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When Smart Grid Investments Are Justified: It’s all About Customers, Location, Integration, and Optimization

Electric utility companies and customers from around the world are realizing there are certain conditions that need to be met before the benefits from investing in smart grid are fully realized.

Big data, computers, and analytic software have rapidly expanded and altered the clean energy space.  Distributed energy resources (DERs) – energy efficiency, demand response, distributed generation, plug-in vehicles, and smart grid assets – have been integrated and optimized to form the Smart Grid. In short, customers, utilities, and third parties can benefit substantially from the use of DERs to lower costs, increase reliability, and sustain power quality.

Critical to these efforts are the benefits, co-benefits, and optional markets that together will enable smart grid technology to move forward.  The three value buckets generally sought are customers, the distribution utility, and the bulk grid. However, the ultimate test for DERs is: When installed and used are overall grid costs reduced?  This is usually viewed from a utility perspective as the comparative revenue test, e.g. are overall revenues reduced, all other things being equal?  The benchmark comparison -- with DERs vs. without DERs -- must be well-defined to accurately capture the full benefits and costs.  In other words, what are the primary conditions that enable smart grid investments to be economically justified?

In the DER world customers are central as the use of most DERs, (with the exception of fixed effect energy efficiency), is dependent on customer use characteristics and preferences.  Consumer engagement is the general path to enable the adoption of DERs that will provide the greatest benefits. With large locational benefits, the ability to leverage consumer engagement becomes critical as specific DERs produce specific load curve changes that must be harnessed to again maximize benefits.

Customers will engage if they are 1) motivated, 2) trust the decisions they make will be positive, and 3) are offered the right incentives. For instance, are lower customer bills a priority, direct customer incentives, or possibly environmental benefits the trigger to engagement? Or maybe it’s a combination of factors?  In this new world of DERs, with substantially greater benefits, customers can be educated and coached to participate and help provide DER solutions.

The specific context for DERs is mostly about location; where does the grid need the load-curve adjusted to reduce total costs and increase benefits?  Grid economics are now looked at in reverse; not from the generator to the customer, but from the customer to the generator. Targeted customers may have many opportunities to alter their load curve, which is magnified with customer procurement strategies.

If a solution is needed at a customer transformer, the load curve adjustment is then more specific to that customer. And if the load curve adjustment is needed at the distribution substation, a larger number of customers can be targeted and aggregated to obtain the desired impact.  Will a distribution transformer be overloaded if new customer loads come online?  Power quality may also be degraded and then enhanced with DERs. What if just a few new plug-in vehicles (PEVs) charge at the same time on one residential circuit, even during what are otherwise off-peak distribution times?  Circuit overload may result and DERs can remedy this situation, sometimes as simply as cycling the PEV chargers or reducing coincident loads to avoid the local constraint.

DERs may defer distribution upgrades that otherwise manifest as conductor replacement (reconductoring), transformer replacement, transformer vault expansion, capacitor bank expansion, and the like.  Some planned-for distribution or transmission assets can be deferred by DERs and others may not.  In short, the locations of customers and grid assets are critically important and situation specific.  In some situations, DERs are excellent solutions, on others not so much.

Load curves can be altered more, and across longer time periods of time when DERs are combined.  Lighting energy efficiency, for example, impacts the load curve only when lighting is used.  When combined with smart-charging of PEVs the combined load curve covers a longer duration; likewise demand response can also be used when air-conditioner cycling; and so on... Ultimately, specific DERs may be ideal as a package in specific locations which in turn requires integration of particular DERs, including use, with grid operations.

The strategy here is to install and operate the right set of DERs to impact the load curve resulting in lower operating and capital costs.  In these ways, DERs need to be location specific, integrated, and ideally optimized to capture maximum benefits.      

In short, customers, utilities, and third parties can benefit substantially from the use of DERs to lower costs, increase reliability, and sustain power quality.  In summary, seven conditions that justify smart grid investments are as follows[i]:

  1. If customers engage – targeting and consumer engagement can be successful.
  2. If DERs defer capital costs – then major benefits are targeted and realized.
  3. If DERs are grid integrated – packages of DERs can be networked to maximize benefits and ensure reliability.
  4. If DERs lower overall costs – based on a well-benchmarked but-for case without DERs.
  5. If desired reliability is achieved – to ensure customer needs for power (at reasonable costs).
  6. If greater innovation results – from utility and third party creativity with DERs.
  7. If greater utility profits result – to ensure right-motivation, which may manifest as needed investments in public or nonprofit utilities. 

Ideally, DERs work seamlessly with both the electricity distribution and the bulk power grids. Smart meters, advanced electronic controls, sensors, and grid analytics will completely alter this world. Smart meters (advanced metering infrastructure or AMI) themselves provide a flood of new data on near-real-time power use (kWh), voltage, VAR (volts-amps-reactive), local power harmonics, frequency, and operations.  Like smart phones and personal devices, DERs also produce and operate intensive data.

Smart grid economics combined with existing and new scope-and-scale utility benefits provide the winning combination.

If you are attending DistribuTECH...

Register to Attend the Global Smart Grid Regulatory Business Briefing
This business briefing event is available on February 2, 2017 for qualified U.S. Companies

The U.S. Trade & Development Agency (USTDA) will be hosting a delegation of twenty utility and regulator representatives from nine emerging markets on a Reverse Trade Mission to the United States to attend the DistribuTECH Conference & Exhibition in San Diego, CA in January, 2017. These delegates are on the path to broader adoption of smart grid infrastructure and looking to better understand the various technologies and service companies that can help them to make informed investment decisions.

The Global Smart Grid Regulatory Business Briefing provides U.S. companies looking to expand their business abroad the ability to:

  • connect to opportunities in the represented emerging markets,
  • engage with top utility executives and regulators,
  • learn about new project opportunities.

This event is complimentary to qualified U.S. companies; however, registration is required so register now!

For more information, email Hank Kearney from PHM International, who is organizing this Reverse Trade Mission on behalf of the USTDA. 



[i] E. Woychik, Power Thinking: Seven Conditions Justify Smart Grid Investments, Public Utilities Fortnightly, January 2017, pp. 62-63.  

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