The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
The smart grid requires utilities and regulators to assert leadership.
by 80 percent of U.S. state PUCs and was presented as the model for interconnection services in the U.S. Energy Policy Act of 2005. Indeed, the focus now is on expanding IEEE 1547 to handle even more distribution and to encompass all of the new energy generation systems—photovoltaic systems, wind systems, micro-turbines, etc.—that people want to interconnect.
From Guidance to Standards
The example of IEEE 1547, however, also highlights the extent of the work that remains to be done. Unlike IEEE 1547, IEEE P2030 is a guide for recommended practices, not a set of prescriptive rules detailing exactly what utilities must do. In fact, IEEE P2030 evolved as a response to the National Institute of Standards and Technology’s (NIST) proposed interoperability framework, recognizing that still too many questions surround smart grid interconnectivity and no consensus answers have emerged.
IEEE P2030 sought to establish this consensus, based on the joint recommendations of the computing, power, and communications engineering societies that participated in this effort. Based on this collaboration, the guide offers a solid foundation for consensus standards, detailing hundreds of interfaces between these three fundamental elements of the smart grid. Each of these interfaces, however, now requires a comprehensive body of technical standards.
Just as IEEE 1547 has led to eight additional updates—IEEE 1547.1 through IEEE 1547.8—to refine standards for the various areas that interconnectivity with distributed resources can touch— i.e., communication, applications, networks, etc.—so too must IEEE P2030 evolve. But how will it evolve? While regulators and government will play a role, the real work in developing consensus standards will occur via a self-regulated industry effort.
Given the tremendous amount of creativity necessary to advance smart grid technology and applications, the evolution of interoperability will best proceed in a self-regulated environment that provides the space for that creativity. Ultimately, this type of organic effort will result in a robust interoperability framework. But the pace at which we achieve that result depends on the degree to which stakeholders are motivated to follow the emerging standards. Once again, it comes down to incentives—if adherence to standards drives revenue, the market will drive self-regulation.
If PUCs give preference to technologies and projects that adhere to recognized standards—if utilities provide such standards as the basis for what they are requesting—then those standards gain credibility. When there is buy-in from utilities, from PUCs, and from the vendors selling standard-compliant products, then the industry can take significant steps in furthering smart grid interoperability. Education will therefore play an important role in demonstrating to PUC members the value of investing in projects that adhere to emerging interoperability standards, and that further those standards.
Of course, a self-regulating smart grid environment isn’t without challenges. Legal considerations in particular will require significant thought. Consider just one example: With smart grid intelligence, a utility might implement a program of shutting down air conditioning in a consumer’s home for two hours when peak demand requires power conservation. What if the home is occupied by an elderly person with breathing problems, or someone who needs air conditioning for other health reasons? How will