What kind of return are utilities getting on their smart grid investments? A recent National Electrical Manufacturers Association report on the return on investment for the smart grid discussed a variety of consumer and utility company benefits, and highlighted some major projects, including these:
Bonneville Power Administration (BPA). This Pacific Northwest utility implemented an Energy Smart Utility Efficiency (ESUE) program focused on distribution efficiency and conservation voltage reduction. (CVR means slightly reducing the voltage supplied to all electricity customers in an area. This can often save energy with only imperceptible changes to performance.)
Implementing effective voltage optimization relies on all the capabilities of the smart grid. Simply lowering voltage at the substation may cause unacceptably low voltages to be supplied to equipment at the end of the distribution line. That’s why CVR systems need smart meters — they measure not only electricity usage, but also system voltages on the customer’s premises.
This benefits utilities by getting more mileage out of their existing smart meter investment, as well as enhancing efficiency across the entire power distribution system. It can also help utilities recover their costs by ramping down generators and/or power purchases.
In addition, CVR benefits consumers because it helps reduce the need to build new power plants in the future — saving ratepayer money and reducing greenhouse gas emissions. An across-the-board voltage reduction of only 3% would yield energy savings equivalent to over twice the energy provided by all existing U.S. solar power installations. (Not that those installations are not also good!)
BPA has not announced its ROI, but a payback of 2-3 years for CVR is not unusual.
Virginia Dominion Power. This utility intends install $600 million worth of equipment to create a smart grid. First Dominion installed 30,000 smart meters, and then invested $1.5 million in synchrophasors — devices installed at substations which monitor grid conditions. This real-time data helps utilities transmit more electricity across a high-voltage grid.
The operational efficiencies derived from a smarter power distribution and transmission system, coupled with Dominion’s EDGE conservation voltage reduction program, are yielding real savings. This smart grid implementation is expected to save more than $1 billion over the project’s life of 15-20 years, against Dominion’s $600 million investment: a 67% ROI. Plus this program will yield environmental and societal benefits, such as avoiding the construction of two power plants, and delaying the construction of two more.
Commonwealth Edison. Over the next 10 years, ComEd of Chicago expects smart meter and smart grid operating efficiencies to reduce customer energy bills by $44 million per year. Here are the key benefits:
- Reducing outage frequency by 20%. Having 700,000 fewer annual outages. This is expected to save $100 million.
- Reducing annual average outage duration by 15%.
- Increasing the total number of customers who exceed ComEd’s service reliability targets by 75%.
- Reducing the number of annual estimated electric bills by 90%.
- Reducing consumption on inactive meters by 90%. “Inactive” meters are not assigned to a customer account. This happens when someone moves into a vacant premise and starts using power without notifying the utility. This cost is borne by all customers.
- Reducing electricity theft by 50%.
- Reducing bad debt expenses by $30 million due to the availability of more detailed and more frequent consumption data.
Austin Energy. The Pecan Street demonstration project hosted by Austin Energy and the University of Texas fully integrates renewable generation through solar panels. It also features a communication system as well as consumer controls to implement advanced electricity and water conservation. Benefits include fuel savings, decreased line losses, and less need for transmission and distribution lines.
This project also lays the groundwork for the changing relationship between the consumer and the utility. In the future, the consumer will be a fully integrated partner — with renewable generation devices on site, and participating in demand response programs.
On the policy front, the NEMA report notes that regulators and legislators can play a key role in overcoming obstacles to smart grid success. Potential solutions may include:
- Financing mechanisms such as low-interest government-backed loans.
- Accounting mechanisms, such as decreasing the service life of smart grid equipment that utilities purchase, compared to legacy predecessors, to allow for faster depreciation. For example, smart meters often can be depreciated in seven years; compared to 30 years for electromechanical meters.
- Changing accounting rules to avoid stranded assets in utility operations.
- Approving rate strategies such as voluntary time-of-use pricing which take advantage of emerging technologies.