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Policies Get Smart

State and federal incentives push utilities to invest in grid intelligence.

Fortnightly Magazine - June 2008

Peaking plants are very inefficient—frequently less than 30 percent. Demand response can shift loads to shoulder periods that are served by more efficient facilities—such as natural gas-fired, combined-cycle plants that deliver about 40 percent efficiency and have lower carbon emissions per unit of energy supplied.

Additionally, carbon regulation is expected to lead to increased reliance on windpower and other variable power sources. The Olympic Peninsula Gridwise project determined the fast regulation capability of demand response, which ultimately could help ease the operational stress and expense of integrating variable energy resources.

The operational challenges associated with managing variable windpower already are apparent. In Texas, a nearly 1,000-MW shortfall in wind generation, compared to the day-ahead schedule, contributed to emergency measures ordered by ERCOT (see “ What Happened in ERCOT ,” Fortnightly, May 2008) . A study by General Electric for the state of Texas predicts that wind-induced power drops of as much as 2,400 MW in less than 30 minutes could happen at least once a year when Texas’s wind capacity hits 15,000 MW.

Engaging Customers

Technology and regulatory incentives alone are not enough to ensure deployment of a smarter grid. For smart metering systems to deliver the desired benefits, consumers must be engaged and incentivized to participate. Their active participation in electricity markets brings tangible benefits to both the grid and customers, while reducing the cost of infrastructure investment and electricity delivery.

Recent demonstration projects validate the impact end users can have in helping utilities address some of the complexities that exist in today’s operating environment. Demand-response case studies show that, when given the right incentive and controls, participants will respond to peak-period prices, reducing demand and saving money in the process.

One recent demonstration, led by the Department of Energy’s Pacific Northwest National Laboratory, found that over the course of a year, end-users in Washington’s Olympic Peninsula reduced peak energy demand by at least 15 percent and achieved 50-percent decreases for short periods of time (see “ Demonstrating the Smart Grid ”).

Not only did consumers consistently help flatten the load, they exercised complete control of their level of participation throughout the entire project. At the conclusion of the study, 95 percent of participants stated they would be likely, to very likely, to participate in a similar project if offered by their utilities.

The significance of the consumers in premise-based participation became apparent when the California Energy Commission faced backlash for a proposal to require installation of smart thermostats in new buildings. The proposed thermostats were designed to allow utilities to adjust customers’ preset temperatures when the price of electricity began to rise. Customers had the ability to override the utilities’ suggested temperatures—most of the time. In emergencies, the utilities could override customers’ wishes. A large California building association and other groups fueled a public outcry that spread via the Internet and talk radio shows. As a result, the CEC dropped the proposal entirely from its 2008 building-efficiency standards.

Utilities seeking to deploy smart-grid technology and smart-tariff policies will need to present a strong case to regulators and customers that