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By Christina Haddad

 

Smart grid initiatives are taking place all over the world that are utilizing advanced technologies in order to optimize the performance of the power system to the benefit of consumers and society at large, as well as utilities. Does the industry have a good understanding of the benefits and costs of putting smart grid technologies in place, and what is the potential return on investment?

 

Understanding the costs and benefits of smart grid applications requires an in-depth assessment of the technical and commercial performance of technology as well as the interoperable networks that support them. A report jointly funded by the Department of Energy and Electric Power Research Institute (EPRI) entitled, “Methodological Approach for Estimating the Benefits and Costs of Smart Grid Demonstration Projects (EPRI 1020342),” provides a framework for estimating benefits and costs associated with Smart Grid projects. EPRI is currently developing a guidebook that expands on this report and will function as a manual for the practical application of cost/benefit analysis.

 

The guidebook highlights five major steps for performing a cost/benefit analysis:

 

Step 1: Define the research problem

The first step in the cost/benefit analysis process is to define the research problem or opportunity that prompted the project. This statement will define the project goals and objectives and specify what needs to be measured for their achievement.  

 

Step 2: Identify technology to be deployed

Identifying the functions needed inform the selection of technologies that can be deployed to provide those functions.  

 

Step 3: Develop a research plan and measurement and verification protocols

Developing a detailed research plan is the pivotal step in the process. The research plan should incorporate the following:

 

• Establish the baseline – What would have resulted, if the experimental treatment had not been applied?
• Specify the experimental design – How will the technology be operated to isolate its impact from other influences? How will its performance be measured? What other factors might affect performance or need to be tracked?
• Measurement and verification protocols – Identify performance metrics for both the baseline and the experimental treatment.

Step 4: Measure project benefits and costs

The steps involve calculating project impacts by beneficiary group, converting physical impacts to monetary values, and identifying functions that create benefits for multiple stakeholders. It is important to ensure that all benefits are properly accounted for, and to avoid double counting benefits when calculating total benefits across all groups. 

 

Step 5: Perform a cost/benefit analysis and communicate results

Ultimately, great value can be extracted from the demonstrations by aggregating the results to understand the system-wide costs and benefits of smart grids around the world. Communicating results to all beneficiaries will also facilitate wide-scale understanding of smart grid technology.

 

To maximize learning opportunities from smart grid demonstration projects, the cost/benefit analysis should ensure: 

• Transferability of results -  Projects, individually as well as part of a larger portfolio, should produce results that can be extrapolated to other technical and market circumstances
• Advancing the understanding of where, how, and why smart grid technologies perform as they do
• Smart grid technologies are deployed in a manner that maximizes benefits to consumers, utilities, and society

For these goals to be achieved, the methodology must be credible and sufficiently detailed to allow independent verification by others.

 

Christina Haddad is a technical research assistant with the Electric Power Research Institute.

 

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