Thanks for keeping the discussion rolling.

Regards, Phil Carson