What are the environmental benefits of the Smart Grid?

        Energy efficiency – Increased asset utilization made possible by smarter energy management means more efficient power plant operation and fewer peaking units.  Utilities stand to benefit from a higher rate of return on capital investment and lower costs.

        Delaying new power plants and transmission lines – The ability to effectively manage load with existing T&D infrastructure means that utilities no longer have to build infrastructure for the peak hours of the year.  This could allow utilities to delay additional investments into new transmission lines and generation facilities.

        Distributed generation – The ability to dynamically manage all sources of power on the grid means that more distributed generation can be integrated with the grid.  While not all distributed generation is clean or efficient, the possibility for distributed solar and wind power is important.  This would benefit utilities in managing distributed generation as well as firms that would benefit from improved reliability.

        Mass-scale renewables – According to the European Wind Energy Association (EWEA) Integrating wind or solar power into the grid at levels higher than 20% will require advanced energy management techniques.  These include load curtailment, demand response, and energy storage.  The EWEA recently published a report recommending the use of demand response as a natural tool for managing variability in wind resources.  This is a key message for wind and solar producers, as it increases the size of their potential market.

        Clean power market – The ability to stabilize the power consumption over time for an area using demand response will make it easier to establish a power market.  Clean power sources will be able to participate in the market even though they may have a stochastic energy output.  This is a benefit to clean power producers.

        Consumer incentive for conservation – With the rollout of advanced metering and real-time pricing customers will finally see the economic incentives for reducing power consumption.

        Support for PHEVs and V2G – The Smart Grid is a necessity for enabling the next generation of automotive vehicles.  The lack of an integrated communications infrastructure with corresponding price signals will make it difficult to handle the increased load of plug-in hybrids and electric vehicles.  Smart chargers, time-of-use rates, and advanced meters will be key players, helping to manage a very complex control problem on already constrained grids, especially in places such as California.  Car manufacturers will benefit from having an integrated, simple charging solution for customers with electric cars.

        Support for more intelligent appliances at the demand-side – A Smart Grid means intelligent appliances.  The Grid-friendly appliances program from Pacific Northwest National Laboratory gives appliances the ability to sense grid stress and reduce their power use to prevent grid emergencies.  Appliance manufacturers will be able to market grid-friendly appliances for a premium to consumers.

        Demand Response for Managing Air Pollution – Part of the problem of urban air pollution is that it follows “peak hour” patterns, in many areas exceeding EPA’s allowable levels only for a few days or hours during the year.  Levels of ozone and particulate matter sometimes reach levels that are harmful to human health.  These peaks often correspond with high electricity use, which is a prominent cause of urban air pollution in many places.  In the North East, ISO NE estimates projects that their peak electricity demand will increase by 13-20% between 2009 and 2015.  In addition to the use of demand response for the control of peak load, some organizations in New England have looked at the possibility of using demand response to reduce emissions for the purpose of improving public health.  This will become increasingly important as more states adopt stricter air emissions standards, mimicking California’s model.  Utilities could use this as an opportunity to build partnerships with environmental protection agencies and air quality management districts, which represent the interests of clean air.

        Advanced metering as a method of calculating environmental footprints – Utilities have the opportunity to dynamically present electricity use alongside with carbon emissions that result from them.  Utilities that want to promote their “green electricity” programs can use this to reach environmentally conscious consumers.  Recently, E.on utilitity subsidiaries in Louisville became the first utiliites in North America to add a customer's carbon cost to their utility bill. Organizations and individuals can use this to help assess their progress towards their greenhouse gas emissions goals.

Why are environmental benefits not included in Smart Grid dicussions?

Environmental benefits are usually only mentioned in passing in Smart Grid documents.  The dimensions of a Smart Grid’s environmental benefits tend to make them difficult to quantify.  Perhaps because:

        The benefits occur outside the organizational scope of the firm that implemented the program

        The benefits are overshadowed by the economic case

        The benefits do not accrue to a single organization

        Environmental benefits occur over long periods of time

        Environmental benefits tend to occur due to avoided emissions or offset impacts, which are not often quantified

The last point—that environmental benefits are often dispersed and therefore not immediately tangible—seems especially relevant.  Unfortunately, this trend also extends to some of the other kinds of benefits of smart grid technologies.   In other words, the modern grid as a concept suffers from high “transaction costs.”  Transaction costs in this sense can be placed in the context of the economist Ronald Coase’s theory: that a highly dispersed set of downstream beneficiaries will have trouble overcoming the transaction costs to build the case for what would otherwise be an economically efficient solution.

Collecting these stakeholders is a difficult task.  Smart grid stakeholders, therefore, need to make a clear case for the environmental benefits of their technologies, and appropriately identify and approach the beneficiaries.  A recent paper by Resources for the Future notes the potential financial importance of cataloguing the carbon emissions offset by the implementation of renewable technologies.  The paper estimates net losses to the power sector from carbon emissions legislation could be as high as $9 billion.  Given the high value of carbon credits, keeping track of emissions reductions and investments that enable emissions reductions will hold an important financial incentive.  The environmental benefits for smart grid technologies do not often come out of the direct use of the technologies, but out of programs that creatively utilize technologies, or through programs and resources enabled by the availability of a modern grid.

For those interested in additional information regarding the environmental benefits of a Smart Grid, please see the resources below.

Alex Zheng is a graduate student of Civil and Environmental Engineering at Stanford University and also consults to utilities and national laboratories as part of Horizon Energy Group.

 

      Email Alex Zheng

Poised for Profit II: Prospects for the Smart Energy Sector in the Pacific Northwest.

Climate Solutions.  November 2003.

Compensation Rules for Climate Policy in the Electricity Sector

D. Burtraw and K. Palmer.  Resources for the future.

Large Scale Integration of Wind Energy in the European Power Supply: analysis, issues, and recommendations

European Wind Energy Association.  December 2005.

Environmental Issues in Electricity Demand Response

N. Seidman et al.  Presented at the New England Demand Response Initiative (July 2002).  EPA.

Quick Reference for the Coase Theorem

W. A. Edmundson.  Georgia State University, College of Law.

San Diego Smart Grid Study: Final Report

Energy Policy Initiatives Center.  University of San Diego School of Law.  October 2006.

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