Why Interoperable Grid Software Will Pay for Itself

Can we use studies from other industries to estimate the payback of wide-scale interoperability in the North American power grid?  Such an investigation can be meaningful if one is careful to align the studies. My firm recently used three studies to estimate the value of grid interoperability. Two are from the National Institute for Standards and Technologies (NIST) and one from RAND Corporation.

The full white paper (see link below), explains our methods and conclusions. In brief, we found that all three studies had tangible cost savings in the same range. In addition, all three studies predicted sizeable intangible benefits. The table below shows the low and high payback range from each of the three studies.

Study Comparison
Cost savings or avoided construction
	RAND Study		NIST Testing		NIST Interop
	Low	High	Low	High	Low	High
As % of revenue	0.34%	1.42%	0.19%	0.49%	n/a	4.2%
Dollar amount	$1.02B	$4.26B	$0.57B	$1.47B	na	$12.6B

Thus we conclude that a grid interoperability program will have the same or more tangible benefits as the program examined in the RAND study.

The RAND study was of an innovative consumer ‘demand response’ infrastructure that would require interoperability to accomplish its goal. The RAND study showed an annual high savings of $4.26B billion (on a revenue stream of about $350B).  Meanwhile, a NIST testing infrastructure study had a “found high” of $1.47B and an “expert projected intuitive high” of almost $3B. A NIST study on solving interoperability issues showed high savings, approximately 3 times that for implementing the ‘demand response’ program – a savings of $12.6B.

Consequently the conclusions are two from this comparison:

1) Interoperability programs for the North American Electric Power grid would have the same or higher range of the GridWise ‘demand response’ program from the RAND study.

2) Failure to ensure hardware and software interoperability would significantly reduce the payback of that ‘demand response’ program (just as it has in the other industries studied by NIST).

Obviously, we are dealing in ranges, not hard and fast numbers. The only way to more precisely estimate the savings is to do a study specific to the grid environment. Because of differing business processes, software and markets, an analysis across industries is always somewhat nebulous.

Yet after spending significant time analyzing these studies, I believe the comparison is valid. A well-orchestrated grid interoperability program could save up to 4% of revenues, or roughly $12.6B per year.

   Drummond Group web site

   SGN Hosted White Paper on Interoperability, by Rik Drummond (PDF)

Rik Drummond is the CEO of Drummond Group Inc., an interoperability software testing and consulting company, and the past Chair of the GridWise Architecture Council.