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Business Case Tradeoffs

Shaping long-term smart-grid strategy.

Fortnightly Magazine - June 2010

of continuous energy benchmarking is growing among commercial and industrial building owners and managers, and the results experienced by companies … are compelling. 4

These benefits are outside those driven by demand-response CPP signals. 5 Rather, they reflect an energy efficiency savings created by innovative business managers evaluating their building performance in a myriad of ways and taking innumerable potential actions. These evaluations and actions are significantly assisted by the availability of advanced-metering data. There are a host of compelling benefits associated with providing greater access to quality data but they are hard to quantify at the utility system level within the AMI business case (see Figure 1) . To do so often requires use of speculative assumptions.

As one business-case expert observes:

Leaving out a benefit or cost is not appropriate if the expected impact is both real and material to the purpose of the case. Every attempt should be made to assign financial value or, failing that, at least make the benefit tangible with some other measure. A benefit or cost omitted from the formal analysis will carry exactly zero weight in case results and zero weight in recommendations based on them. The irony is that some of the most important strategic benefits are often the hardest to quantify, and therefore omitted. 6

Incorporating important, yet hard-to-quantify benefits requires hard work. The following steps are suggested:

• Link the company’s core objectives into the business case if there is a reasonably strong relationship; and

• Make substantive the linkage between business case and company objectives by considering metrics that help evaluate when the objective is met and allocations that apportion the share of benefits.

It’s very important to bring in the strategic value of the benefits by following steps 1 and 2. The key point is to ensure that the utility brings the strategic benefit into the business case.

To accomplish this, the utility might want to consider other forms of smart-grid metrics that add substance to the benefit. GridWise Alliance, for example, has published guidance for assessing smart-grid projects. 7 Similarly, Section 1301 of EISA 2007 might provide guidance in its orientation to outcomes. It describes smart grid as a set of outcomes that “together characterize a smart grid.” 8 It then goes on to describe these outcomes. 9 They involve the use of digital information and controls; dynamic optimization of grid operations; cyber security; ability to integrate distributed resources including renewables into the grid; incorporation of demand-side and energy efficiency resources; pervasive use of smart technologies in real-time with automation and interactivity that can reach down and automate consumer appliances and devices and can control metering and network communications; integration of advanced electrical storage and other peak-shaving technologies including plug-in electric and hybrid electric vehicles; and the provision of standards for communication and interoperability of consumer appliances. These outcomes are diverse and span technologies, rules and requirements, user types ( e.g., consumer-oriented), and market-design considerations ( e.g., lowering barriers to smart-grid technology adoption).

Overcoming Biases

As DOE points out, the business case work is one of