Hip to be Square: The Future of Smart Grids

by Ryan Greenfield

The early 20th century conception of power production, transmission, distribution, and consumption is still largely prevalent in the United States and around the world. Basically, large fossil fuel (coal, oil, natural gas) or nuclear power generators produce power which is distributed over some distance and the amount generated is determined by estimated demand at that time of day plus some additional amount in case demand exceeds expectations. When the current grid was designed, electric power was cheap and plentiful and there was little concern or knowledge about concepts like peak oil or greenhouse gasses.

To date, there is no mechanism for remote consumer regulation of power use, including discrimination between essential and non-essential uses of power, time-sensitivity of power use, pricing differentials depending on the time of day power is used, or integration of renewable power sources into the power grids. All these factors mean a great deal of energy is wasted every day which goes to no productive use costing consumers, businesses, and industry money while pumping unnecessarily large amounts of greenhouse gasses into the atmosphere. In addition, the rise in the number of household appliances and consumer electronics has burdened the grid. The Department of Energy reports that energy consumption has outstripped new productive capacity by almost 25 percent every year since 1982. If the grid was just 5 percent more efficient, it would equate to eliminating the fuel use and greenhouse gas emissions of 53 million cars.

The implementation of smart grid technologies would make several changes to the power distribution status quo. A smart grid has both communications and technological aspects and implications. The technological aspects would minimize power loss through modern transmission, automation of distribution, and quick detection of deficiencies or breakdowns in the grid to allow them to be rectified quickly. The communications aspects allow more ease of consumer control and choices over when to use power in order to respond more easily to dynamic pricing signals.

The goal of a smart grid is to decentralize coordination of power supply and demand while facilitating efficient delivery in order to optimize electric power use. It could allow you to regulate your home energy use online, turning on and off appliances as they are needed and as the prices change. Think of it as bringing the power of the internet to the way energy is produced and consumed. It would not have to be controlled on an hourly or daily basis as you might expect. Home appliances could all be programmed to turn off or on, or thermostat to go up or down, depending on the current price of power. Warnings could be sent by text message or email when prices are going to be abnormal due to, for example, a particularly hot day. This creates what Economics Professor Lynne Kiesling of Northwestern calls a transactive grid.

The current lack of easily obtained real time pricing information is a significant obstacle for consumers’ ability to respond optimally. The ability to respond will sharply reduce the amount of power production required at peak demand, which leads to lowers prices for consumers while reducing environmental impacts. According to CNET, plug in hybrids which can be charged overnight when demand is low can also act as backup generators for the house when demand is high as a typical battery could fuel a home for up to 5 hours. While the technology to regulate consumer electronics’ energy use remotely already exists, it’s hardly widespread.

The Recovery Act contained $11 billion in funding for smart grid research, loan guarantees, and grants to pilot projects. However, with the economy still weak and sustained net job creation still yet to occur, the smart grid is an excellent candidate to receive more stimulus dollars. The aging grid infrastructure is past due for an upgrade and modernization and America badly needs the well-paying green jobs (which cannot be outsourced) that this could generate. Potential benefits of the smart grid are as follows:

1) Diminishes the required load during peak use, saving productive capacity that is usually underutilized

2) Allows homes and businesses to take any surplus wind or solar power they generate and sell it back to their grids (and provide incentive for more to invest in wind turbines and solar panels)

3) Enhanced communications technology (smart meters and relays) lowers the transaction costs (like time) needed to regulate all electronics manually

4) Enhances connectivity of the grids which makes grids, generation, and distribution markets larger and more versatile (while allowing vertically integrated wholesale and retail suppliers to stand alone and compete more freely)

5) Prevents outages by integrating more generating capacity both within and outside local utility generation. A less centralized power grid will also be less vulnerable to a terrorist attack and resulting large-scale blackouts which can be economically devastating.

There are numerous political challenges to smart grid implementation. A smart grid would change the incentive structure for individuals which could seem like an infringement on choices. In addition, there are numerous state and local laws which could conflict with the national smart grid. A national strategy to deal with these barriers is required.

There is a risk in giving the distribution network automated control over power use. For example, you could be taking a break from writing a paper, your computer screen saver could turn on, and the network could decide the computer use on standby was non-essential and switch the computer off without you saving your paper, creating significant inconvenience. There are also consumer concerns over privacy. Setting up remote monitoring could require access to detailed data about consumer power use. Information leveraging by certain players could also lead to market manipulation.

A smart grid can shift the cost benefit calculation for families and small businesses to invest in small scale renewable power generation. However, the challenges to widespread integration into power grids are quite significant. Renewable energy by its nature is intermittent (we cannot really control when the sun shines or wind blows). Its peak production may not coincide with peak demand and the ability to store excess power is limited. Smart grids may alleviate the intermittency through switches, relays, and monitoring, but will not solve the issues of storage of excess capacity.

In addition, it may not be particularly profitable for individual utilities to invest in smart grid technology unless other utilities are undertaking the same activities so they can share communication networks. They also are unlikely to invest in the transmission capacity to get power from the remote areas where renewable energy is the most plentiful to the dense urban areas where demand is the greatest. Additionally, consumer advocacy groups as well as regulators tend to oppose rate hikes even when they are temporary and slated for upgrades that will save money in the long-run.

Policy Prescriptions
In addition to more investment, several policy changes are necessary before the smart grid can become a reality. The Center for American Progress recommends a national framework for multi-state collaboration, new federal technology standards for upgrades, and broad based cost allocation. Collaboration is important so the grid is optimized for the entire system rather than on a utility by utility basis. While utilities tend to focus only on their own domain, federal coordination is necessary to align their interests with that of the country.

Incentives for utilities to upgrade their infrastructure are also important. But law changes creating consolidated review processes for approval of these projects are essential as well to reduce the lag time between decision making and implementation.

A cap and trade system that would effectively raise the price of fossil fuels while reducing the relative price of renewable energy could go a long way toward making the investments in smart grid technologies worthwhile.

It is past time we modernize our fraying power grid. We can create jobs while reducing environmental impacts and reducing energy costs long term. A smart grid is win-win for producers and consumers if designed correctly, we just need the political will and resources to make it happen.

Email Ryan Greenfield at rdg27@georgetown.edu



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