Smart-Grid Strategy: Quantifying Benefits


Modeling the value of various technologies and applications.

Modeling the value of various technologies and applications.

Fortnightly Magazine - July 2009

As the momentum to upgrade America’s aging electric grid continues to build, more power companies are announcing initiatives and partnerships that will lay the groundwork for their involvement in the development of the smart grid (SG). In order to stay ahead of the curve and the competition, companies are struggling to define, quantify, and strategize for the deployment of SG technologies in their service areas.

Defining the SG involves not only identifying the component technologies, but also understanding their power to transform the entire electric industry business model. This power to transform is tied to their potential for achieving significant cost reductions, decreased energy consumption, increased reliability, lower carbon emissions, and improved quality of service.

Finding a way to quantify these benefits and compare them across multiple scenarios will be a strategic necessity for any company looking to enter this new arena. Attempting to adopt these technologies without careful, detailed analysis will lead to strategies that do not capture the full range of available benefits. Worse, they can end up costing customers more than they are worth. Decision makers should ask themselves: Have we analyzed the full range of strategies? Are we certain we’ve selected a strategy that maximizes the potential benefits across a range of energy futures? Have we made the right trade-off between the higher risks that come with higher rewards?

Developing winning strategies for the adoption of SG technologies poses a major challenge for decision makers because there are still considerable areas of uncertainty. A valuation model can help quantify the likely benefits of various technologies. From these estimates, large-scale trends emerge that will affect the entire industry.

SG benefits aren’t the complete basis for either business strategies or public policies. Benefits always should be weighed against cost and rate fairness issues in any technology deployment decision. General benefit estimates provide a useful starting point for any company preparing to develop its own specific strategy.

Defining the Smart Grid

The SG encompasses virtually all facets of the electric industry, with benefits ranging from expanded generation resource alternatives to decreased energy consumption. Due to this wide array of applications, the term “SG” has several uses in today’s industry. When applied to the transmission and distribution, or the wires side, of the grid, SG can refer to expanded transmission lines designed to intelligently link new energy sources to the existing grid or the introduction of enhanced control channels for managing the transmission system. SG applications also hold significant promise downstream of the wires, on the customer side of the business.

The first major step toward a downstream SG is installation of advanced metering infrastructure