Smart Grid: A transformative vision


By Wanda K. Reder, chair, IEEE Smart Grid Taskforce

Wanda K. Reder, chair, IEEE Smart Grid Taskforce

The U.S. economy is healthier today than it has been in recent years, and it is now time to position the country for prosperity. One of the most promising opportunities we have to further bolster the country's economic vitality is to push ahead with electric grid modernization investments that bring the smart grid to reality.

The smart grid vision is a transformative one. The smart grid will improve the overall performance of the grid, reduce carbon emissions, facilitate widespread use of electric vehicles and help create a more vibrant economy and improved way of life. The smart grid will deliver many economic and lifestyle impacts, and some key challenges must be overcome before fully implementing this vision. 

A changing energy consumption dynamic

Consumer loads and customer expectations have changed substantially in recent years. We're now in a digital society and the consumer electronics category already represents one of the largest single sources of domestic electricity consumption in developed regions. Furthermore, it is well understood that electricity consumption by digital devices in the residential sector will increase significantly in the coming years.  

With more and more electronic products driving electricity demand, more consumers will expect uninterrupted power availability and near-perfect power quality. More commercial businesses, including those that are home-based, will need electric service assurances in order to fully operate and compete. Excluding rare events such as extreme storms like Hurricane Sandy, electric service outages for a typical customer, depending on where they live, range from 90 to 214 minutes or more per year. The industry must accommodate the need for increased electrical reliability to support consumers' digital lifestyles and ensure the economic viability of the country's businesses that are heavily dependent on computers and information technologies.

The shape of the load has also changed substantially, due in large part to the increasing penetration of air conditioners that create occasional but severe peak loads. Utilities have deployed additional, centralized generation along with the necessary transmission and distribution facilities to accommodate these conditions but the strategy is costly because peaks typically occur less than one percent of the time yearly. The industry must find ways to accommodate load growth and deal with peak conditions without building capital-intensive infrastructure that is used so infrequently. 

Integrating intelligence into end-use devices is key to unleashing demand response in a meaningful way.

Centralized generation is also inefficient because approximately 15 percent of power transmitted today is lost as it travels across the grid from generation to the end-use. These losses are in addition to the losses that occur during the generation process. Combined, the losses associated with electricity generation and delivery are staggering. For example, when a home consumes 1 kWh of electricity, 3.4 kWh are used to generate and distribute it, according to the U.S. Department of Energy. Losses of this magnitude exacerbate the costs to supply power centrally to meet peaking condition.  

The inefficiency of centralized asset utilization in the U.S. has been characterized recently in a study by Paul Centolella, published by, which found that the average electric generation capacity factor has been below 50 percent since 2002. According to Centolella, many transmission and distribution facilities have even lower average utilization rates. These rates are well below the average rates of other capital-intensive industries, which generally exceed 75 percent.

"As the power industry heads into another major investment cycle, its failure to use its capital assets efficiently is a major challenge it must tackle," Centolella warned in an article for

Smart grid solutions

There is relief in sight, however. The smart grid will introduce transformative technologies and services to meet these very important market needs. The smart grid will improve customer power reliability and power quality by employing network-connected sensors throughout the grid to anticipate and respond to outages in real time nearly instantly. Smart grid technologies will substantially minimize the number and duration of outages so services will be more robust and available.

The smart grid also holds the potential to move the industry away from the centralized infrastructure model. It will augment existing capacity with distributed solutions based on resources such as solar or wind power, combined with battery storage, to meet local power needs and alleviate peak loads.  Because distributed generation is located close to the customer, it reduces the electrical losses that are inherent with distributing power from centralized generation infrastructure.

This not only reduces costs but also can be used to support utilities' and customers' environmental sustainability objectives. Smart grid technologies enable customers to interconnect their own distributed generation, such as rooftop solar panels, to the system and sell their excess capacity back to their local utilities.

With smart grid, customers may become active partners in grid utilization and management by employing smart meter and home automation technologies -- or even smartphone applications. These tools are being developed to allow appliances to operate in conjunction with grid needs and enable customers to more actively participate in demand response programs that help shift their demand off-peak or reduce their energy costs.  

Intelligent automation of demand response

Integrating intelligence into end-use devices is key to unleashing demand response in a meaningful way.  Research has found that there is often not enough difference between the cost for peak- and off-peak power to really capture the consumer's attention and create significant behavior change. The industry needs to devise ways to incorporate automatic end-use-load participation into the business model so customers are not bothered by these programs and decisions, and so their lifestyles are not inconvenienced.

Achieving customer engagement in the selection and configuration of electricity services represents a paradigm shift in the industry, which has traditionally delivered services without interacting deeply with the customer base. Greater customer participation is a fundamental part of reforming the system.  It will help utilities achieve their energy-efficiency objectives and lead to better decision making and lower costs for both the utility and customer. Embedded intelligence is needed, however, so consumers do not have to be in the middle of every demand-response decision.

Real cost savings for typical households

According to a 2012 Perfect Power Institute report, there is a real business case for empowering consumers, communities and utilities to invest in smart grid projects.

The Institute reported that consumers could realize financial benefits that exceed the investment costs by a factor of three or more if they, along with local governments and innovators, are engaged as partners in grid modernization. The Institute estimates the potential benefits of investments to be about $1,200 per year for a typical household while the costs are an estimated $400 per year per household.

The Institute noted that the estimated benefits would be even higher if the impact on public health, safety and security could be precisely quantified and included. It spread the investment costs across three main grid categories: power supply, power delivery and end-use consumption. The greatest investments would be made at the consumption level. End-use investments would include local clean power supplies, smart meters and home automation.

Extending smart grid's services and benefits to all markets

The 2009 American Recovery and Reinvestment Act (ARRA) was a significant, recent investment in advancing smart grid technologies; however, it is only the very beginning of a long journey ahead.  The purpose of the ARRA was to start a grid modernization movement by funding smart grid pilot and demonstration projects.  ARRA provided $3.4 billion in federal stimulus monies, which were matched with $4.6 billion in private funding, to support 99 projects that are deploying smart grid technologies, tools, and techniques for electric transmission, distribution, advanced metering, and customer systems.

The ARRA projects and funding have helped the industry expedite the adaptation and use of smart grid technologies and opened peoples' minds to the promise of smart grid. In light of the industry's traditionally conservative character, it has accomplished these very important milestones much faster than it would have without this impetus.

While these projects represent notable progress, much more must be done to bring smart grid to fruition. The industry's challenge now is to continue the grid modernization movement by scaling the deployments to more markets and connecting the various components together to fully enable smart and interactive services.

This will require substantial financial investment, because the industry still operates with many infrastructure components and systems that should have been replaced years ago and much of this must be upgraded as the industry moves to smart grid. In fact, the Electric Power Research Institute (EPRI) has suggested that by the year 2030, the electric utility industry in the U.S. will need to invest between $338 and $476 billion to modernize the country's grid. Research from the Brattle Group has suggested that grid modernization will require transmission and distribution infrastructure investments amounting to $880 billion through 2030.

Changing regulations to allow grid modernization

While the industry must unleash the needed funding to pave the way for modernization of the grid, the regulatory environment, which was not designed to handle the investment conditions introduced by smart grid, currently stands in the way of this work.

For example, the economic benefits expected from consumers' adaptation to smart grid technologies and participation are achievable only if market reforms are adopted to empower consumers to benefit from their actions and realize revenue from grid services. 

Furthermore, the least-cost framework that has traditionally formed the basis of utility investment regulations is a barrier to many smart grid innovations. As the industry moves to smart grid, least-cost policies will become less relevant and regulations will have to adjust to encapsulate the overall value that technology or services.  Such elements as the environmental benefits, loss avoidance, increased system utilization and consumer costs avoided as a result of mitigating outages need to be factored into the analysis to support related electrical system investments.

Call for action

It is time for the industry to find solutions to these modernization issues and for local governments to adapt their policies accordingly so motivated utilities can forge ahead with strategies to realize smart grid's promise.

Local governments must become partners to advance market reform, develop policies that enable grid investments, specify local needs and coordinate infrastructure projects. It is important that consumers, local government officials, entrepreneurs and system operators collaborate to initiate the changes necessary to realize fully the potential benefits.

The vision of a better performing and environmentally responsible power supply that provides economic benefits to consumers and businesses is a realistic one and can be achieved if all participants in this new industry and ecosystem work together.  By working together to push ahead with electric grid modernization, participants will also play vital roles in helping build a more vibrant and prosperous national economy. 

About the Author
Wanda Reder is Chair of IEEE Smart Grid Taskforce, and Vice President of Power Systems Services, S&C Electric Company, Chicago. She is also past President of the IEEE Power & Energy Society, an IEEE Fellow, and has served on the IEEE Women In Engineering Governing Committee. Ms. Reder serves on the DOE Electricity Advisory Committee, and was appointed by Secretary Chu to be Chair of the Smart Grid Sub-Committee.