Smart Grid Technology, Economics, and Policy (Part 1 of 5)

Lynne Kiesling

This week I’ll be writing a series of posts about smart grid technology, economics, and policy. The buzz around the idea of smart grid is palpable:  old companies like GE and new companies like Google are changing their business models to incorporate more smart grid activities and products, entrepreneurs are exploring new products and services at unprecedented rates, and federal legislation supports smart grid investments and proposes to direct $40 billion of taxpayer funding to smart grid investments under the “stimulus bill”. In fact, on Tuesday the Senate Committee on Energy and Natural Resources will have a hearing on smart grid initiatives and technologies. None of this is new to readers here, though, because for the past four years I have been working on smart grid economics and policy through my membership on the GridWise Architecture Council and through my participation in the GridWise Olympic Peninsula research; these activities have led to several smart grid posts at KP over the years.

What is the definition of smart grid, and what are its most important and relevant features? I encourage you to think of smart grid from two different directions simultaneously — its technologies and its functionalities. Technologically, a smart grid is a digital communication overlay and integration into the electric power network. This communication technology includes

• Digital switching networks
• Remote sensing and monitoring in wires and in transformers
• Fault detection
• Devices for automated fault repair
• Intelligent end-use devices in homes, stores, office buildings, garages, and factories.

These various smart grid technologies enable a variety of functionalities in the electric power network, such as

• Transactive coordination of the system (many of the following functionalities contribute to this coordination)
• Distributed resource interconnection, including renewable generation
• The ability of a resource/agent to be either a producer or consumer of electricity, or both
• Demand response to dynamic pricing
• The ability of an agent to program end-use devices to respond autonomously to price signals
• Distribution system automation by the wires company, leading to better service reliability

The integration of these technologies into the electric power network will embed distributed intelligence in the systems that the network comprises. Please note that when I refer to the grid or the electric power network I am including distributed human agents (and their private knowledge-preferences-intelligence) in the definition of the network, not just the physical assets.

The potential ways that smart grid capabilities can create value are large, and they transcend the traditional utility-provided “plain vanilla” electricity generation and delivery value proposition. By enabling better, and more decentralized, coordination of electricity supply and demand, smart grid functionalities contribute to the optimization of resource use in the entire electricity system. This optimization has both economic (cost reduction) and environmental (reduced resource use, reduced emissions) implications, which I’ll delve into later in the week. Note, though, that the distributed intelligence => decentralized coordination connection allows these economic and environmental benefits to converge. One example of this convergence is how dynamic pricing induces consumers to shift consumption away from expensive peak hours, which leads to a reduced need for expensive infrastructure investment that is built to meet peaks and then sits idle for 95 percent of the year. Avoiding that investment saves costs and saves resources.

Investments in smart grid technologies to achieve the functionalities that we want in the electric power network do not occur in an institutional vacuum, though. There are existing regulatory policies that serve as barriers to such investments, and the policy environment that affects who does (and who can, under regulation) make such investments is complicated because it is composed of federal, regional, and state policies. So we’ll discuss some of them this week; here’s my plan:

1. Monday: introduction to smart grid
2. Tuesday: a transactive smart grid — if a grid’s not transactive, it’s not smart
3. Wednesday: intelligent end-use devices are going to be transformational
4. Thursday: smart grid and renewables interconnection
5. Friday: federal and state smart grid policy

If you are looking for background and useful introductions to smart grid ideas, I recommend these sources:

• The Department of Energy’s Office of Electricity (OE) provides The Smart Grid: An Introduction, and it is a very accessible and useful introduction
• The Department of Energy’s Electricity Advisory Committee (EAC) has prepared a report titled Smart Grid: Enabler of the New Energy Economy
• The resources available from the Galvin Electricity Initiative provide a wide range of background at different technical and policy levels
• This list of resources at Smart Grid News is very valuable
• In September, 2008 Northwestern’s Science in Society published an article I wrote titled “Smart Savings”, which has a discussion of smart grid basics and the importance of the transactive capability of a smart grid
• The paper I wrote for EcoAlign that I discussed here last week also has some useful background discussion

Tomorrow: if a grid is not transactive, it’s not smart

Other posts in this series:

• A smart grid is a transactive grid (Part 2 of 5)
  
• Intelligent end-use devices make a smart grid valuable (Part 3 of 5)
• Smart grid and renewables interconnection (Part 4 of 5)
• Recommendations for smart grid policy (Part 5 of 5)