Upgrade, evolution or revolution: the US perspective
In the US, most states are currently adopting an upgrade approach. While smart grid technology offers the possibility of revolutionizing the industry rapidly, it is more likely that the US will take an evolutionary path to smart. This is primarily due to the US's decentralized regulation environment. Each state has its own regulatory process, which can be challenging, particularly for multi-jurisdictional utilities. In addition, both regulators and utilities recognize that smart technology is still evolving and that it will take time to implement both the physical infrastructure and supporting business processes required to reap the full benefits of smart.
A criticism of smart grid stimulus efforts has been that deployments are happening before proper standards have been defined. In the US, the National Institute of Standards and Technology (NIST) received $10 million from ARRA to develop such standards, and identified five fundamental sets of standards for smart grid interoperability and cyber security that are now ready for consideration by federal and state regulators. In September 2010, it released "Guidelines for Smart Grid Cyber Security", part of the industry's efforts to establish clear security guidelines and a prerequisite for implementing other standards. This could further accelerate adoption of smart technologies by removing some of the uncertainty surrounding them.
Smart's impact on P&U
How smart metering and the smart grid infrastructure will impact the US's power and utilities companies largely depends on where they sit in the value chain and in which geographical markets they participate. Regulators, if faced with consumer opposition, may fear allowing utilities to expose full time-based electricity costs to consumers, reducing the benefits sought by smart meter deployment. This in turn could delay the growth of built-in home area networks and other consumer-facing technology.
It would be difficult to overstate how much smart investment impacts functional processes and IT systems across the organization. Performance improvement, operational efficiency, effective value chain management as well as robust change and risk management are essential to secure the ongoing smart rollout in the US.
Longer term, as P&U companies leverage performance improvement and operational efficiencies, there will be opportunities to capitalize on market and customer data to offer other value-adding smart services. Many companies will need to go to market under partnership arrangements with other providers to provide unique offerings.
Public funding, matched by private capital investment, is expected to result in market penetration of advanced meters of 47% by 2020.
Significant funding has been allocated to smart projects to address North America’s aging transmission grid, which has been described as “inadequate and congested”. Public funding, matched by private capital investment, is expected to result in market penetration of advanced meters of 47% by 2020.
Some smart projects have suffered from a lack of consumer education and concerns over inaccurate billing and privacy. The type of meters also varies and no standards have been agreed. Utilities must work hard to overcome these technical and customer challenges to see the benefits of smart.
What is driving smart?
Reliability — The massive power outage of August 2003, which left 50 million US and Canadian citizens in the dark and accounted for billions in financial losses, highlighted the vulnerabilities of the aging North American transmission grid. Estimates for modernizing the grid were put at US$50 billion.
In fact, the 2003 publication of the US Department of Energy's Grid 2030: A National Vision for Electricity's Second 100 Years pre-dated the power outage by just one month. The report calls for grid modernization to support accessible, abundant, reliable and affordable electric power to support an increasingly digital economy.
Over the past decade, according to the Electric Power Research Institute (EPRI), transmission capacity has increased by 18% while consumption has risen by 35%. US utilities recognize that smart grid technologies are critical to maintaining reliability and managing load growth. Unless smart technologies are implemented, the power and utilities sector would have to add significantly more generation and transmission capacity – to meet the projected load growth – than it will with smart technologies.
Energy conservation and distributed renewable energy — There is widespread political and regulatory support for smart grid technologies as a means to promote energy efficiency and renewable energy sources.
US politicians and industry participants alike have long viewed energy efficiency as the cheapest source of capacity for the US electric industry. According to the American Council for an Energy-Efficient Economy (ACEEE), currently 33 states are engaged in some form of demand-response policy-making (where the timing of demand for power can be altered or reduced in response to signals from the utility, usually to reduce peak demand). EPRI estimates that nationwide smart meter installation could reduce electricity use by more than 4% annually by 2030, resulting in cost savings to consumers and businesses of over US$20 billion per year.
Several states have decoupled rates (revenues are not tied to increased electricity sales) for electric, gas or both, alleviating the financial pressure placed on utilities when they sell less electricity due to energy conservation programs. In addition, a number of utilities, such as Arizona Public Service, have introduced new rates structures that promote load reduction during peak periods.
Smart grids also enable utilities to integrate distributed renewable energy sources such as roof-top solar and wind into their systems. These intermittent distributed generation sources, along with the growth in electric vehicles, will require smarter grid controls for load balancing.
Climate change — While the US does not have a federal mandate for a carbon emissions reduction target, and the issue is unlikely to be resolved soon( particularly near the presidential election in 2012), many states are undertaking initiatives aimed at addressing climate change.
Examples of state-level activities include California's AB32 climate bill and the 10-state Regional Greenhouse Gas Initiative.
Likewise, all but 13 US states have some form of renewable or alternative energy portfolio standard or target on the books. The integration of large amounts of intermittent renewables into the grid in coming years will require smart grid technology investment.
How smart is the US?
In the US, 38 states are undertaking deployment of smart meters, with close to 69 million meters expected to be installed by 2019. California is the most advanced state, with a complete rollout expected by 2013; all states except Alaska have planned or begun rollout of some form of smart meters or smart metering program.
Advanced metering installation rose from 1% of households in 2006 to 4.7% in 2009. Public funding, matched by private capital investment, is expected to result in market penetration of 47% by 2020. Currently, there are 16.5 million meters installed in the US, with another 34.2 million approved.
The US recognizes that smart grid technologies offer a number of benefits: the potential to deliver reliable, secure and acceptable electricity resources while promoting economic growth in an environmentally responsible manner. Public and private funds for smart are projected at US$7.3 billion for 2011. Over the next 20 years, the smart grid build-out is estimated to cost in the region of US$2 trillion.
The government has offered a mix of incentives to promote this investment.
The Energy Independence and Security Act of 2007 granted US$100 million annual investments between 2008 and 2012. The funding, by way of federal loans and contributions, allowed for five smart demonstration projects.
Meanwhile, the 2008 Emergency Economic Stabilization Act eased the cost burden by reducing tax depreciation on smart meter and smart grid investments from 20 years to 10 years.
Most significant, however, was the 2009 American Recovery and Reinvestment Act (ARRA), which called for US$4.5 billion in smart grid funding to jump-start the modernization of the US transmission and distribution grid. Five million meters have been installed with funding from that program so far.
The program included a US$3.4 billion Smart Grid Investment Grant (SGIG) program for 100 projects, matched by industry funding. Selected awardees include investor-owned municipal and cooperative utilities, transmission companies, manufacturers and other interested parties.
Eleven of the largest smart projects
under way in the US
Unfortunately, in some states, negative consumer reactions and confusion have resulted in legal battles or political intervention. Early rollouts raised consumer concerns about inflated meter readings and therefore substantially high billing amounts. However, after numerous studies confirmed the accuracy of the meter readings, those protests died down.
Other protests have surfaced over privacy concerns. State commissioners believe that it will take a major effort to resolve this issue, including changing state laws to allow utilities to release energy consumption data to consumers.
A recent study by the non-profit Smart Grid Consumer Collaborative (2011 State of the Consumer Report) finds that few Americans are “energy literate”. State regulators are calling for early collaboration between utilities and consumer advocates to promote smart technology adoption. There is also tougher action being taken when this is not done. For example, in June 2010, the smart meter rollout proposal of Baltimore Gas and Electric utility was turned down, citing inadequate levels of education programs for customers and the aspect of the entire cost burden being borne by the customers being unacceptable.