One concept that has been getting a lot of attention lately – and one intricately entwined with the renewables market – is that of the Smart Grid. The Smart Grid exists today, but only in pockets. The electrical grid today is largely dumb. To ‘educate’ the grid requires an intelligent networking infrastructure – perhaps the most sophisticated and intricate network of our time.
But what exactly is a Smart Grid? Think of it as the internet for energy. The Smart Grid is a combination of hardware, management and reporting software, built atop an intelligent communications infrastructure. In the world of the Smart Grid, consumers and utility companies alike have tools to manage, monitor and respond to energy issues. The flow of electricity from utility to consumer becomes a two-way conversation, saving consumers money, delivering more transparency in terms of end-user use, and reducing carbon emissions.
The type of conversation that the Smart Grid allows has not yet taken place. The discussion is still typically one-way: monthly statements, meter readings, public service announcements on heat waves and other weather patterns likely to impact usage patterns, and consumer complaints to call centres when service is interrupted.
As Ahmad Faruqui of The Brattle Group has underscored, “the need for two-way communication between the utility and its customers lies at the heart of all Smart Grid initiatives. Such communication allows dynamic pricing to be transmitted to customers and it also enables customers to automatically curtail usage during critical hours and to shift energy consumption from high-priced peak periods to low-priced off-peak periods. In this fashion, both parties work synergistically to manage the cost, delivery and environmental impact of power generation and energy services delivery.”
Why does the world need a Smart Grid?
First and foremost, utility companies are striving to reduce carbon emissions. The US energy grid is the source of one-third of America's atmospheric CO2.
Optimising the management of energy supply and demand means a reduction in the likelihood of blackouts not to mention a massive potential reduction in carbon emissions. For example, power outages alone cost the US$80 billion annually.
The vision for a Smart Grid is simple in concept and looks something like this: energy produced locally can be transmitted and used globally. There will come a time when the solar energy from the equatorial sun powers the skyscrapers of New York City; when wind power harvested off the Irish coast powers not only the local economy, but is also sold to Hong Kong or New Delhi; when geothermal energy from places such as California, Nevada, Idaho, and Oregon is delivered to meet the world's growing electricity usage. We need energy to be captured everywhere and distributed where needed, when needed.
Current initiatives
The Smart Grid needs to learn to walk before it can run. And walking looks like this:
Advanced metering infrastructure (AMI)
AMI is a catch-all term for smart meters. The Smart Grid is often associated with electrical meters, or smart meters. This association helps to simplify a very complex process, but it sells the vision of the Smart Grid short.
The Smart Grid is no more about the meter than the economy is only about the cash register. Both are merely collection points: interfaces between buyer and seller where data can be gathered and analysed. As in many business and technology scenarios, you can't improve what you can't measure. AMI systems capture data, typically at the meter, to provide information to utilities and transparency to consumers. It's also usually the case that AMI systems piggyback on a variety of wireless systems. One simple illustration: the days of the electric company representative swinging by to read your meter could be phased out with AMI.
Demand response (DR)
To date, consumers have used energy whenever they want to, and utilities have built the power plants and delivery infrastructure to support it, no matter what the cost or environmental impacts. To achieve economic and environmental goals, consumers need to become equal participants in the process, tuning their energy consumption to when clean resources are available and avoiding peak energy consumption times as much as they can. If some electricity-consuming devices can be deferred to non-peak time, everyone wins. While you may need to turn on your lights when you arrive home, there's no reason that you can't run your dishwasher at 3 am when rates and demand are lower.
That's the reasoning behind demand response programmes and they have been very successful. Research bears it out again and again, when consumers are asked to ‘do the right thing’ when it comes to energy usage, they will do so.
Smart thermostats, for example, can prompt consumers to lower their air conditioner by a degree or two. To date, 8% of US citizens are in some kind of demand response program. In-home displays and similar devices can lower energy use by up to 6%. Demand response programs yield immediate reductions of up to 47%. And that's growing.
Critical peak pricing (CPP)
An off-shoot of demand response, critical peak pricing simply means that utilities have the technology infrastructure in place to charge consumers more for energy during peak periods. It allows customers to decide whether to pay more or not on the specific critical days, rather than paying an average cost. It helps balance cost and risk between the consumer and the utility, as well as providing a further incentive for consumers to reduce energy consumption.
Time-of-Use Pricing (TOU)
Time-of-use pricing is similar to critical peak pricing, except extrapolated across every hour for every day. Time-of-use pricing allows utility rates and charges to be assessed based on when the electricity was used. Not only the time of day, but also the season, as well as accounting for local weather patterns that might prompt a rate adjustment (at which point it becomes a demand response application).
Growing optimism – challenges and drivers
The widespread implementation of a Smart Grid is an exciting and unprecedented undertaking. But it is enormously complex, populated with special interest groups, deeply ingrained user behavior, and financially daunting.
So what are the challenges at hand? Chief among them would be:
- Regulatory – do the regulators have the guidelines they need to green-light Smart Grid initiatives?
- Behavioural – energy consumption continues to rise worldwide;
- Infrastructure – today's grid needs seriously overhauling if we are to see Smart Grid initiatives be successful.
On the other hand, there is enormous momentum behind the concept, both from consumers and from Governments. President Obama himself has pledged to spend billions on developing Smart Grid technology in the USA. And there are some other major drivers.
Technology
If you expected technology to be listed in the challenges above, you might be surprised by this, but in fact the technology that will power the Smart Grid is in very good shape. From the meters to the thermostats, from the hardware to the software, the technological underpinnings of the Smart Grid are solid.
This is true even though electric utilities are naturally provincial, and not only from a geographical perspective. The technology that underpins one utility might be vastly different from another. As there are fewer commonalities than you might expect, it's impressive that so much progress has been made with respect to standards.
In the Smart Grid world you will hear about standards such as Zigbee, IEEE 802.15.4 and ANSI. While the details of the appropriateness and maturity of each standard would require another article entirely, the reality is that the technology is already working in the field.
Experience
Similarly, sophisticated and field-tested implementations are out there and have been successful.
Once we were on uncharted ground when it came to the complexity of incorporating time-of-use rates with demand response systems, tied to your back-end systems including billing and customer support, and GPS information on locations, but that's changed.
One example comes from Trilliant itself: the company has been behind the largest Smart Grid adoption in North America, which will eventually amount to 1.3 million smart meters. As a company, it has deployed over one million smart devices. While there's still some way to go, best practices have emerged.
Renewables
So much progress has been made in the world of renewable energy that it's difficult to know where to begin. With growing recognition that energy is a local phenomenon, unique and innovative approaches to renewable power are emerging all over the world.
Solar photovoltaic (PV) and wind power, the first generation of renewables, have moved from the reliability and scalability stage to one of improvement and refinement. Energy is being harvested from ocean waves, from geothermal vents and from countless other sources.
This range of innovation is based on the understanding that tomorrow's electricity is going to be powered by a mix of energy sources.
The next key step in exploiting these resources will actually be to connect consumer demand and supply in real time, to maintain reliable power despite the fact the wind does not always blow and the sun does not always shine.
Policy
Governments around the world are putting regulatory guidelines in place to help utilities adopt best practices with respect to Smart Grid implementations.
For example, the Government of Ontario, Canada, through the Energy Conservation Responsibility Act of 2006, has mandated the installation of Smart Meters in all Ontario businesses and households by 2010. Considered one of the most forward-thinking policies in North America, this policy has catalysed the region to the point at which Ontario is the de facto leader in implementing the Smart Grid.
In the USA, initiatives such as the Energy Independence and Security Act of 2007 have already created guidelines and mandates with respect to Smart Grid adoption. And President Obama has promised to double production of alternative energy in the next three years. In fact, the Obama administration is expected to add incentives for energy efficiency, as well as substantially update the nation's transmission and distribution infrastructure.
In addition, the European Union (EU) has articulated its ‘2020 Vision’, a long-term strategy to battle global warming by setting binding targets on renewable energy, energy efficiency and the reduction of greenhouse gases (20/20/20).
Progress
Slowly and steadily, the Smart Grid has been growing around the world. While we are still in the early stages, progress is already being seen. As mentioned above, a recent report from the Federal Energy Regulatory Commission (FERC) found that about 8% of US customers are in some kind of demand response programme.
Demand response programmes have proved instrumental in managing critical peak load situations in California, New York and the Mid-Atlantic. The penetration levels of smart meters are also significant. According to the same report, installation levels have reached about 4.7% in the US, up from less than 1% in 2006.
Consumers
I think that many have under-estimated the power of a motivated consumer body. Until recently, there was virtually no way for consumers to understand their own energy usage. Other than a monthly bill, there was no transparency, no visceral connection between what they used and what they paid. Smart meters and the information they provide to consumers have opened the eyes of countless individuals.
They're now keen to add measuring capabilities to refrigerators, pools, electric vehicles, washers and dryers. Everything that can be measured will be measured, because that data leads to wisdom – and wisdom changes behaviour.
Again and again, studies such as those from The Brattle Group are proving that when you arm consumers with the proper information, they will modify their behaviour. It turns out that consumers are ready to change; they just lacked the data or tools to do anything about it.
Hope, change and momentum
Overall, the positives clearly overwhelm the negatives.
While the path to get there presents unique challenges, consumers and utilities both want the same thing – efficient, smart energy consumption in line with the real costs and environmental impacts, and a meaningful shift towards the utilisation of renewable energy.
And the fact that President Obama pointed to an upgrade of the US electrical grid in his inaugural speech is very telling.