All Politics is Local-and So is the Smart Grid
- Written by Thomas Bourgeois and William Pentland
Over the years, electric utilities have piloted prodigious numbers of promising technologies, and yet they have deployed only a precious few. Many more technologies are ready for prime-time today but utilities and regulators will only adopt them if they are shown to be locally advantageous.
The proliferation of local, state and federal policies promoting non-conventional energy resources—ranging from renewable energy to energy efficiency—will require a tectonic shift in the basic mechanics of today’s electric-power grid. Despite the scale of change required, only a small number of electric utilities have begun deploying the platforms needed to accommodate these new resources.
So what's holding things up?
At least one of the culprits is likely to be reliance on an overly abstract business case for deploying the smart grid. The case for adopting smart grid technologies cannot be divorced from the regulatory and business objectives they serve; especially for technologies tailored to the distribution grid.
The smart grid will succeed by selling specific solutions to specific problems affecting specific stakeholders in specific places. A winning argument in California may fall flat in South Carolina. Make no mistake about it—selling the smart grid is every bit as local as winning political elections.
Failure to recognize that rudimentary fact explains why so many—if not most—of our smart grid technologies have been sitting on the sidelines, waiting impatiently to be called into the game.
Consider the "Compendium of Smart Grid Technologies" compiled by the U.S. Department of Energy’s National Energy Technology Laboratory. The vast majority of technologies included in the compendium, which range from early-stage research to mature applications, are commercially available and, in many cases, have been so for several years. And yet few have been put to use, and fewer still adopted to best effect in integrated fashion.
Steven Pullins, president of Houston’s Horizon Energy and former director of the Modern Grid Initiative at NETL, described this phenomenon as "pilot-itis."
When we survey the industry for technology penetration, we find a sad picture…Many solo pilots, but little evidence of integrated advanced technologies. The reasons are simple and clear. Deploying new technologies is a risk that utilities and regulators are not willing to shoulder alone.
Two recent industry surveys describe the syndrome. In March, Microsoft reported that only 8 percent of utilities have "completely adopted" smart grid deployments. In its annual "Worldwide Utility Industry Survey" 31 percent said "plans are in place, but not started" and 24 percent said they had "not yet started."
Average retail electricity rates have risen roughly 50 percent over the past 10 years. In most states, regulators are unwilling to endorse large-scale investments requiring additional rate increases unless utilities can provide a clear and compelling explanation of the need for these investments, lack of lower-cost alternatives and associated benefits likely to result for ratepayers.
New York City, where Consolidated Edison has significantly ratcheted up T&D infrastructure significantly in recent years, provides a cautionary tale. Con Edison has spent considerable amounts of money on automated distribution feeders and related communications and control systems, generally considered to be smart grid technologies. But the high capital expenditures have led to rate increases and created considerable problems for Con Edison, leaving the company chastened, as detailed in a 2009 management audit:
5 percent rate increase in the 2008 rate decision included a 9.1 percent return on equity and some capital expenditure disallowances. Wall Street…reacted by dropping [Con Edison's] stock price to the lowest among peers... [and its] credit rating [was] reduced... With [its] asset base growing at close to 10 percent per year, annual rate increases of substantially more than 5 percent would be required to ensure long-term access to market funding.
Given the adverse consequences of higher retail electricity prices, Con Edison has pushed the New York State Public Service Commission (PSC) to steer clear of any smart grid investments or programs that could result in rate increases.
Last year, Con Edison filed comments with the PSC regarding smart grid regulatory policies in New York, which stated:
While the end-state vision is an exciting one, the public debate on smart grid has gotten ahead of itself. The cost of the smart grid may at times be underestimated as not all the infrastructure investments required are fully recognized, and, further, there is no clear understanding of what benefits are realizable today and which rely on enabling technology not yet developed or available today or that may require adjustments to regulatory and rate structures in order to provide effective incentives and achieve desired benefits.
In other words, let's wait and see what happens—consistent with the attitude expressed by nearly one-third of the utility executives that responded to the Oracle survey mentioned previously.
Utilities employ armies of seasoned engineers who are capable, if directed, of designing, developing and deploying innovative solutions to problems they are asked to address. It is likely, however, that decisions as to what technical problems are addressed, what technologies are deployed, what is requested in capital budgets, what features are augmented or bolstered and which are ignored, all will be driven in large measure by where the utilities sense the net return to their organization is maximized. If patching the system with investments that preserve the distribution system of the past provides a greater return, it seems unlikely that large-scale investments will be made in creating a whole new suite of attributes that facilitate the distribution system of the future.