Blackouts, Smart Grids, and Interoperability

On Wednesday afternoon around 3:45 the power went out in areas of Manhattan and the Bronx in New York City. Although the outage lasted less then one hour, it was sufficient to cause traffic congestion and inconvenience to almost 400,000 customers on a hot, humid summer afternoon.

This experience illustrates the challenges facing the electric utility industry: in the face of economic growth and the associated growth in demand for electric power, providing product and service offerings that customers value, and doing so with reliability that meets the expectations of diverse customers, puts tremendous strain on the physical infrastructure in the electric power network. Despite these strains, building new physical infrastructure, particularly new transmission wires, faces serious obstacles and community disputes over siting and other issues. Furthermore, developments in digital communications technology have created alternatives to constructing new physical infrastructure, and in many cases these alternatives may be more cost-effective than traditional iron-and-wires. In creating a reliable smart grid network to meet the future needs of a thriving, modern society, bits are cheaper than iron. Thus I wanted to bring to your attention a couple of recent news articles highlighting the role that smart grid technology, pricing, and policies can play in helping us to avoid blackouts like yesterday’s in New York.

One of the mechanisms by which a smart grid delivers reliability is through the use of dynamic pricing, which can itself reduce electricity use during peak hours when the costs of producing electricity are the highest. And if consumers have enabling technology, particularly two-way digital communications capability in thermostats so the electric retailer can send prices to the thermostat, customers are even better able to respond and the reduction effect is amplified. Ahmad Faruqui recently wrote about this effect as a guest contributor at The Clean Slate Report, referring to the California Statewide Pricing Pilot that he led:

The latest evidence comes from a scientifically-designed experiment that was conducted in California over a three-year period beginning in 2003. Involving some 2,500 customers, it showed that customer demand dropped by 13 percent when prices rose during the peak periods to reflect the higher cost of power in those periods.

When customers were provided “smart thermostats” that automatically raised the thermostat setting by four degrees Fahrenheit, the drop in load doubled. Similarly encouraging results are now coming in from commercial and industrial facilities that have installed automatic demand response software. This software uses the Internet to transmit price signals to the energy management control systems that are commonly present in such facilities, dimming certain lights, raising thermostat settings and raising chilled water temperature.

In another post at Clean Slate, Faruqui argues that reducing national peak demand by five percent would have a net present value of $35 billion over a 20-year period.

CenterPoint Energy in Texas is also implementing smart grid technology and pricing, taking advantage of the opportunity that Texas’ competitive retail environment creates for electric retailers to create new products and services. As this Houston Chronicle article reports,

The CenterPoint system includes “smart” meters and software that bring transparency to the market, allowing consumers to see how they use electricity, and how that usage affects their bills.

“To some degree, electricity is something of a mystery,” said David Dollihite, vice president of U.S. home services for Direct Energy, another electricity retailer. “You get a bill and you pay it. You don’t know how you get it, how you use it, what you’re paying for.”

The intelligent grid changes that. Customers eventually could set the amount they want to spend each month. Air conditioning accounts for more than half of most customers’ summer electric bills. A computer program would tell them what temperature to set their thermostat at to achieve that price.

They also could do the reverse — enter a temperature and have the program estimate the bill.

“It provides the consumer a gateway into the market, so that they can tie the cost of their electricity to their usage,” said Guy Braden, senior vice president of operations and technology for Suez Energy Resources, which sells electricity to commercial customers in Texas. He predicts customers will cut their usage by as much as 20 percent, simply because they’re more aware of their usage. …

In touring the CenterPoint lab, though, it became clear that its new system could offer customers more savings and choices, while also making the complexity of deregulation easier to manage.

Combined with competition, the new grid may encourage an array of innovation, from products such as prepaid debit-type cards for electricity to sensors that alert you to appliances or lights left on when you leave the house.

“The promise lies in the new products that can come out of that,” Braden said.

One of the important foundations of a smart grid is the interoperability that enables all of these different devices, technologies, and agents (producers, consumers, operators, etc.) to interact beneficially in the network. The GridWise Architecture Council (www.gridwiseac.org) works to promote interoperability principles to enable the transformation of the electric power network into a system that integrates markets and technology to enhance our socio-economic well-being and security. One of my GridWise Architecture Council colleagues, Rik Drummond, recently reported in the Smart Grid Newsletter that evidence from other industries indicates that interoperability generates tangible cost savings and intangible benefits amounting to 0.3 to 4 percent of industry revenues annually. In the electric power industry that could mean a net benefit of up to $12.6 billion per year.

These examples all illustrate the potential value of thinking differently about how to address service reliability and security concerns. Not only are bits cheaper than iron; they can also deliver robust reliability and product differentiation benefits to consumers through information transparency and the interaction of interoperable technology and pricing.


13 thoughts on “Blackouts, Smart Grids, and Interoperability

  1. Yes, but just imagine how much easier reliability will be to achieve when high availability sources of generation are supplemented or replaced by intermittent sources of generation, such as solar and wind. Piece of cake!

    The technology exists, as you have pointed out, to provide customers with the information they need to make economic decisions regarding power consumption timing. The key is offering customers a high enough percentage of the real savings which would result from their load shifting to motivate them to do the load shifting. This has been the major shortcoming of almost all such programs to date.

    In the extreme, if the real savings are not greater than the perceived cost of the inconvenience to the customer, the load shifting will not occur voluntarily.

  2. The report above *understates* the problem. Because my daughter is entering NYU in the Fall, I was checking this morning to make sure I had my travel plans correct. They had an alarm on the front page:

    Thursday, June 28, 2007, 5:30 pm
    Power has been restored to the Fairchild Building. Based on our conversations with Con Edison, we expect normal power operations at the building tomorrow. All employees should report as usual, and operations and activities should go forward as scheduled.

    This means that this building, at least, was down all of Thursday.

    There is no clear publicly accessible information on the health of the Grid. Most people never know what other people are facing problems. There is silence on every incident that is less than a full crisis.

    I live near the main highway, halfway between a major research University and a nuclear plant. Almost never do three weeks go by when I do not find “12:00 flashing” when I get home at least once. I an never notified. An email saying “We apologize, but a truck ran into a pole in Siler City?” Nope. Today’s grid does not offer reliability as a service. When there is an outage, for most people, in most places, the response was “and we did nit charge you for power used during the outage.”

    Instead we get claims that everything’s good. We need open interfaces to allow 3rd party auditing of power quality. Unitl we do, we will not recongize the actual crisis of power we are experiencing.

    The current power grid is managed under political, social, and regulatory structures that were established during the Big Government, Big Business, central management is best, social Turnerism of the 30’s.

    It may have been necessary.

    Today we have the technology, today we have the standards, today we have the on-line trading systems to let real markets develop, markets that offer reliability for sale, markets that interact with the business enterprise, markets that buy back power from their customers on days like Wednesday.

    We just need to commit to letting them grow.

  3. My neighbor, Toby, has different concerns about reliability than the typical regulatory commission, including North Carolina’s. Most regulators are concerned about cumulative outages of less than one hour per year (99.98% reliability). The outages he refers to here are mostly either momentary “reclosure events” or local outages resulting from vehicle accidents. My generator (located within 10 miles of his home on the same utility system) has operated for less than 20 minutes total in the last 2 years, over and above the weekly “exercise period”.

    The far larger issue here in hurricane / ice storm country is major facility damage which can interrupt power for days. That is why my emergency generator was installed.

    I suspect some electric utilities would be interested in selling reliability of the type Toby is concerned about, but I suspect very few customers would be interested in buying it, both because of the extremely high cost and the relatively modest inconvenience associated with these outages.

    Systems which operate through “reclosure events” or other brief outages without any power interruption are typically used only by credit card processing facilities, regional air traffic control centers and other highly sensitive computer installations. They require the installation of an uninterruptible power supply through which all power consumed at the site flows; and, which has adequate battery storage capacity to carry the load until a generator starts and comes on line.

    The emergency power systems used by most businesses, hospitals, etc. start on power interruption and operate through the interruption until the grid power returns and is stable for some pre-determined period. Many businesses also use small UPS systems for computers, to avoid data loss and the economic costs associated with that loss.

  4. My neighbor, Toby, has different concerns about reliability than the typical regulatory commission, including North Carolina’s. Most regulators are concerned about cumulative outages of less than one hour per year (99.98% reliability). The outages he refers to here are mostly either momentary “reclosure events” or local outages resulting from vehicle accidents. My generator (located within 10 miles of his home on the same utility system) has operated for less than 20 minutes total in the last 2 years, over and above the weekly “exercise period”.

    The far larger issue here in hurricane / ice storm country is major facility damage which can interrupt power for days. That is why my emergency generator was installed.

    I suspect some electric utilities would be interested in selling reliability of the type Toby is concerned about, but I suspect very few customers would be interested in buying it, both because of the extremely high cost and the relatively modest inconvenience associated with these outages.

    Systems which operate through “reclosure events” or other brief outages without any power interruption are typically used only by credit card processing facilities, regional air traffic control centers and other highly sensitive computer installations. They require the installation of an uninterruptible power supply through which all power consumed at the site flows; and, which has adequate battery storage capacity to carry the load until a generator starts and comes on line.

    The emergency power systems used by most businesses, hospitals, etc. start on power interruption and operate through the interruption until the grid power returns and is stable for some pre-determined period. Many businesses also use small UPS systems for computers, to avoid data loss and the economic costs associated with that loss.

  5. My neighbor, Toby, has different concerns about reliability than the typical regulatory commission, including North Carolina’s. Most regulators are concerned about cumulative outages of less than one hour per year (99.98% reliability). The outages he refers to here are mostly either momentary “reclosure events” or local outages resulting from vehicle accidents. My generator (located within 10 miles of his home on the same utility system) has operated for less than 20 minutes total in the last 2 years, over and above the weekly “exercise period”.

    The far larger issue here in hurricane / ice storm country is major facility damage which can interrupt power for days. That is why my emergency generator was installed.

    I suspect some electric utilities would be interested in selling reliability of the type Toby is concerned about, but I suspect very few customers would be interested in buying it, both because of the extremely high cost and the relatively modest inconvenience associated with these outages.

    Systems which operate through “reclosure events” or other brief outages without any power interruption are typically used only by credit card processing facilities, regional air traffic control centers and other highly sensitive computer installations. They require the installation of an uninterruptible power supply through which all power consumed at the site flows; and, which has adequate battery storage capacity to carry the load until a generator starts and comes on line.

    The emergency power systems used by most businesses, hospitals, etc. start on power interruption and operate through the interruption until the grid power returns and is stable for some pre-determined period. Many businesses also use small UPS systems for computers, to avoid data loss and the economic costs associated with that loss.

  6. Ed is clearly knowledgeable about the current grid, but let me re-phrase this.

    “The quality you seek is not what the Utilities Commission – be content with what they have decided is good quality. The current architecture is not really able to give you the power modern electronic systems expect. If we do things the same old way, it will be too expensive to fix. It will only be offered if state commissioners decide there is a market for it.”

    I could not possibly have made a better case for market change, for de-regulation, and for the benefits of switching to a market that offers incentives for innovation.

  7. Ed is clearly knowledgeable about the current grid, but let me re-phrase this.

    “The quality you seek is not what the Utilities Commission – be content with what they have decided is good quality. The current architecture is not really able to give you the power modern electronic systems expect. If we do things the same old way, it will be too expensive to fix. It will only be offered if state commissioners decide there is a market for it.”

    I could not possibly have made a better case for market change, for de-regulation, and for the benefits of switching to a market that offers incentives for innovation.

  8. Toby,

    No argument from me on the last sentence.

    However, the reliability you seek is available to you independently, should you choose to purchase and install the equipment. If enough other residential customers become interested in that level of reliability, the market will offer it as a service. That is the case already for the customer groups I mentioned above, which have a real need and a solid economic justification for that level of reliability.

    Serving all of your computers and digital clocks through UPS systems will get you there, probably for about $500-1000. The question is whether it is that important to you.

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