(August 2011) Economic consultant Michael Rosenzweig challenges Constantine Gonatas’s proposal for ensuring FERC’s demand response rulemaking achieves its objectives. Also, Juliet Shavit...
Saving The Smart Grid
Hype, hysteria, and strategic planning.
First comes the technology trigger, the spark of innovation that sends a new idea skyward. The curve peaks at an apogee of inflated expectations, followed by a steep drop into disillusionment. It’s not a simple bell curve, however, and after that nadir comes a more gradual upward slope of rational, revised expectations and the ultimate plateau of productivity.
Pegged along that line are discrete technologies, such as home energy management, PEVs and energy storage systems, along with their estimated timeline to mainstream adoption. It also flags technologies that are expected to be obsolete before they reach the productivity plateau.
While the analysis is subjective, it’s a useful way to visualize the wave of hyperbole that almost always accompanies innovation. If one were to plot the course of the overarching smart grid concept itself, right now it would probably be past the hype peak, sliding toward disillusionment.
“I think the hype balloon is starting to let some gas out,” McDonnell says, “and it’s probably gas that needs to be let.”
If that’s the case and broad expectations are at the very least being revised, then it’s time for utilities to take a hard look at how they are talking about smart grid to regulators and consumers alike—and to realize they can’t take anything for granted.
“The industry utility—vendors, consultants, the whole industry—has gotten a little ahead of itself,” says Kevin Cornish, a smart grid consultant at Enspiria Solutions. “Some of the commissions feel like utilities and others are starting to play them, throwing out the smart grid term whenever they want to, assuming that’s going to allow them to get more favorable rate treatment.”
Cornish says the message the Maryland PUC delivered in June—and that other regulators have delivered less overtly—isn’t that they’re opposed to the smart grid, but that they’ll treat it just like any other infrastructure investment— i.e., critically.
“They’re sending this signal saying that the utilities have to prove the benefits to ratepayers, and they have to justify projects,” he says. “They’re not going to create a separate category of smart meter and smart grid and let utilities charge the customer in advance of seeing the benefits, which is the way traditional utility ratemaking has always been.”
To redefine the smart grid case, the first step for utilities will be to dispel the many misconceptions inevitably spawned by a hype cycle—especially the spurious notion that the smart grid will reduce prices.
“Utilities are scratching their heads as to how they’re going to keep prices low, [as opposed to raising rates]” says David Rouls, who leads the global smart grid services group at Accenture. “That’s not terribly exciting for consumers because they want prices to go down.”
In many cases, prices have been artificially suppressed, by virtue of running the whole range of utility infrastructure past its useful life span. Now utilities face mandates to integrate higher-cost renewable resources, improve environmental performance and replace old infrastructure that, in some cases, is literally crumbling. No matter what happens, prices won’t decline.
“If utilities don’t move forward with smart grid,