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Surprising Deployment Developments

The smart grid industry has had its ups and downs already: advances in smart meters followed closely by rising concerns over the security: innovative dynamic pricing rules accompanied by unexpected consumer backlash. Two recent developments, however, have been particularly startling.

It's probably generally assumed, at least unconsciously, that big investor-owned and public utilities would be first to adopt smart grid technologies. Surely, then, it's a surprise to some that rural electric cooperatives and a few municipal utilities have turned out to be among the earliest smart meter adopters.

Public Power Utilities Lead the Pack

In an industry where attention is often focused almost exclusively on investor-owned utilities and their flashy, large scale smart grid rollouts, one might think a smaller customer base and much smaller budgets would hold public power back. Instead, cooperatives are taking advantage of their smaller scale to deploy smart meters in a more personal and customer-focused manner emphasizing consumer education. With an average of only six customers a mile, they are also finding it easier to make a business case for advanced metering to avoid meter reading expenses and expensive truck rolls.

Public power utilities are not only leading the way in adopting smart grid technologies, but are also rapidly becoming innovators. Cooperatives have taken steps to develop new modes of interoperability and 30 percent of them are now integrating their smart meter systems with other data systems, such as outage management systems and customer information systems. The National Rural Electric Cooperative Association has launched a Cooperative Research Network that will deploy a ten-state smart grid pilot designed to inform interoperability and cybersecurity development.

Cooperatives currently lead smart meter deployment with 25 percent penetration of their customers' homes—three times higher than the average across all utilities, according to the Federal Energy Regulatory Commission (FERC). Half of all cooperatives offer their customers advanced metering infrastructure or advanced metering reading; together they generate 25 percent of U.S. residential peak load reductions, even though they only account for 10 percent of electricity sales.

Demand Response Growth Sluggish Despite Benefits

An equally startling trend has emerged in the latest release of FERC’s Assessment of Demand Response and Smart Metering: Use of dynamic pricing across the United States is currently flat or declining rather than growing, as just about every smart grid advocate has expected or predicted.

Despite an 85 percent increase in advanced metering over the past two years, the number of entities offering sophisticated pricing programs has decreased. There are 72 fewer entities offering Time of Use (TOU) Rates programs today than there were in 2008—which translates into 180,000 fewer consumers being offered TOU plans. The decrease in entities offering Real Time Pricing (RTP) is even more dramatic: In 2008, 85 entities offered RTP programs and within only two years this number has shrunk to 19. The pattern is evident not just among investor-owned utilities but among cooperatives as well, whose programs shrank drastically from 20 to only 2 in the same time period.

To the extent there is growth in dynamic pricing, the simpler types, such as Direct Load Control (DLC) and interruptible rates, seem to be leading the way. DLC programs—which remotely control appliances to balance load—have been the most popular demand response program since the 1960s and are poised for faster growth. California investor owned utilities have expanded programs in response to a California Public Utilities Commission directive that they implement DLC to support their smart grid business cases. A report from the current White House Grid Modernization initiative has recommended DLC as an alternative to smart meters because their communications requirements are simpler and cheaper.

Interruptible/curtailable rates programs, in which customers decrease their usage for incentives, have also experienced recent growth. Between 2008 and 2010, all but one NERC region experienced growth in interruptible/curtailable rates offered. The Southeast/Central (SERC) region alone had 22 new entities begin offering interruptible/curtailable rates during this time.

The overall decline in dynamic pricing is even more surprising considering recent reports that anticipate a large potential for demand reductions and financial benefits. An analysis by my Brattle Group colleague, Ahmad Faruqui, has shown that the benefits of dynamic pricing and smart meters—avoided meter reading costs, reduced generation capacity costs, declining electric usage, and carbon emissions reduction—could generate $56 billionin benefits by 2030. That number jumps to $66 billion when enabling technologies are added to the offerings. Yet display units that could contribute to this increase, such as two-way communicating thermostats in residential applications, are still rare. A majority of the customers with advanced metering still receive price signals over the Internet.

Evidence Supports Smart Meter Payoffs

While the benefits of smart meter and dynamic pricing are impressive and bolster a business case for smart grid deployments, they still must be weighed against their costs. Control of such costs and protection of investors and ratepayers is a top strategic planning issue for utilities.

A recent Brattle report for The Edison Foundation found that benefits of smart meters exceeded their costs, resulting in a net present value for U.S. investments ranging from $21 to $64 million over a 20 year period. The report modeled four prototype utilities using real world load shapes and varying characteristics for generation mix, capacity, transmission and distribution costs, and meter infrastructure. Net benefits were found for all four utility types and not just utilities whose current offerings and strategy predisposed them to take on smart grid investments. Finally, the study also found that the strategy with the greatest potential financial benefit to both utilities and customers is to accelerate the adoption of electric vehicles.

Taken together, the trends discussed here show that the smart grid is expanding and developing, even if the most successful entities and programs are surprising. More importantly, these trends illustrate the evolutionary nature of smart grid development. Arguments that the smart grid is moving too slowly underestimate the scale and complexity of rebuilding our entire grid. Utilities are tasked with deploying a complex series of infrastructure investments that must work in harmony with their current (already smart) systems, use innovative pricing that customers support, and produce a net benefit. Under these conditions, slow and steady wins the race. We can expect smart grid development to occur in stages over decades, ultimately transforming the power industry into a very different business.


About the Smart Grid Newsletter

A monthly publication, the IEEE Smart Grid Newsletter features practical and timely technical information and forward-looking commentary on smart grid developments and deployments around the world. Designed to foster greater understanding and collaboration between diverse stakeholders, the newsletter brings together experts, thought-leaders, and decision-makers to exchange information and discuss issues affecting the evolution of the smart grid.


Peter Fox-PennerPeter Fox-Penner is a consulting executive and internationally recognized authority on energy and electric power industry issues. Read more


Jeffrey KatzJeff Katz is the Chief Technology Officer of the Energy and Utilities industry at IBM and a member of the IBM Academy of Technology. Read more


Himanshu KhuranaHimanshu Khurana is the senior technical manager for the Integrated Security Technologies section at Honeywell Automation ... Read more


Amol BakshiAmol Bakshi is a Solution Architect in the Chevron Energy Technology Company, and a consultant to Chevron’s oilfield ... Read more


Viktor K. PrasannaViktor K. Prasanna is Charles Lee Powell Chair in Engineering in the Ming Hsieh Department of Electrical Engineering ... Read more