Back in 2005, a couple of engineers1size="1"> used the term "Smart Grid" to describe their vision of an advanced power system. Particularly in the aftermath of the 2003 Northeast Blackout, Smart Grid quickly became a convenient, attention-getting way to label anything remotely related to grid modernization. Just as "dot.com" described anything Internet at the turn of the century, "Smart Grid" now describes just about anything related to electricity.

It's convenient to divide the Smart Grid concept into three distinct parts:

  • Transmission level elements, including sensors that provide real data on the state of critical grid elements (Phasor Measurement Units, or PMUs, and weather sensors that provide temperature and wind speed data) to help operators maximize transmission throughput without violating voltage and thermal limitations; control room displays that provide operators with better situational awareness (lack of situational awareness was a key factor in the 1983 blackout).
  • Distribution level elements, including substation automation, the ability to connect, disconnect and troubleshoot service at individual customer sites without rolling a truck, and remotely readable interval meters (AMI deployments).
  • Customer-facing elements that enable customer-owned devices to interact with the rest of the grid, including distributed generation, distributed storage, and price-responsive end-use appliances. In other words, anything that sits behind a customer's meter.
The last category has received a lot of attention in both the popular and industry press. After all, most journalists have never heard of PMUs and substation automation has zero sex appeal, even to those of us who have spent many years in the power industry. The ability to remotely control a toaster, however, has captured at least some of the public's imagination.

Now that many utilities are well along in their AMI deployments, attention is being focused on other Smart Grid elements, most notably the customer-facing category. Stakeholders are beginning to think more seriously about what this piece of the Smart Grid is and isn't, which things it will do and which things it won't, how fast to roll it out, how to explain it to consumers, how much it will cost, and what kinds of benefits it will provide. Several recent articles suggest skepticism is rising as consumers and regulators ask tough questions about why it makes sense2size="1">. In an interview about Smart Grid deployment conducted a year ago, then NARUC President Fred Butler, a member of the New Jersey Board of Public Utilities, emphasized this point by stating, "before we can say yes, we need to have demonstrated benefits.3size="1">"

The conversations are both timely and necessary. Any project with a national scope and a trillion dollar price tag can only be justified on economic grounds if it can generate benefits in the range of $100-1504size="1"> billion dollars per year. Customers and consumer advocates are no doubt beginning to realize that savings of this magnitude are not likely to be found in an industry with total annual revenues of around $400 billion5size="1">.

Putting more intelligence behind the meter can, in fact, produce capital, operating cost and environmental benefits. The key to cost-effectively capturing those benefits is a deployment strategy that carefully targets consumers and end-use applications that can make a material difference, combined with rate structures that reward customers who are willing to invest capital and effort. Since a number of the more visible Smart Grid ideas deal with the residential customer class, that's the customer group I'll focus on in the balance of this article.

Why Have Intelligence Behind the Meter?

Simply put, the reason for having intelligent devices is that they can search for the cheapest energy and act upon that information. Existing devices like switches and timers can't. Moreover, the required amounts of bandwidth and computing power required to control large numbers of simple devices like switches from a central location quickly becomes impractical and cost-prohibitive. Finally, most customers won't tolerate external control over their household appliances and lifestyles. Intelligent devices in homes and businesses can do the job at as well or better than any centralized control system while avoiding the disadvantages of centralized control.

Today grid operators dispatch existing power plants to meet a daily load profile that's fairly predictable, just as they have for about a century. On any given day, they know when demand will reach its peak and when demand will be at its lowest. Not coincidentally, energy is most costly and most valuable when demand is high, and it's cheap when demand is low.

High penetration levels of renewable resources change this picture significantly. Operators are no longer dispatching generation to meet a reasonably predictable load profile. Instead, they're dispatching the resources they can control to meet the difference between customer demand and renewable energy production. Over the course of a day, the output of a wind farm or solar field is more variable and less certain than the output of a conventional fossil-fired power plant. The wind could blow hard right after dark on one night, and it could perfectly calm right after dark on the following day. Since prices will follow this difference between renewable energy production and load rather than just the load alone, the times at which prices are at their peak or their lowest will change from one day to the next.

Which End-Use Applications Make Sense?

There are only a few existing electric end-use applications that really lend themselves to some sort of intelligent management: space conditioning (mostly air conditioning and perhaps some heating), hot water heating, clothes dryers and perhaps swimming pool pumps. These applications are good candidates for two reasons; first, they are typically the largest energy-consuming appliances in a home, and second, the timing of their operation can often be shifted by anywhere from a few minutes to perhaps several hours without requiring consumers to make significant lifestyle changes. Even the most cost-conscious consumers are unlikely to read by candle light, delay using their TV or postpone dinner to save a few pennies.

Electric vehicles of both the pure and hybrid varieties are excellent candidates for intelligent management. In fact, to the extent electric vehicles become common, charging all of them during a limited time window using available off-peak surplus energy and without requiring new generating capacity is likely to be the most important consumer motivation for adopting Smart Grid technologies.

Many utilities already employ switches to control air conditioners and water heaters for demand management. In California, pool pumps are typically fitted with times or switches. However, neither timers nor simple switching schemes need any more smarts than the grid already has, customer churn is a constant challenge, and these dumb devices lack the degree of sophistication required to make efficient use of existing electric supply resources by shifting demand away from periods where electricity is relatively expensive into periods where it is relatively cheap.

Where Should the Intelligence Reside?

Conventional wisdom says the intelligence should be invested in a single device that controls all of the appliances. Conventional wisdom in this case is wrong. In fact, the best place to put intelligence is in the appliance itself. The much talked about home area networks and other systems that attempt to "optimize" energy use will add complexity but they will not be as effective as simple strategies implemented at the device level using prices provided by the local utility or grid operator. If, as is likely, residential users continue to pay on a volumetric basis for the energy they consume6size="1">, then it's a trivial task to add an algorithm that minimizes the total cost of energy consumption. Most modern appliances already have at least one embedded microprocessor (conventional vehicles have dozens) that could probably do the job. It would be a simple matter to add a radio receiver that listens for a stream of hourly (or even more granular) prices over the balance of the day. For older appliances, a plug-in module that includes all of the necessary functionality could be built and sold at modest cost. It's important to note that consumers will still have full control over their appliances, including the ability to change programming at any time and some way to override the intelligence so that, for example, an air conditioner doesn't shut itself off in the middle of a party or an electric vehicle can be fully charged whenever the owner wants it to be7size="1">.

Who Owns the Hardware?

Consumers own the hardware, not their utility or a third party. If intelligent devices, whether new appliances or retrofits, are simply given away, they're more likely to either sit on the shelf or be placed in permanent override mode. If customers spend their own cash on these devices, and if the devices are engineered to be very simple and user-friendly, they're much more likely to be used. Moreover, if customers are doing the buying, manufacturers will be more likely to design and build devices that appeal to consumers rather than devices that meet utility or government specifications but are otherwise impractical.

The Importance of Prices

Meaningful prices are probably the most important element of any consumer-facing Smart Grid initiative. Prices provide essential information about the cost and value of electricity at different times of the day and night that help appliances and their owners decide how to provide services and products (heat, cooling, hot water) at the lowest cost that's consistent with minimal lifestyle disruption. A water heater, for example, might determine that it could actually earn money one day by operating only between 10 PM and midnight when a combination of high wind production and low electric demand drives prices below zero, while on the next day it could wait to heat up the tank until just before the family wakes up because that's when electricity is cheapest.

A Note on Designing Intelligence

Building appliances that are smart enough to minimize the cost of the electricity they consume without turning the household schedule upside down is going to be challenging. The user interface has to be simple and intuitive on the one hand, while providing enough functionality so that consumers don't feel they've lost control. Devices have to be both inexpensive and fairly sophisticated if they are also going to be cost-effective. Utilities and their traditional vendors are typically not equipped to build such products. This is a potentially large market. Let's hope Apple Computer notices.

Some Perspective is in Order

Intelligent devices are essential to unlocking the potential of the Smart Grid. Before consumers can make use of these devices, manufacturers have to build them, and before manufacturers spend money on design and engineering, well-functioning markets that provide reliable, actionable prices have to be established and proved. We've made a great deal of progress in the last 15 years but some of the parts still have to be put in place. Most wholesale markets are still working out bugs in their very complex pricing algorithms. Regulators are only just beginning to think about passing through wholesale prices directly to consumers or constructing tariffs that appropriately reflect changing system conditions.

A bigger concern is that most consumers are either largely ignorant about the Smart Grid or they have convinced themselves it's part of a government conspiracy to control their lives. Consumers need to be educated, but this is a case where the message has to come from many voices, including policymakers and regulators. It has to be delivered in a variety for forms through a variety of media for a diverse audience over a long period of time in a way that ordinary consumers can easily understand.

To make the Smart Grid successful:

  • Regulators and policymakers have to work with utilities, energy services companies, third party retailers and consumer electronics manufacturers to educate the public and set realistic expectations about costs and benefits. Particularly since the underlying drivers of a consumer-facing Smart Grid are driven by public policy initiatives, regulators and policymakers have to take the lead in getting the messages out and they need to be well prepared for potentially intense opposition.
  • Consumer adoption of Smart Grid technologies needs to be a consumer choice, not a policy choice. Regulators need to establish voluntary tariffs that expose consumers to time-varying prices that reflect system conditions8size="1">. Ideally, regulators would also adjust traditional fixed price/fixed volume tariffs so that they are less advantageous than they are today.
  • Utilities, energy service companies, third party electricity retailers and perhaps consumer electronics companies need to identify and engage early adopters who will help test ideas and provide useful feedback.
  • Regulators and consumer advocates must accept that the Smart Grid will produce bigger winners and smaller winners. Those who are willing to invest time, effort and capital will be bigger winners, but even those who do nothing should benefit from a cleaner environment and smaller increases in electricity prices than would otherwise be the case (or perhaps even decreases).
  • Regulators need to clearly separate the roles and responsibilities of the various market actors. Consumers should be able to maintain control of their lifestyles. Utilities should not be able to involuntarily reach into homes and businesses. Intelligent devices should not have to rely on a utility or third-party gateway or toll booth. Consumers should be able to purchase plug-and-play devices that work.
In the proper context, the Smart Grid is a great idea. Let's be smart about how we build it.

References

1. According to Wikipedia, "Toward A Smart Grid", authored by S. Massoud Amin and Bruce F. Wollenberg appeared in the September/October issue of IEEE P&E Magazine (Vol. 3, No.3, pgs 34-41)

2. See "The growing voice of the consumer" by Bart Thielbar in Intelligent Utility, February 3, 2010 (http://www.intelligentutility.com/article/10/02/growing-voice-consumer), "Misrepresenting the public isn't a very good idea" by Warren Causey in Intelligent Utility, January 29, 2010 (http://www.intelligentutility.com/article/10/01/misrepresenting-public-i...), and "Regulators Throw a Curve at Xcel Energy's Smart Grid City", Greentech Media, January 15, 2010 (http://www.greentechmedia.com/articles/read/regulators-throw-a-curve-at-...).

3. "NARUC Chairman Charts Smart Grid Path", SmartGridNews.com, January 9, 2009 (http://www.smartgridnews.com/artman/publish/grid_automation/NARUC_Chairm...)

4. The $100-150 billion figure assumes the annualized cost of a $1 capital investment is between 10 and 15 cents, which is typical for regulated utility projects.

5. "US Electric Industry Total Revenues by State", US Energy Information Agency, http://www.eia.doe.gov/cneaf/electricity/epa/fig7p3.html

6. Energy-only tariffs with no demand component.

7. The Pacific Northwest National Laboratory has already developed a Smart Charge Controller that can readily be adapted to buy electricity for the vehicle using a stream of hourly prices. See http://availabletechnologies.pnl.gov/media/284_128200911203.pdf or contact

8. A tariff that allows consumers to buy fixed volumes at fixed prices over defined periods and pay or be paid for consuming more or less at the wholesale price would provide the necessary exposure and a hedge.