A Smart Grid Solution at Copenhagen

With the Copenhagen climate conference underway, it is important to recognize the many steps that can – and indeed must – be taken to start controlling emissions as soon as possible. One of these solutions is to implement smart grids around the world. Experience with the early deployments that have been put into service so far indicate that a smart grid equipped electric distribution network can reduce electric power requirements by 3 to 5 percent and the related carbon without impacting customer service.

 

The Climate Group, based on analysis by McKinsey & Company, concluded in their SMART 2020 report that smart grids deployed worldwide could reduce 2.03 gigatons of carbon dioxide equivalent (GtCO2e) annually by 2020, an amount equal to eliminating the carbon emission from every car and every home in America. Such a significant reduction is possible with today’s technology if we focus our smart grid investment in the areas that provide the highest carbon return and adopt regulatory policies that provide incentives for utilities to achieve these reductions.

 

 

According to the IEA 2009 Annual Energy Outlook, electric power produces 41 percent of energy related CO2 emissions in the world and is expected to account for over half of the projected emissions growth between 2007 and 2030 (see: International Energy Administration, ‘World Energy Outlook 2009’ pg 167,185). To reduce carbon, we must make electric power as clean as possible. While there is no silver bullet, the Climate Group found that a smart grid was the single most productive information technology investment that could be made to reduce global warming, more than smart buildings, improved motor efficiency or improved logistics.

 

Just as importantly, the report estimated that over 85 percent of those savings came from improving the efficiency of the electrical grid itself (0.9 GtCO2e) and from the integration of renewables (0.83 GtCO2e). Only 15 percent or 0.3 GtCO2e came from the estimated savings from the use of smart meter related reductions such as demand response and changes in customer behavior that are receiving so much media attention today.

 

 

Today, the electric grid, especially the local distribution system, which is the part that directly serves our homes and offices, works much the way it did 50 or even 100 years ago.Utilities have limited visibility beyond the substation and the voltages delivered are neither known nor controlled.However, when we are concerned with carbon reductions, it becomes important to minimize the amount of power delivered.By installing intelligent sensors, real-time communications and analytical software, utilities can monitor voltage levels and grid conditions to optimize the amount of power delivered dynamically on a 24 x 7 basis.It is estimated such optimization of the distribution grid can reduce electric generation requirements and related carbon by 3 to 5 percent without impacting on, or requiring any change in, customer behavior.

 

 

“Without a radically expanded and smarter electrical grid, wind and solar will remain niche power sources” according to the MIT Technology Review (see: Talbot, David “Lifeline for Renewable Power,” MIT Technology Review, January/February 2009). A Smart Grid helps to overcome the challenge of intermittency in renewable energy and to manage the newly created two-way power flow on a grid that is designed to go one way.

 

 

 

Today, this is typically accomplished by adding spinning reserves like gas-powered peaking plants or by operating coal plants at less than peak capacity (which allows operators to quickly increase load, but results in a less efficient coal plant operation and thus higher carbon output per megawatt produced).For example, to achieve the European 2020 targets (20 percent renewables, 20 percent reduction in CO2 by 2020), the United Kingdom estimates that short term reserve requirements such as these would double to almost triple (see: House of Lord Select Committee on Economic Affairs, “The Economics of Renewable Energy”, November 2008 at 35).

A distribution smart grid can mitigate these additional costs and emissions by dynamically adjusting overall load in real time, providing generation and transmission operators with a powerful new tool to manage generation fluctuations and transmission issues such as those associated with renewables. A smart grid will also be required to manage the complexity of both the storage capability and the variable nature and location of the charging resulting from Plug-in Electric Vehicles.

 

 

Under traditional rate base regulatory models, utilities earn a rate of return on invested capital which is billed to the customer based on kWh sold. Utilities typically must pass operating efficiencies on to rate payers and usually earn the same amount investing in a piece of steel as a smart grid, although a smart grid requires more effort and has the potential to reduce the number of kWh sold. Thus, unless the incentives created by traditional rate base regulation are changed, there is no reason to believe that a for-profit entity will (or should) spend money in order to earn less.

 

Utilities traditionally are also subject to after-the-fact regulatory review of their investment decisions. A utility faces the realistic prospect that cost recovery for an investment could be denied in a rate-making proceeding that occurs several years after the utility has completed its investment. This is one reason that regulated utilities are often averse to adopting new and innovative technology and may delay investment in smart grid technology absent prior regulatory approval.

 

For these reasons, utilities around the world need to be given incentives or required to implement a smart grid similar to the way some utilities today receive incentives for achieving energy efficiency targets or the way renewables are mandated through renewable portfolio standards.

 

A smart grid is a critical component to reducing carbon. It is easier to make the electrical grid efficient than to make each building and home efficient. Electric utilities represent approximately a $1 trillion revenue industry around the world annually with established regulatory processes for capital projects in both the developed and the developing nations. With the proper regulatory incentives, smart grids can be encouraged and provide immediate carbon benefit.