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Smart-Grid Strategy: Quantifying Benefits

Modeling the value of various technologies and applications.

Fortnightly Magazine - July 2009

as covering all the functions of a market catalyst. Market enablers recover their investment costs through their rates and are well prepared to become market leaders.

5) The Active Market Participants expand their investments beyond core hardware and consider additional SG end-use technologies if deemed in the public interest. These additional investments in leading-edge products and services likely will include grid-friendly appliances and buildings, distributed generation infrastructure, and PHEV-related services. In order to incorporate these advanced new grid functions, active market participants should use strategic partnerships and outsource services to telecoms and IT providers when it wouldn’t be cost-effective to produce these services internally.

Each company will have to evaluate these strategies across a range of alternative futures or scenarios. The best strategy will be the approach that remains robust across alternative futures. To properly assess these futures, each scenario should be treated as a different state of the world rather than a different outcome within a given world. Development of these state-of-the-world scenarios requires careful assessment of the factors that drive them.

Future scenarios are driven primarily by regulatory, political, technological, and environmental factors. As the market develops, additional factors such as intensity of retail competition, supply-side costs, and customer culture increasingly will drive these scenarios as well. Within a scenario, each driver can acquire one of many outcomes.

To make this process more manageable, decision makers should isolate a smaller number of scenarios that define the range of future possibilities.

Maximizing Benefits

The emerging SG market represents an unprecedented opportunity for the utility industry to streamline costs, reduce energy usage, and improve infrastructure over the coming years. Over the long-term horizon, related technologies have the potential to redefine the industry structure and our energy economy. Substantial benefits can be realized by adopting basic technologies early on, with potentially greater benefits for those who also plan for the long-term implications and opportunities.

Planning for these industry shifts isn’t an easy task, and decision makers should make use of the best resources available to mitigate risk as they select a smart-grid strategy capable of maximizing benefits within a variety of alternative future scenarios.

Finally, recent policy shifts and rapid growth in SG technologies illustrate there’s no way to remain unaffected by this transformational suite of technologies. Failure to devote time and resources to basic planning can cause companies to become stuck in a neutral bystander strategy, fall behind other market participants, and miss opportunities for growth. On the other hand, inadequate planning can lead to unrealistic strategies that waste time and resources, taking companies off track. Modeling detailed scenarios and benefits early on will reduce a company’s chances of becoming stuck in the wrong SG strategy.

 

ENDNOTES:

1. “EIA Glossary,” U.S. Department of Energy, Energy Information Administration. (Accessed Mar. 24, 2009) http://www.eia.doe.gov/glossary/glossary_a.htm.

2. “No Small Change: The Stimulus Package and Its Impact,” Patton Boggs, LLP, Feb. 12, 2009.

3. “The Smart Grid: An Introduction,” U.S. Department of Energy, Oct. 28, 2008.

4. “Distributed Energy Resources: A How-To Guide,” U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy. (Accessed