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The October 18, 2009 Issue Provided by System Dynamics Inc.
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Why the Smart Grid Matters

The SmartGrid will change your life--but don't hold your breath while it happens. That was the message we took away from the recent UTC Smart Grid Workshop in Atlanta.

Why should you know about the Smart Grid if your focus is broadband and communications technology and applications? Here are four reasons:

1. There is $3.6 billion in grant funding from the US Department of Energy (DOE) for SmartGrid - utilities will spend part of that on communications and networking equipment and services.

2. The National Institutes of Standards and Technology (NIST) has produced a report on SmartGrid Interoperability Standards which describes standards and specifications applicable to the Smart Grid. You should know whether standards you support are included or excluded from the list.

3. The SmartGrid will create new opportunities for innovative products and services.

4. As a consumer, the SmartGrid will increasingly influence your life, whether it is smart appliances, electric vehicles, or your utility bill.

To explain the emerging role of the Smart Grid, we'll tell you what a smart grid is, why it is relevant to the broadband home, why action is underway now, and what some of its impacts will be.

In a nutshell, the smart grid is the mechanism that is expected to balance the competing priorities of reliable electric service, reasonable cost and environmental sustainability by using information and communications technology combined with sensing, measurement and control. We last covered this topic two years ago in a report on a visit to a demo home where Oncor had installed smart meters, in-home displays and grid monitoring and control software.

The smart grid is intertwined with regulatory, political and geographical elements. A quick Google search shows that although our focus here is limited to the United States, many regions of the world are simultaneously addressing their aging power delivery infrastructures.

Utility Industry Culture

The utility industry has historically been very conservative and slow moving. They have viewed their fundamental obligation as "keeping the lights on". Since the industry is highly regulated, its primary focus has been on satisfying regulators rather than the needs of end users. The traditional regulatory system has had the effect of discouraging investment in innovative technologies. Compared to power utilities, telephone and cable company decision-making happens at lightning speed.

The utility industry is regulated by a complex structure of Federal and State agencies--the alphabet soup includes FERC, FCC, DOE, NTIA, NIST plus the US Congress and state governments, to name just some of the players. For the sake of simplicity, we won't attempt to describe all the organizations and their roles.

What Is a "Smart Grid"?

The "grid", or power grid, refers to the system through which electric energy is transmitted from its generation source to its eventual end users. The smart grid is the transformation of today's grid infrastructure from a centralized, producer-controlled network to one that is more distributed and consumer-interactive. Secure, two-way digital communications and information technology are used to exchange information and control this distributed network. (It's hard to get people to agree on the definition--if you put multiple experts together, you'll be hard pressed to find agreement on all its elements.)

The diagram below, from IBM, shows the transformation of today's grid to tomorrow's "smarter grid". Both the utility and the consumer will be able to generate electricity with wind and solar. Both will be able to store power for use at a later time; for the consumer, as we will see, electric vehicles promise to play a major role in energy storage. Information needs to flow between all the elements to coordinate the generation and consumption of energy.

Smarter Grids --> Click for larger picture

Expected benefits to be gained through smart grid implementation include:

  • improvements in grid reliability
  • reducing the need for new centralized generation
  • providing consumers with greater control over energy use and monthly bills
  • improved operational efficiency
  • improved quality of the environment

Why Now?

The smart grid is not a new idea, but many factors are now promoting more serious consideration of its implementation. These include:

  • The aging of the current grid and concerns about its ability to handle additional loads without building many more power plants.
  • The need for automated mechanisms to prevent a localized outage in one part of the grid from rapidly cascading into a massive regional outage (such as the Northeast Blackout in 2003, which affected 45 million people in Canada and the United States).
  • Recognition of the threats of global warming and environmental pollution, which are driving a push toward alternative "green" energy sources such as wind and sun.
  • The potential for locating new forms of power generation (such as wind and solar) and energy storage at the customer's home
  • $3.6 billion in grant funding from the Department of Energy (DOE) as part of the US economic stimulus.
  • Progress in creating practical electric vehicles (EVs), which will reduce dependence on diminishing oil supplies but will create substantial new demands on the grid that must be managed.

Of all these factors, EVs could be the most disruptive of the utility market. We'll say more about why shortly.

Why Is This Relevant to the Broadband Home?

The economic stimulus--The American Recovery and Reinvestment Act (ARRA)--not only set aside funding for energy related projects but also called for a national broadband plan to be developed by February 2010. One of its requirements is that it include a plan for the use of broadband infrastructure and services in promoting energy independence and efficiency.

Demand response is one of the most promising methods for enabling utility companies and their customers to reduce energy consumption. This method allows utility companies to directly control loads within the home or business to better manage demand, and to create price signals to encourage load shedding (reducing loads at peak usage times). In-home displays or web portals that let consumers see and manage their energy consumption are part of plans for equipment in the consumers' home.

To enable demand response, many electric-powered consumer appliances and systems--such as water heaters, clothes washers/dryers, air conditioners, and pool heaters--will be monitored and controlled by always-on two-way connections. This network of connected energy-consuming devices that can directly or indirectly control electricity usage at the appliance level is called a "home area network" (HAN) by the utility industry.

Many homes now have "home networks" for data communications; these local area networks (LANs) are also starting to be used for voice and video. Consumers have installed their own Ethernet or Wi-Fi LANs. Service providers (cable and telephone companies) are also installing LANs to support their video and data services. It would be natural to consider interconnecting the home LAN with the HAN, so the PCs in the house could view the thermostat readings and control the temperature setbacks.

Taking it the next step, a consumer might want to cool the house before they return, using the Internet to connect to the thermostat. As "smart appliances" come into the home, there are many more applications than power management, and it would be natural for the homeowner to access and manage those through the existing LAN. Thus, the HAN ends up being related to both the existing broadband home network and its broadband connection to the outside world.

Austin Energy--Making The Smart Grid a Reality

The timing for making the smart grid a reality depends on many factors--especially how you define "smart grid". Many utilities are focused on "smart meters". Several speakers at the workshop made clear that just because a utility installs 1 million smart meters, it does not mean they have a smart grid. The meter is just one small element in the re engineering of the entire electric distribution system, which includes new hardware, software and workforce skills. Advancements occur in small steps rather than giant leaps.

Systems Needing Change --> Click for larger pictureA slide shown by Andres Carvallo, CIO, Austin Energy illustrates this point. It shows all the various communications and IT elements needed to manage the utility's electric grid, and overlays in orange the many elements that need to be changed to effect a complete transformation to a smart grid. With so many elements needing modification or replacement, it is clear that the transformation will be a complex multi-year process.

Andres Carvallo, CIO, Austin Energy --> Click for larger pictureAlthough there are many obstacles to overcome, not all US utilities are decades away from the smart grid. In his talk, Carvallo presented some perspective about the steps on Austin Energy's journey:

  • In 2006 they started deploying a new Enterprise Architecture including Cyber Security, IT Management Tools & Fiber backbone.
  • In 2007 they upgraded their one-way RF network to two-way.
  • 2008 upgrades included a new New Generation Management System.
  • In 2009 they finished installing 410,000 smart meters along with a new meter data management system; they also reached 86,000 smart thermostats deployed (22% of homes in Austin)
  • In the next couple of years, they expect to finish deploying new billing and distribution management systems.

The message seemed clear: grid intelligence does not come from a single rollout of revolutionary technology, but from strategic planning and targeted investments directed toward achieving a long-term vision.

What About Standards?

Smart Grid Conceptual Model --> Click for larger pictureSince the Smart Grid is a distributed system that includes many elements, there need to be standards that describe the various functions of the elements and the ways in which they interconnect and interoperate. In April, 2009, the U.S. Commerce Departmentís National Institute of Standards and Technology (NIST) announced a three-phase plan to expedite development of Smart Grid standards.

George Arnold, NIST Coordinator Smart Grid Standards --> Click for larger pictureGeorge Arnold, deputy director of NISTís Technology Services unit and a former Bell Laboratories VP, was named to lead and coordinate these efforts. Arnold's credentials for the job include serving as chairman of the board of the American National Standards Institute (ANSI), a private, nonprofit organization that coordinates voluntary U.S. standardization and conformity assessment activities. We were fortunate to have George as one of the workshop speakers so he could explain the process of defining Smart Grid standards and where we are in terms of setting them.

In September 2009, NIST released a SmartGrid Report (NIST Framework and Roadmap for Smart Grid Interoperability Standards. Release 1.0 (Draft)). The report contains the Smart Grid Vision, Reference Model, and a companion cybersecurity report.

The scope of this effort is huge--there are 77 standards and 22 different standards organizations involved. Next steps include formation of a Smart Grid Interoperability Panel and creation of a Testing and Certification Framework. Standards included in this report include some that are familiar to professionals in broadband home technology such as Zigbee, HomePlug and G.Hn. It also includes more specialized standards such as CableLabs PacketCable Security Monitoring and Automation, and ISO/IEC 15045 (Residential Gateway Model for Home Electronic System).

One of the dilemmas for utilities about standards is that standards are still evolving while stimulus funding is driving near-term deployments. Since smart meters are part of many initial deployments, NIST has created a smart meter upgradeability standard so that as new meter standards requirements are put in place, meters being deployed now will not rapidly become obsolete. Security standards are another element that is critical to the success of smart grid implementations.

The Central Role of the Electric Vehicle (EV)

Inspecting the Tesla Roadster EV --> Click for larger pictureIt is NOT a gas tank cap --> Click for larger pictureThe Southern Company had a Tesla Roadster Electric Vehicle (EV) on display at the workshop. The Roadster runs 200 miles on a charge and can recharge in 3 hours if using a special charger. At a price of $109K today the Roadster is not a mass market car, but they're coming soon. The implications of getting to large numbers of EVs (both battery electric vehicles and plug-in hybrid electric vehicles) are quite profound for both utilities and their customers.

Unfamilar displays in the Tesla --> Click for larger pictureSeveral speakers at the workshop cautioned that if EVs caught on in a neighborhood, and people came home from work and immediately plugged them in to charge at about the same time (generally the time of peak household load), the neighborhood transformer would likely burn out. The grid must change to support EVs, with mechanisms to space the recharge timing through the night.

The interesting twist is that EVs are not just energy consumers. Because of their huge onboard battery capacity, EVs could also provide significant energy storage. The idea is that EVs could be an attractive source of revenue for utilities if they are re-charged at off-peak periods. The challenge is to provide pricing incentives and technology enablers that make the EVs an extension of the electric grid. At peak periods, their onboard battery capacity could power the electrical grid in times of high demand or could function as reserves. Taking this one step further, the electricity to power some of these vehicles could be supplied by renewable resources such as wind or solar energy at the home. All of this requires that the utility industry learn how to manage large numbers of distributed energy storage devices and two-way power flows. That is why EVs are such a crucial part of the smart grid.

Although the Tesla Roadster is not positioned at a mass-market price point, Tesla says its Model S will be priced closer to $50K after tax credits. Nissan will offer EVs beginning in 2010 for the US and Japan; these are expected to cost in the $25-30K range after the US $7,500 federal tax rebate is included. The Leaf, as well as its lithium-ion battery pack, will be produced in Japan until 2012, and in Smyrna, Tennessee after that. These cars are not a future fantasy--they're coming soon, even if in small numbers at first.

Implications for Stakeholders

The changes we outlined above will have an impact on many different stakeholders, but they will happen over time.

Consumers will be able to take a more active role in decisions about how--and how much--they want to control their electric bills. Decisions about what types of vehicles to purchase will include EVs as one option. There will likely be incentives, particularly for people in certain climates, to add local energy generation in the form of wind, solar panels or other methods. HANs may take their place beside and interconnected with broadband home networks.

Utilities face large technological and cultural changes--Austin Energy's chart of all the systems that need to change makes this clear. What that does not include is the changes in training and mindset that will need to accompany the transitions in "things".

Many types of wired and wireless technologies will be used in the HAN. Telecommunications equipment and service providers will have multiple opportunities to sell and service their wares.

Regulators will continue to balance the needs of consumers and utilities, but environmental and economic concerns will likely take a more prominent role than ever before. One especially sensitive area is consumer privacy, since the characteristics that make smart grid information valuable to environmental efforts may also have serious consumer privacy implications.

Hopefully, the US will look to countries that have already rolled out some elements of their smart grids, so that lessons from those rollouts get incorporated into future plans.

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