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Study Points to Business Case for Modern Grid
By Steve Pullins
Feb 20, 2007 - 4:49:00 PM

My last column explored the Metricsof a modern grid. This month, I will focus on the San Diego Smart Grid Study commissioned by the Energy Policy Initiatives Center (EPIC) at the University of San Diego, and co-sponsored by the Utility Consumer Action Network (UCAN) and San Diego Gas & Electric (SDG&E).

The nation's first?

As far as I know, the San Diego Smart Grid Study was the first to examine a “smart grid” strategy for a region and to demonstrate adequate benefits to justify modernization. From its beginning, this study applied the concepts of the NETL Modern Grid Initiative.

The study brought forth three key findings:

  1. Economic, technological, and regulatory trends in the San Diego region will create a desirable climate for implementation of a Smart Grid.
  2. Twenty-six technologies could be implemented to advance the current electric grid toward a smarter, more modern system.
  3. A preliminary cost-benefit analysis suggests that Smart Grid benefits adequately exceed the initial installation costs and cover the ongoing operation and maintenance costs.

An important aspect of the study was a look into the future of the San Diego region.  The Study determined the "Future Probable State" of San Diego as including a very aggressive economy, a strong move to environmentally-friendly policy, and a broad acceptance of “high tech” in virtually every aspect of life.  It would be hard to imagine that kind of 21st-Century region functioning on the back of a 20th-Century grid.

Integration of several technologies

As we have discussed here before, the crucial aspect of grid modernization is not the individual technologies, but their integration. The region's existing transmission and distribution grid includes some advanced technologies and SDG&E was already planning to implement others. Even so, the project team identified 26 key technologies for modernization. The study then pared those down to a more manageable 13, as listed below:

  1. Distributed series impedance devices with embedded sensors
  2. I-Grid monitoring system
  3. Consumer Portal
  4. Ethernet over Fiber
  5. 4G WiMAX Fixed Private Wireless
  6. Zigbee / WiMedia / WiFi Wireless
  7. Semi-autonomous Agents
  8. Advanced Visualization
  9. DER-based Microgrids
  10. Advanced Energy Storage Systems
  11. Advanced Grid Control Devices
  12. Agent and Multi-Agent Systems
  13. Distribution (Feeder) Automation

Is there a payback for a Smart Grid?

No doubt, the business case for a Smart Grid is arguable. What is the basis of the argument?  The study revealed that making a business case has less to do with the cost of technologies and integration, and more to do with what is within a rate case.  It’s disappointing that the "traditional" practices of regulators and utilities can stand in the way of engineered solutions that benefit society.

Traditionally, only system improvement benefits can be included in the rates, not societal benefits. Note that this is "by tradition" not “by rule.” The mission of a utility commission is to serve the public (society), so societal benefits should theoretically be at the top of the list. But that has not been the case in the past.

Societal benefits include such things as reduced business losses due to outages and power quality issues. System benefits include such things as reduced peak demand. If you combine the two the business case becomes much more compelling, as shown in the table below from the San Diego Smart Grid Study:

System Benefits (20 years)

$1,433M

Societal Benefits (20 years)

$1,396M

Total Benefits

$2,829M

Total Benefits/Year

$141M

Total Capital Cost

$490M

Annual O&M Cost

$24M

While not the typical 3-year payback sought by industry and regulators, it is still compelling considering our electric system is based on technology decisions with a 20-40 year horizon.

The Bottom Line

The truth is, there can be no modernization of the grid without a business case to justify it.  Today’s traditions (not rules) have us in a “Catch-22.”  There is a compelling business case... but we're not allowed to use it. As long as regulators look only for short-term benefits – and only benefits to the system itself—the industry will not be allowed to justify long-term capital improvements with long-term societal benefits.

Next month, we will discuss the need for alignment of the many national organizations working on the nation’s grid issues.

   San Diego Smart Grid Report (PDF)

   Steve’s previous column on Metrics

   Email Steve Pullins

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