A practical guide to explaining the value of the smart grid.
Patty Durand is executive director of the Smart Grid Consumer Collaborative. Previously she helped to prepare and submit $10 million in smart grid grant proposals to the Department of Energy and ARPA-E, and she conducted smart grid research projects at Georgia Institute of Technology.
It’s a common theme – skeptical stakeholders and reporters will say, “OK, a smart grid is good for the utility, and what’s good for the utility is supposed to be good for the consumer. But exactly what’s in it for the consumer?”
Explaining the value proposition of a smarter electricity system to consumers, stakeholders, and regulators remains the last mile in terms of driving acceptance and adoption of smarter technology. Why? Because it’s not easy to do for most organizations, and because our nation’s energy literacy isn’t where it should be. And without widespread time-of-use or other smart grid programs deployed in every service territory in the United States, it’s difficult to understand how new pricing programs and technology investments are tied to direct consumer benefits.
A customer might rightly ask, “Why should I accept expensive smart grid technology investments for benefits that I don’t see and that only help the utility?” That is, if they have even heard the term “smart grid.”
Even in the wake of storms such as Sandy, where outage restoration dominated headlines, consumers have yet to understand the whole value of an advanced electricity infrastructure. Understandably, regulators take a conservative approach to approving new smart grid programs and technology investments since they have two priority goals: maintaining the lowest cost and the highest reliability for customers.
While consumers value reliability and low cost, research shows there are other benefits of a smarter electricity system that consumers do value and would be willing to pay for, including enhanced efficiency and a cleaner environment.1
But we know consumers don’t understand electric utilities’ primary mandates because they don’t understand electricity. How does an organization engage and educate consumers and stakeholders about the benefits of a smarter system? How can a regulatory system be designed to enable success with smart grid programs?
Many U.S. utilities have successfully taken on this challenge. And they’ve said many of the same things: show consumers how to save money and how to manage their budget; do it early and often; show them the short-term benefits; and be sure to communicate about the long-term benefits as they occur. Anticipate and address questions from a skeptical public. Also, help consumers realize they’re in control, and show them how a smarter grid is addressing their environmental concerns. After all, consumers have several motivations for caring about a smarter grid.
The fact is, once consumers understand the benefits associated with a smarter system, they overwhelmingly support it.2
Getting Real with Customers
Research has shown consumer awareness and understanding of smart grid is low; fewer than 50 percent of Americans have heard of the smart grid, and only 25 percent of those who have heard the term know what it means.3 That lack of knowledge can lead to apathy and often misunderstanding about new technology.
Educating consumers about energy fundamentals can help to set the stage for the more advanced conversation down the road. Utilities and other organizations have found that focusing the conversation around consumer benefits and effects is a good starting point on the journey to energy literacy, because it assigns a benefit to the concept, making it easier to understand.
One exemplary effort to help educate consumers about energy literacy is Power Over Energy, an energy literacy initiative focused on educating, empowering, and motivating consumers to make smarter decisions about the way we all use electricity.
Launched by a diverse coalition of supporters (including SGCC), the pilot phase was launched in early 2013 to test consumer interest in learning more about energy. Power Over Energy combines energy curricula focused in the areas of generation, consumption, transmission, impact, and conservation, with online ads, social media and interactive tools to help consumers understand more about how energy is produced and how consumers’ choices affect the environment. Since February 2013, the results indicate strong consumer interest in learning more about energy with more than 50,000 Facebook Likes and a global reach of nearly 29 million consumers.
The thirst and demand for information is out there. The key is to package it in a way that consumers understand and enjoy.
The next step, making a smart grid program easy and empowering for consumers, is critical to adoption and acceptance. The less consumers have to do, and the more control they have over energy use decisions, the better.
Toward that end, the Department of Energy’s Pacific Northwest National Laboratory (PNNL) initiated one of the first utility customer engagement efforts in the country. In 2006 and ’07, the GridWise Olympic Peninsula Demonstration Project4 in Washington state tested a couple of theories: first, it’s possible to make it easy for consumers to reduce peak load and save money; and second, smart technology can help a utility manage peak loads. By outfitting appliances with a smart technology chip that intermittently stopped and started heating coils during times of peak demand, and providing customers with an easy-to-use, preferential scale for price vs. comfort on their utility’s website, the project saved an average of about 10 percent on consumers’ electric bills. Further, the utility shaved 15 percent off its peak load by using smart grid technology. And in a post-project survey, the PNNL team found that of the approximately 150 consumers involved in the project, only one customer actually noticed an interruption.
In addition to making a smart grid easy to use, utilities that empower consumers with information about their energy use are more likely to achieve smart grid adoption. As 2012 came to a close, Southern California Edison (SCE) was completing final smart meter installations for nearly 5 million residential and small business accounts in its 50,000-square-mile service territory. The installations were part of the SCE SmartConnect program, a secure, two-way wireless advanced metering system that replaced traditional electric meters with new digital smart meters from 2009 through 2012. Through SCE’s “My Account” web portal, http://bit.ly/17M6Uf7 customers now have access to data about their electricity usage in hourly (residential) and 15-minute increments (small business), which is helping them make better-informed decisions about how they manage their usage. More than 350,000 residential customers signed up for the service in the first year.
From the onset, one of SCE’s key tenets was to ensure a positive customer experience during program implementation through its customer engagement model – and the utility achieved more than 80 percent customer satisfaction early on in the smart meter installation process.
Communicating early and often can make a big difference in consumer acceptance of smart grid programs. Having a strategic communication plan is a best practice for almost any industry, but it’s particularly important for those industries dealing with change and new information.
Oklahoma Gas & Electric (OG&E), for example, embarked on installing its advanced metering infrastructure in 2008, rolled out smart meters in phases, and created a program called “SmartHours,” beginning in Norman, Okla., in 2010. The company has now completed its smart meter deployment, installing more than 823,000 smart meters throughout its service area.
Each step of the way, OG&E tested and fine-tuned how it engaged customers to help them take full advantage of what its “Positive Smart Energy Grid” can offer. Today, an integral part of the utility’s strategy is having tools available on the “myOGEpower” web portal. http://www.oge.com/RESIDENTIAL-CUSTOMERS/PRODUCTS-AND-SERVICES/POSITIVE-... There, customers can analyze their energy bills, see the energy they are using and its costs, understand dynamic pricing, and learn which rate plans are best for them.
OG&E focused efforts on helping consumers understand the tools available to them. First, the utility communicated with customers before, during, and after smart meter installation, using multiple channels such as e-mail ads, direct mailings (which included a self-addressed and stamped response card), and video tutorials. Next, OG&E placed easy-to-understand information on its web portal, including anticipated Q&As. The company also addressed skeptics by providing a “best bill” guarantee, which ensures customers won’t pay more for the first 12 months they’re on the SmartHours rate than they would have paid on the standard flat rate. To address questions about the meter accuracy after the installation of smart meters, OG&E left old meters in place for one month and took pictures of readings as evidence that the new meters were accurate. By the end of the 2012 summer cooling season, OG&E had enrolled more than 44,000 customers in the SmartHours program. Impressively, those customers helped OG&E meet its target of 70 MW of load reduction. By 2014, the company aims to reduce its load by 210 MW in total, and reduce its peak demand.
Regulators of the more than 3,500 electricity providers5 in the U.S. have much on their plates; after all, providing resilient, reliable, and affordable power requires nonstop attention to the details of everyday operations. Adding policy goals like renewable portfolio standards further complicates the mission (see “Pricing Social Benefits” http://www.fortnightly.com/fortnightly/2013/08/pricing-social-benefits). In this context, technology innovation or change – even to benefit consumers – will be extremely slow.
Perhaps a new policy or set of policies is a solution; maybe regulators should consider establishing separate commission policies on utility innovation and new technology.
Such policies would allow utilities and regulators to meet reliability and lowest-cost mandates, while also allowing them to advance solutions incorporating advanced, cleaner and greener technologies. A separate policy also would allow utilities and regulators to continue building upon a growing business case for these innovations.
And that business case is compelling: a recent Navigant Research report says the market for smart grid technologies will total $494 billion in cumulative revenue from 2012 to 2020.6 Recently, Detroit utility DTE achieved 135 percent of its business case on its Itron meters. As a result, DTE is considering accelerating the deployment of the remaining 2.2 million meters and gas modules over the next five years.7
Whatever the policy structure, market acceptance requires forward direction set by regulators. So far, that direction isn’t always clearly set.
To set that direction, utilities first need to provide regulators with a clear vision of what could be accomplished in their service territories by upgrading to advanced technology. That vision already is being established through the many examples of utilities in the U.S. – such as DTE, OG&E, SCE, and others – that have designed creative, innovative programs for their ratepayers.
A second step would be for utilities to outline a detailed understanding of the benefits of smart grid to their ratepayers. That also means understanding that initial costs for technology investments will pay off for consumers over time, and that using the lowest cost as a metric isn’t necessarily the best thing if it means innovation is stifled and consumers save less money over time.
Finally, where the business case shows positive future value, utilities must be willing to implement new programs – and communicate the benefits of those programs back to consumers through the process. Also, by understanding the segmentation of their ratepayers,8 utilities and regulatory bodies can design programs to best survey and then communicate with consumers.
Raising the Stakes
What happens to the next generation of consumers and electricity infrastructure workforce if forward progress isn’t happening, particularly within utilities? According to the Congressional Research Service, the utility industry (e.g., electricity, natural gas, and water providers) has the highest proportion of Baby Boomers in the workforce, with almost three of every five workers between 41 and 59 years old in 2005.9 That’s a major wake up call to inspire talent – and do it now. In addition, environmental concerns, more extreme weather patterns, and growing concerns for human health and wellness all should be drivers for infrastructure upgrades. Importantly, a smart grid can ensure more resilient and reliable service, and can directly reduce emissions by integrating renewables and automating efficiency.
Regulators should keep the benefits of an advanced electricity infrastructure at top of mind when making decisions to improve our nation’s power system. How does this investment now benefit consumers 10, 15, and 20 years into the future? To answer such questions, regulators should address technical subjects directly and seek to simplify the analysis in discussions with consumers. After all, our economy and way of life depends on a modern and sustainable electricity system, and that system must integrate the full range of energy resources – from nuclear to distributed renewables. Optimizing that integration depends on a fully functional smart grid.
Moreover, as the nation moves into a time of unprecedented environmental, economic, and technological change, our power system must keep up in order to continue meeting our growing demand for the high-tech products and services that depend on reliable and affordable power supplies.
Such issues represent the primary motivating factors in any discussion about smart grid upgrades, time-of-use programs, and other initiatives that involve investing in new technology and systems. Changing the way our nation thinks about the need for smart grid technology takes a village, but it also means moving markets to invest in the technology in the first place. That starts with a solid business case and clear policy direction, and it continues with ongoing communications to show the value of smart grid to customers.
1. “Consumer Pulse Wave 3 Study,” Smart Grid Consumer Collaborative, 2013.
2. “Consumer Pulse and Market Segmentation Study,” Smart Grid Consumer Collaborative, 2012.
3. “2013 State of the Consumer Report,” Smart Grid Consumer Collaborative.
4. Hammerstrom, D.J., et al., “Pacific Northwest GridWise Testbed Demonstration Projects,” PNNL, Oct. 2007.
5. “2012-2013 Annual Directory & Statistical Report,” American Public Power Association.
6. “Smart Grid Technologies” report, Navigant Research, 2013.
7. “Q1 2013 Earnings Call,” Itron.
8. “Consumer Pulse and Market Segmentation Study,” Smart Grid Consumer Collaborative, 2012.
9. Levine, Linda L., “Retiring Baby Boomers = A Labor Shortage?” Congressional Research Service Report for Congress, 2008, p. 10.