Green Transition


Integrating distributed resources into the smart grid.

Fortnightly Magazine - May 2011

The remedy for America’s gravest economic woes may lie in a smart grid that can deliver vast amounts of clean, renewable energy while enhancing our energy security and democratizing our energy system. Although regulatory questions and technical challenges might dominate the industry’s short-term focus, the smart grid’s driving forces parallel America’s long-term national interests—a fact that should guide ongoing technology strategies and investment decisions.

Smart grid technology allows energy consumers to actively participate in energy markets by deploying homemade distributed power (such as wind and solar) into the American marketplace and by exercising demand response options to control their own energy costs—for example, by scheduling dishwasher and laundry activities during off-peak hours. A fully integrated smart grid will foster the emergence of regional markets for distributed resources that can transform every American into an energy entrepreneur and every home into a power plant.

A growing number of smart grid technology and service providers are now marketing proven technologies that meet the challenges of integrating distributed resources. But the fulcrum of this new intelligent power grid will be distributed resource management systems capable of integrating, allocating and directing inputs and demand from smart cars, meters, smart appliances and home-generated solar, wind and geothermal power.

Economy, Security and Independence

The rising interest and massive investment in the smart grid space is now broadly accepted as the most transformative event to hit the electric power industry since the construction of America’s electric grid in the 1930s. Smart grid allows enhanced management of supply and demand in real time, including increased integration of renewable energy resources, and distributed generation, and customer participation in the energy marketplace. As illustrated in Figure 1, smart grid is now a growing global reality.

In general parlance, the term “grid” refers to the transmission and distribution system—i.e., the system of power lines, substations and transformers that brings electricity from power plants to end-use consumers. Smart grid visionaries are increasingly looking beyond the infrastructure—as critical as it is—to the broader potentials of grid intelligence.

The smart grid can be a critical component in solving four grave national challenges: a stagnant economy, energy reliability, energy dependence and national security. Investing in smart grid technologies will not only enable our transition to a cleaner energy portfolio composed of more reliable and resilient domestic energy sources, it will usher in a new era of prosperity.

America’s dependence on foreign oil cost our country almost $1 billion per day in 2010. Add to that staggering number the national risks from dependence on finite, carbon-based fuels that need to be tanked halfway around the globe. Our foreign oil reliance threatens the stability of our economy, our national security and our international leadership and prestige. The costs to America’s national treasury and moral authority will only escalate with the growth of petroleum demand in the expanding global economy.

Domestic coal resources also impose catastrophic costs. Coal extraction and emissions from coal power plants are polluting America’s air and water, affecting wildlife, fisheries, children and the land. Likewise, oil derived from the Canadian tar sands, or from deep platforms in the Gulf of Mexico or remote parts of Alaska have their own risks and social costs.1 Newly discovered domestic shale gas threatens ground and surface waters and has caused serious pollution, serious health impacts and ruinous property damage in rural communities.

We don’t have to rely on these insecure, expensive and polluting energy options. America is blessed with abundant renewable resources including vast solar and wind energy, not to mention geothermal, small hydro, and other power sources capable of providing an increasing proportion of our heat and electricity needs. Today, California gets roughly 20 percent of its electricity from renewable resources2 and this proportion is expected to reach 33 percent by 2020. Texas boasts more than 10 GW of installed wind capacity, and other states also generate significant amounts of wind energy. Last year America crossed an important milestone, building more new generation capacity in wind and solar than all of the incumbents (nuclear, oil, coal and gas) combined.

The American Wind Energy Association estimates that more than 85,000 U.S. jobs have already been created by the wind industry. The wind sector provides more jobs in America than all our nation’s coal mines put together.3 And wind energy deployment can be rapidly doubled or tripled. With much less renewable potential than the United States, other nations are responding far more aggressively to the dramatic opportunities in the renewable space. China has just overtaken the United States in installed wind capacity (Figure 2) and is investing heavily to turn itself into a renewable exporting powerhouse. China has committed to increasing wind generating capacity twelvefold and solar generating capacity 20,000 percent by 2020. The U.S. can’t afford to ignore China’s bid for dominance in this sector.

The principal obstacle in transitioning to a new energy economy is the absence of a grid system that can absorb, integrate and intelligently transmit new currents of renewable energy from the point of generation to consumer markets. Proven smart grid technology solves a big piece of this problem.

The Key to Integrating Renewables

Aggressive actions by state and local governments have magnified the urgency and opportunity for encouraging the widespread adoption of smart grid systems. State governments and utilities are already funneling massive investments into advanced metering infrastructure (AMI). These projects aim to replace spinning disk meters with digital integral meters, usually with two-way communication capabilities.4 A growing number of programmable thermostats, air conditioners and other appliances on the customer side of the meter are becoming smart, capable of communicating and responding to dynamic prices.

Furthermore, due to supportive state and federal incentive programs, both utilities and customers are making significant investments in solar rooftop PV installations, wind farms and concentrated solar power (CSP) plants.

Approximately 35 states now have renewable portfolio standards (RPS). Some, like California, require as much as one-third of the electricity consumed by 2020 to come from new renewable sources. Recent projections by the Energy Information Administration suggest significant growth in non-hydro renewable energy generation through 2035 (Figure 3). But the existing grid simply can’t support growing penetration of renewable energy resources. A study by the U.S. Department of Energy, for example, concluded that the United States can obtain as much as 20 percent of its electricity from wind alone by 2030, but identified the deficiency in transmission capacity among the most pressing obstacles.5

As illustrated in Figure 4, some renewable resources—notably wind—have a poor correlation with demand while other technologies, like solar, more precisely track demand.

With the growth of variable supplies that don’t always correlate with energy demand cycles, industry experts are now looking into options for additional storage. Large batteries have recently become available to provide utility scale storage solutions for variable power at an increasingly competitive price.6 Utilities are also looking at the extraordinary growth in the demand for and availability of electric vehicles as a natural solution to the energy storage dilemma. New armies of electric vehicles (EVs) include batteries which, when plugged into an electric socket, can both recharge and discharge stored energy back to the grid—known as the vehicle-to-grid concept (V2G). This giant pool of storage capacity can act as a reservoir for variable power, thus solving the most vexing obstacle to widespread wind and solar deployment. Car batteries can store the intermittent energy during periods of peak generation and low demand, and then return it to the grid during demand spikes. This new storage capacity will allow the smart grid of the future to accommodate variable load with variable generation—much of it from non-dispatchable, intermittent renewable resources.

Under this scheme, electric automobile owners will be able to make money by leasing their batteries as depositories or by arbitraging the grid themselves. This is only one example of how the smart grid makes energy consumers active participants in the new energy marketplace.

Jon Wellinghoff, the chairman of the Federal Energy Regulatory Commission (FERC), has made a priority of rapid smart grid adoption. In a recent article in The New York Times,7 titled “Making the consumer an active participant in the grid,” he wrote, “The energy future of the U.S. looks radically different from its past.” Wellinghoff envisions a future with consumers as “active parts of the grid, providing energy via their own solar panels or wind turbines, a system called distributed generation; stabilizing the grid by adjusting demand through intelligent appliances or behavior modification, known as demand response; and storing energy for various grid tasks.” Wellinghoff added that “consumers should get paid to provide these services.”

Wellinghoff is right. He recognizes that a smart, two-way grid is a transformative and disruptive technology that will bring abundance, prosperity and democracy to America’s energy landscape. It will absorb vast amounts of clean, local renewable energy and homemade distributed generation while recruiting millions of consumers as active participants. Driven by rational and instantaneous price signals and supportive incentives, energy entrepreneurs in the new retail energy market will employ user-friendly technologies to create widespread prosperity and energy independence for America. American dollars currently being shipped overseas or being spent on costly and destructive coal will now be spent at home on clean, wholesome and local fuels, enriching local economies.

Re-engaging Customers

Wellinghoff’s vision suggests a paradigm shift is now technically within reach. Among the key features of the smart grid is its ability to mix and match generation and load by adjusting supply and demand from a variety of sources, locations and times while maintaining the system’s reliability.

The smart grid of the future will no longer serve as a one-way conduit, delivering electrons from large central generating plants to major load centers. Instead, it will soon evolve into a dynamic network where distributed generation, renewable resources, storage technologies and price-responsive customer demand are integrated with more traditional means of power generation.

In the historical paradigm, customer demand was taken as a given by utilities. Supply-side resources had to be dispatched to meet the demand at all times, no matter what the cost.

For more than a century, the utility industry unwittingly disengaged customers from the upstream side of the business—from generation, to transmission and distribution—by offering unlimited supplies at affordable prices. With predominantly flat tariffs, customers became oblivious to the varying costs of generation and delivery. Utility customers were largely unaware of and therefore indifferent to the enormous costs of operating a washing machine during peak demand periods or the low costs of energy during off-peak—even though the costs of that activity could differ by two or more orders of magnitude.8 With consumers having little or no incentives to adjust their energy usage based on variable costs, utilities were forced to invest heavily in inefficient and infrequently needed peaking units.

The result of this legacy is that many summer peaking networks, such as those in California, have to deal with needle sharp peaks—mostly driven by air conditioning—which occur infrequently but are notoriously expensive to meet with traditional supply-side options, namely peaking units. Figure 5 illustrates a typical warm weather California peaking cycle, where utilities and regulators refer to the air conditioning load as “the load from hell.”

The industry is now attempting to re-engage customers by eliminating flat tariffs, introducing dynamic pricing and implementing distributed resources and demand response (DR) programs. Their objective is to make the demand side of the equation part of the energy supply solution.

Many customers have discretionary loads or have flexibility in choosing when and how much energy they consume. Others are increasingly able to generate some or all of their internal needs from distributed resources, including solar panels, heat pumps, wind turbines, solar hot water collectors, or other methods of on-site generation.

With the expected penetration of EVs in the coming years, many customers will also have sizeable energy storage potential. V2G technology will allow EV owners to store low-cost electricity and then feed it back into the grid during high-cost peak demand periods. Customers with EVs will be prime candidates for becoming active participants in the grid. In addition to V2G’s ability to balance intermittent resources, it also will allow vehicle owners to maximize their economic welfare by charging their vehicles during low-cost, off-peak hours—then feeding stored energy back to the grid during high-cost, on-peak hours.

These transformational potentials can be harnessed the moment we install smart grid systems that enable the aggregation of a large number of small and large customers so they can actively participate in balancing supply-and demand in an interconnected network in real time.

All the various components and functionalities of an integrated smart grid system have large and small-scale companies driving them toward deployment in the marketplace.

A critical step for integrating demand response and distributed resources from all these different companies into a large regional grid marketplace is the deployment of a distributed resources management system or DRMS. DRMS integrates and coordinates the other technology components, creating an end-to-end solution for participation of distributed resources into wholesale energy markets. Without a workable DRMS, it wouldn’t be feasible to integrate millions of small distributed resources into wholesale markets.

With rapid advancements in software technology, market operators are now able to benefit from the participation of increasing numbers of customers, load aggregators and other intermediaries. FERC has taken the unusual step of actively promoting the rapid evolution of demand side resources, not just through public pronouncements, but more importantly, through published reports, studies, surveys as well as a number of orders. Over the past two years, FERC has published several seminal studies documenting the substantial potential for DR in the United States,9 and has issued a number of orders prompting fundamental changes within organized U.S. electricity markets.10

Responding to these initiatives, the PJM Interconnection, which operates the grid system for 13 states and the District of Columbia, has now implemented DRMS in several markets in its vast network, with immediate and impressive results. By aggregating the contribution of an estimated 1 million customers including some 10,000 large commercial and industrial users, PJM is reportedly able to effectively manage some 9,000 MW of load or roughly 7 percent of its system peak demand11 (Figure 6). The energy savings are equivalent to the output of seven nuclear power plants. These programs have grown significantly in the past few years, making PJM the national leader in facilitating the entry of demand-side resources.

Lessons from the past

Business as usual isn’t an option for the future. The status quo will lead to increased U.S. reliance on imported oil, increased energy vulnerabilities, increased energy insecurity, more economic woes, and more emissions of greenhouse gases and other pollution. The sooner we get off this dead-end path, the better for our country and her people. The rapid deployment of DRMS to facilitate the development of an intelligent grid is the key to change.

We need to move toward a more democratic and more sustainable energy future with higher reliance on domestic, clean and green renewable energy. Instead of deepening our reliance on fossil fuels, we can today build a robust, flexible and smart grid that can eliminate our deadly addiction to carbon. We urgently need to introduce cost-reflective prices that communicate the variable cost of generation and distribution to customers, thus encouraging them to become active participants in the electricity market. In the process, we will strengthen our economy and our energy independence and reduce our greenhouse gas emissions. What could be better than that?



1. The BP’s Deepwater Horizon accident in the Gulf of Mexico and the recent leak in the Alaska pipeline exemplify the risks.

2. This definition doesn’t include existing large hydro, which will make the percentage significantly higher.

3. Bureau of Labor Statistics.

4. A survey by the Federal Energy Regulatory Commission (FERC) released in Aug 2006, Assessment of Demand Response & Advanced Metering, examined the potential gains in smart meters and enabling technologies to implement demand response.

5. 20% Wind by 2030, U.S. DOE, May 2008

6. E.g. Premium Power Corp., a Boston-based company, builds non-toxic, utility scale flow batteries capable of storing, decades-long cycling, and instantaneously dispatching megawatts of power at what might become a disruptive price point.

7. New York Times, Nov. 29, 2010.

8. As an example, in the ERCOT system in Texas, wholesale prices routinely fall to very low levels or even become “negative” during early morning hours when wind production is at its peak and system demand is very low. The opposite occurs on hot summer afternoons when wind generation drops off as system load peaks, resulting in rather significant price differentials.

9. For example, see FERC’s National Assessment of DR Potential, June 2009, and FERC’s National Action Plan on DR, June 2010.

10. For example see FERC Order 719 and 676-F, specifically obligating ISOs and RTOs to focus on the demand-side and/or to develop demand response programs in wholesale markets.

11. For example, see presentation by PJM’s Peter Langbein at UISOL’s Utility Integration Conference in Philadelphia in November 2010.