Transform the U.S. Smart Grid with Advanced Technology and Updated Government Regulations

Al Gore, in his recent New York Times op-ed titled “The Climate for Change”, calls for a “$400 billion investment over ten years to construct a national smart grid to distribute renewable energy”.

Apr 1st, 2009
Th Trans 01

By Jeff Lund and Steve Nguyen

Al Gore, in his recent New York Times op-ed titled “The Climate for Change”, calls for a “$400 billion investment over ten years to construct a national smart grid to distribute renewable energy”. We, at Echelon, support the proposed investments by Gore, and further believe the answer is not just in constructing something new, but transforming the “over-built” grid that already exists in the United States.

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To do this, utilities must continue to look carefully at the technologies they select, especially to ensure the smart grid really does deliver on the promise to save the U.S. vast amounts of energy, and improve the global environment. Echelon also believes government will succeed more quickly if they begin to reward and incent cities, utilities, and building and home owners to find ways to continuously be more energy efficient–as opposed to the current of state of “disincentives” that exist.

For example, in many jurisdictions, utilities are required to immediately pass on any operational savings to the consumer in the form of reduced rates. This means that were a utility to invest in technologies that lowered the cost of reading and maintaining residential meters, they would pass on the savings rather than use the savings to off-set the cost of the investment. In turn, such a utility would raise rates to recoup their investment. It’s a perfect catch-22 situation.

As companies in the grid ecosystem work together through this time of transformation, job creation and other economic stimulus events are inevitable. In the end, it will pay big to build intelligence into all the powered places and things that are connected on the U.S. smart grid. From improved services to energy savings and investment opportunities galore, a truly smart grid will improve our economic situation from start to finish, and possibly for centuries to come.

The Vision

It is absolutely imperative that our nation and utilities invest wisely in smart grid technologies today, and ensure they are future-proof for tomorrow. Ultimately, the U.S. smart grid must support the flow of electricity starting from generation, through to the transmission and distribution of electrical networks, down to neighborhoods and customers. Taken at face value, Gore’s $400 billion estimate seems like an enormous amount of money. However, when you take into account that he also estimated annual losses to business to be $120 billion as a result of not having a modern electrical grid, then the payback for the investment would be less than 3 ½ years.

The Smart Grid Is Not Possible Without Policy Support for Utilities

President Barack Obama also recently announced he will pursue significant investments in our nation’s electric grid using smart metering, distributed storage and other advanced technologies to accommodate 21st century energy requirements. His goals are to greatly improve electric grid reliability and security, increase our use of renewable generation, and enable greater customer choice and energy affordability. In order to accomplish his goals, utilities will need to make considerable investments in modernizing their systems. This will require regulatory support that will not only endorse adjusting rates to recover investments in a smart grid, but perhaps more importantly, also create incentives for utilities to support customers that wish to reduce energy consumption and promote energy efficiencies. Utilities should be encouraged and rewarded through legislation and regulation to promote energy efficiency rather than be penalized by unintentional consequences associated with existing regulations that discourages investment in energy conservation efforts.

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The policy discussion regarding how to transform the nation’s existing electric grid into a smart grid is usually focused on energy efficiency, renewable energies, storage, and plug-in electric cars. However, the initial investments should be implemented wisely with the emphasis placed on the underlying technology needed to create a foundation for a smart grid since all of these solutions require a modern, intelligent electrical system to properly achieve scale and cost effectiveness. There are many parts of the electrical grid that need to be modernized, but the priority should be focused first on adding intelligence to the portions of the grid that will have the greatest positive impact. That segment is the distribution network that delivers electricity to all customers’ premises or homes.

A Real Smart Grid vs. an Ordinary One

The smart grid will not be truly smart until it connects every customer; residence, commercial space, industrial building–absolutely anything connected to a power source from our cities to the countryside. The grid needs to be able to offer energy efficiency services everywhere as well as obtain information and extend intelligence into every device that is powered by the electrical network. Whether a device is an appliance in a residential home, an energy management system in a commercial building, or a street lighting system connecting and controlling the streetlights of a major city–in order to be part of a smart grid, it all requires embedded intelligence. Networks of U.S. and worldwide intelligent devices will result in many benefits to all stakeholders including customers, utilities, regulators, the economy and our environment.

The Backbone of a Real Smart Grid - AMI

The solution that should be supported and used to provide the first, fundamental step required to modernize the electrical grid is an Advanced Metering Infrastructure (AMI) system. AMI systems that include truly smart meters provide the foundation necessary to establish a real smart grid. Other key components in effective AMI solutions include the ability to utilize open protocols and standards for communications (e.g. TCP/IP, SOAP/XML web services, and ANSI/CEA-709.1), offer secure, reliable communications and, of course, are cost effective and future-proof. AMI systems can provide the architecture to allow utilities to establish two-way communications with their customers’ meters as well as with in-home devices.

Through the AMI system, customers have the ability to use time differential rates–time-of-use rates (TOU) or real-time pricing (RTP) rates–which reflect the actual cost of producing and transmitting energy. Where energy is much more expensive at peak times than off peak times, the grid is designed to accommodate and reliably transport electricity to all customers during peak times. Therefore, the ability to reduce peak electricity is paramount to leverage the existing investment in the grid. The problem is that today there is no mechanism to incorporate the real cost of energy into all customers’ rates to encourage a reduction of electricity usage by consumers and businesses. AMI systems can help incent customers through two-way communications to the meter and additional devices inside the home including display units, thermostats and appliance control relays.

There has been talk about implementing TOU or RTP rates to reduce energy consumption as well as critical peak pricing (CPP) rates designed specifically for peak periods by using a display in the customer’s home. Unfortunately, this solution expects the customer to watch the display, know when rates are going to change, and then take action accordingly. Yet in practical terms, consumers are not at home all the time or even during all peak periods. Additionally, even if home, consumers can’t be expected to stare at the display constantly, nor run around the house to turn off their appliances and lights at every peak time or higher priced period. In order to keep the smart grid user friendly, it must be designed and ultimately implemented all the way through the electric system to include smart devices inside homes, where devices are networked together to operate and respond to different pricing conditions autonomously.

The Smart Grid Needs Wired and Wireless Solutions

For in-home communications, much of the discussion has focused on wireless communications between the meter and in-home devices. However, many utilities are beginning to realize and understand that one technology will not work ubiquitously for all customers and therefore a combination of wireless and wired (e.g. powerline communications) is required for successful implementations associated with extending the smart grid to devices inside customers’ homes. Once a reliable system is installed, during a system peak or other energy related event, in-home devices, appliances and lights turn off automatically in order to save energy and reduce monthly bills.

In addition, smart meters give utilities immediate access to data so that they can better manage demand and operate the grid. When electricity demand is high, typically on hot and humid days or extreme cold days, the grid becomes strained forcing utilities to make difficult decisions, such as increasing energy production with environmentally unfriendly generators or by reducing electricity consumption among its customers through brown outs or black outs. A key consideration for saving energy in the home is that the homeowner needs to continue to be the primary decision maker. The responses of energy aware appliances and systems in a home should be determined by the homeowner himself to ensure adoption and long-term use.

Demands Response Programs: Here to Stay

Most all major utilities are initiating demand response programs, now a key component of energy management policies, as a way to ensure a balance between supply and demand while simultaneously reducing greenhouse gas emissions. In an electricity grid, any significant imbalance between electricity consumption and production can cause grid instability or severe voltage fluctuations and failures within the grid. Demand response involves a utility notifying its customers of a pending electricity shortfall and asking them to reduce energy usage in order to manage and optimize the electric grid. This can also help to eliminate the need to run less energy efficient generators. In return, customers are offered reduced electricity prices or other financial incentives. Demand response is becoming well understood in the commercial building sector as a number of utilities offer such programs. In fact, a new industry is emerging to meet the needs of this growing market. Like demand response in homes, such programs are structured around the net energy use, rather than specific responses from equipment and systems. In other words, the building tenants and owners, as a homeowner would, determine the exact form of the energy demand reduction.

Consumer targeted versions of these programs can be designed to use the same advanced metering infrastructure and additional networked devices to enable utilities to automatically reduce or turn off certain energy consuming appliances for a short duration of time at customer sites, such as air conditioners, pool pumps and hot water heaters. The goal is to cycle various appliances in order to reduce consumption while minimizing the negative impact on customers. Signals are transmitted from the utility to the customer’s smart meter and other in-home devices using the advanced metering communications infrastructure. Some of these pilot programs have already proved successful.

For example, in a U.S. Department of Energy research project performed by Pacific Northwest National Laboratory on smart grid technologies and their impact on consumers, researchers discovered that consumers were willing to adjust energy consumption based on price signals from the utility. The average consumer reduced their energy consumption, while saving up to 10 percent on their energy bills.

It is clear that our nation and the rest of the world faces significant challenges associated with improving electric grid reliability and security, increasing our use of renewable generation, and enabling greater customer choice and energy affordability. While these topics have been the subject of much public debate in recent years, we now see the pursuit of positive actions through President Barack Obama’s effort to really address these potential problems. He plans to propose significant investments in our nation’s electric grid using smart metering, and distributed storage and other advanced technologies to accommodate 21st century energy requirements. So now is the time for the U.S. to begin to transform the smart grid to support the flow of electricity from the utility, through the transmission and distribution electrical networks, and ultimately to neighborhoods and customers. This will require a regulatory system that supports not only adjusting rates to recover the investments required for a smart grid but also creates incentives for utilities to support customers reducing their energy consumption and promoting energy efficiencies.

The Best News Yet

The technology is already available to enable these services and programs that can address the electric system problems. Now, more than ever, it is imperative that legislation and regulation be adjusted to support and reward the utilities promoting energy efficiency and for the investment in implementation of a modern smart grid for the 21st century.

It is equally important that new regulations and requirements be structured to allow the market to adopt and experiment with new and existing technologies. As we consider our next steps, we must ensure that we maintain a competitive market that encourages new innovation, new methods of using existing technologies, and new ways of thinking about how, when, and why we use energy.

About the Authors:
Jeff Lund is Vice President of Echelon Corporation’s Networked Energy Services (NES). Echelon’s NES System–the backbone for the smart grid–is used by utilities to replace existing stand-alone electricity meters with a network infrastructure that is open, inexpensive, reliable, and proven. The NES System helps utilities compete more effectively, reduce operating costs, provide expanded services and help energy users manage and reduce overall energy use.

Steve Nguyen is Director of Corporate Marketing at Echelon Corporation (Nasdaq: ELON), a Silicon Valley-based company leading the worldwide transformation of the electricity grid into a smart, communicating energy network, connecting utilities to their customers, and providing customers with energy aware homes and businesses that react to conditions on the grid.

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