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Smart-Grid Strategy: Quantifying Benefits

Modeling the value of various technologies and applications.

Fortnightly Magazine - July 2009

about 60 percent of gross annual revenues for Smart Power and quite possibly much more than a smart grid system will cost.

Developing A Strategy

With such a great potential for cost savings, the SG might attract many new entrants into related markets. Retail energy providers, energy service companies, curtailment service providers, and equipment manufacturers will find new avenues for opportunity. Current manufacturers of batteries, energy storage technologies, and small-scale renewable generation resources also will benefit as their markets expand significantly. Entrepreneurs in the auto, telecom, and IT industries already have begun developing strategic partnerships with utilities to support expanded SG applications. Finally, the public sector will exercise varying levels of authority in the development of the SG. Government agencies, regulators, and legislators at all levels will significantly influence how the grid develops, impacting siting, protocols, green-technology policies, and other factors.

With these new relationships in mind, there are several important choices to be made when considering an SG strategy. How should a utility manage its relationships with retail energy providers and aggregators, new market entrants, and the public sector? What level of involvement in DER and PHEV technologies will the utility incorporate into its long term strategy? How will it be affected by the pricing of default energy commodity service, the deployment of advanced meter infrastructure, and addressable end-use technologies?

With so many considerations, it can be very easy to get trapped into the wrong strategy. Some companies will be tempted to choose the do-nothing strategy, telling themselves they will minimize risk and let others make the big mistakes first. Unfortunately, this strategy leaves money on the table in the short-term and increases the risk that they will lose customers in the long-term. However, adopting the opposite, do-everything strategy can be equally damaging to the long-term success of a company. Overzealous companies entering these new markets unprepared will get entangled in regulatory and legislative battles well beyond their core competencies. The optimal strategy will require a careful selection of options and a balancing of risks and rewards.

Based on the considerations above, five basic strategies emerge:

1) The Neutral Bystander plays a minimal role in the deployment of SG technologies. The neutral bystander strictly observes regulatory rules that prohibit the company from going beyond the meter and into the customer’s premises.

2) The Infrastructure Manager takes a leadership role in identifying the potential benefits of SG infrastructure. The infrastructure manager will prefer to let others make investments in SG end-use technologies, but sees the value in reducing conflicts and redundancies. Well aware of the potential value of SG opportunities, these leaders will actively advocate the use of open protocols.

3) The Market Catalyst shares a similar appreciation for SG technologies as the infrastructure manager, but seeks a more active role in utilizing the tools. The market catalyst provides multiple default services and conducts SG pilots and tests. Such demonstration projects help to create a space in the retail market for new entrants.

4) Market Enablers make investments into core SG hardware, such as in-home displays and programmable communicating thermostats, as well