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Building Support For The Next Wave Of Smart Grid Projects 05 05 2011
- 1. ENERGY
Building Support for the
Next Wave of Smart Grid Projects
INFOCAST Webinar
May 5, 2011
Navigant Reference: 830282
©2011 Navigant Consulting, Inc.
D I S P U T E S & I N V E S T I G AT I O N S • E C O N O M I C S • F I N A N C I A L A D V I S O RY • M A N A G E M E N T C O N S U LT I N G
- 2. Building Support for the Next Wave of Smart Grid » Introduction
Our speakers today will discuss strategic issues associated with smart
grid deployment and suggested approaches for future projects.
• David Walls, Managing Director
• Forrest Small, Director
• Ralph Zarumba, Director
• Erik Gilbert, Associate Director
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 1
ENERGY
- 3. Building Support for the Next Wave of Smart Grid
Agenda
1 The First Wave
2 The Next Waves
3 Regulatory Issues
4 Smart Grid Cost-Benefit Tools
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 2
ENERGY
- 4. Building Support for the Next Wave of Smart Grid
Agenda
1 The First Wave
2 The Next Waves
3 Regulatory Issues
4 Smart Grid Cost-Benefit Tools
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 3
ENERGY
- 5. The First Wave » Time Frame & Characteristics
We are entering the “Second Wave” of smart grid deployments where
deeper understanding of the business case will become critical.
Future Waves
“Addressing Strategic Needs”
Second Wave
“Understanding the
Business Case”
• Targeted
deployment
First Wave
“Laying the Foundation • Scaling up deployment • Gradual build-out
and Learning” • More rigorous business • Continuous
cases improvement
• Cost recovery
• Demonstrating value
Cumulative Rate of Investment
• Pilot programs and demos
• Government incentives and
subsidies
• Regulatory mandates
2005 2015 2020
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 4
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- 6. The First Wave » Areas of Smart Grid Deployment
The first wave of smart grid, estimated to continue through 2015, has
begun to bring intelligence to the grid across all segments.
Areas of Smart Grid Technology Deployment in the First Wave
Advance Distributed
Customer Distribution Transmission
Metering Energy
Systems Automation Management
Infrastructure Resources
Customer Customer Customer Customer Customer
Systems Systems Systems Systems Systems
• Displays • Smart meters • Switches • SynchroPhasor
• Distributed
• Portals • Data generation • Equipment measurement
• Energy management monitoring • Wide area
• Energy storage
management • Back office • Voltage and monitoring and
• PEVs visualization
• Appliances integration VAR control
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 5
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- 7. The First Wave » DOE ARRA Smart Grid Programs
DOE’s ARRA Smart Grid Investment Grant and Demonstration
programs have been a critical catalyst for the first wave of projects.
American Recovery and Reinvestment Act Smart Grid Programs
Smart Grid Investment Grant Program Smart Grid Demonstration Program
• $3.4 billion in federal funding • Regional Smart Grid Demonstrations
• $8.2 billion of total project value • 16 projects selected
• 99 projects selected • $435 million in federal funding
• Project categories: • $877 million of total project value
• Customer Systems • Energy Storage Demonstrations
• Advanced Metering • 16 projects selected
Infrastructure • $185 million in federal funding
• Distribution Systems • $770 million of total project value
• Transmission Systems
• Equipment Manufacturing
• Integrated and Crosscutting
There are also ten Renewable and Distributed Systems Integration (RDSI) and
High Temperature Superconductor projects.
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 6
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- 8. The First Wave » AMI Projects Dominate Smart Grid Investments
Approximately 75% of the smart meter deployments through 2013 will
occur in California, Texas, and through DOE programs.
• Automated meter reading and operational functionality forecasted to reduce labor costs
• Demand response programs intended to reduce electricity costs and defer Capex upgrades
AMI Smart Meters1 (M) AMI Business Case2 (M)
$700 Societal
Energy
$600
8 Capacity
$500
16 Capex Deferral
3.2 $400
$300
$200 Operations
12
$100
DOE Programs California $-
Texas (non SGIG) Others
Cost Benefit
1.Navigant estimate of electric smart meters installed and funded 2 Illustrative example of typical AMI Business Case for an Investor
through 2015 Owned Utility operating in an organized market
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 7
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- 9. The First Wave » Utilities Continue to Realize DA Benefits
The first wave of Distribution Automation (DA) initiatives have been
performed as incremental investments and pilot projects.
• Distribution reliability improvements have been demonstrated on worst performing
circuits
• Line loss reductions have been demonstrated in voltage optimization pilots, but results are
still estimated or calculated
• DA functionality advancements and communication technology cost reductions have
improved the business case
Circuits with Auto Switches Outage Minutes on Circuits
60 200
150
40
100
Illustrative
20
50
0 0
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
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- 10. The First Wave » Pilot Projects
Early AMI pilot projects across the US have largely focused on dynamic
pricing and direct load control.
• Typical deployments of less than 10,000 meters
• Dynamic pricing pilots have captured 5-20% of the customers
• Direct load control and demand response has focused on commercial and
industrial
• Simple business cases
– Focus on operational savings
– Demonstration of load reduction potential
– Structure of the utility matters
• Results should be used carefully, as they have not been based on rigorous
sampling or approaches
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 9
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- 11. The First Wave » Key Outcomes
The results of early projects will be mixed as the business cases and
customer involvement are uncertain.
• Market adoption of pricing programs is low
• Customer benefits are difficult to capture
• Business case is difficult to make without a mandate or subsidy
The next wave of projects will focus more on utility side benefits and business cases, and will
clarify the relationship between the utility, the customer and the smart grid.
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 10
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- 12. Building Support for the Next Wave of Smart Grid
Agenda
1 The First Wave
2 The Next Waves
3 Regulatory Issues
4 Smart Grid Cost-Benefit Tools
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 11
ENERGY
- 13. The Next Waves » Comparison Factors for Smart Grid Waves
Several factors will be different between the first wave of smart grid
and the next.
Comparison Factor First Wave Next Wave
Smart grid systems AMI and metering Distribution systems
Benefits One-dimensional, static Complex, evergreen
Lower –
Functionality Higher – control
sensing/monitoring
Distributed energy
Passive awareness Active integration
resources
Rudimentary, NPV, black
Business case tools Complex, EV, transparent
box
Performance Relevant performance
Limited and crude
measurement metrics
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 12
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- 14. The Next Waves » Focus on Distribution Systems
Smart distribution systems can make a greater contribution to moving
us toward the modern grid than AMI and smart metering.
AMI and Smart Distribution Support MGI
Smart Grid Functionality1 Modernizing the grid will lead us
Metering Systems Characteristics
Real-time load measurement and
toward seven key outcomes
management
• Self-heals
Customer electricity use
optimization • Motivates and Includes the
Automated voltage and VAR consumer
control
• Resists attack
Adaptive protection
• Provides power quality for 21st
Automated feeder and line century needs
switching
Automated islanding and
• Accommodates all generation and
reconnection storage options
Real-time load transfer • Enables markets
Diagnosis & Notification of • Optimizes assets and operates
Equipment Condition efficiently
Enhanced fault protection
Source: A Systems View of the Modern Grid,
Modern Grid Initiative (MGI), National Energy
Dynamic capability rating Technology Laboratory, January 2007.
1 Functionality as specified in the DOE’s Smart Grid Benefits
Yes No
Framework
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
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- 15. The Next Waves » Capture Complex Smart Grid Benefits
Smart grid benefits will come from areas that have been difficult to
demonstrate and monetize in the past.
Smart Grid Benefits
Type Description Examples
Benefits related to utility or consumer costs that • Reduced T&D operations costs Easier to
Financial can be expressed directly in financial terms. • Lower electricity bills for customers monetize
Benefits related to power interruptions or power
• Shorter power outages
Reliability quality, but that may not be easily expressed in
• Less severe voltage sags
financial terms.
• Reduced CO2 emissions
Environmental Benefits related to air polluting emissions.
• Reduced SOx and NOx
Benefits related to maintaining a secure energy • Reduced oil consumption Harder to
Security supply and infrastructure. • Fewer, or smaller blackouts monetize
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 14
ENERGY
- 16. The Next Waves » Increase Smart Grid Functionality
Build on the sensing and reporting technology of the first wave, and
increase functionality for control and automation.
• Leverage the sensors and Automation
communications networks Remote
installed during the first Control
wave Sensing and
Reporting
• Use the technologies to
develop “apps” that enable
operational efficiency, • Increase speed to impact
resilience, and optimization
• Standardize processes
• Reduce cost
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 15
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- 17. The Next Waves » Platform for Consumers and New Energy Products
Facilitate close communications with consumers and their appliances,
and become a platform for new energy products and services.
Support Direct Consumer Engagement
• Information on demand
• Customer control and engagement
• Collaborative and personalized interaction channels
Integrate Consumer Energy Technologies
• Smart appliances and equipment
• Energy management systems
• Distributed energy resources
Enable New Energy Products and Services
• Energy service bundles
• Customized electric service levels
• Retail energy exchanges
Source: “A Day in the Life of the Future Customer”, Customer Care Research Consortium, Navigant analysis.
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©2011 Navigant Consulting, Inc. 16
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- 18. The Next Waves » Integrate Distributed Energy Resources
Simplify integration of distributed energy resources, and use them to
create smart grid resources.
AMI facilitates communications
between utility information
systems and PV inverters
Information Flow
Inverter
Power Electrical Utility
Smart
Service AMI Information
Control Meter
Panel Systems
Operator Interface
Power Flow
Load Utility
Energy Storage Circuits DA Distribution
(ES) System
DA helps manage
Demand DR curtails small amounts
ES provides input to circuit voltage and
Response of customer load for short
inverter to compensate for accommodate changing
(DR) periods of time (<2 hrs)
PV variability (<8 hrs) power flow
PV system Smart grid technologies Functionality Electrical system components
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 17
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- 19. The Next Waves » Measure Performance
Apply metrics that track the impacts of smart grid on grid operations
and performance, and use the results to guide ongoing deployment.
Performance metrics can be used
to demonstrate smart grid impact
Smart Grid
Strategy
• Operational efficiency
• Reliability improvement
• Customer satisfaction
Lessons Systems • Customer demand profiles
Learned Deployment
• Capital investment deferral
• Asset utilization
• Electricity cost savings
Performance • Fuel savings
Measurement
• Generation mix
• CO2 reductions
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 18
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- 20. Building Support for the Next Wave of Smart Grid
Agenda
1 The First Wave
2 The Next Waves
3 Regulatory Issues
4 Smart Grid Cost-Benefit Tools
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 19
ENERGY
- 21. Regulatory Issues » Innovations Create Regulatory Challenges
Every decade, the electric power industry has introduced new
innovations that have created new regulatory challenges.
1960s 1970s 1980s 1990s 2000s
Large Nuclear Energy Competition The Smart
Centralized Power Efficiency in Wholesale Grid
Fossil Stations and Retail
Stations Markets
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
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- 22. Regulatory Issues » Regulatory Strategy
There are four elements of regulatory strategy to be considered for
smart grid programs.
Prudency Cost Recovery
Regulatory
Strategy
Pricing & Program
Cost Allocation
Design
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 21
ENERGY
- 23. Regulatory Issues » Corporate Structure and the Regulatory Strategy
The regulatory strategies of distribution companies will differ from
those of vertically integrated utilities.
Distribution Company Vertically Integrated Utility
• A Distribution Utility offering • What are the different approaches to
“wires services” faces different quantifying the benefits of smart
challenges when implementing the grid for a vertically integrated utility
smart grid than a Vertically versus a wires company
Integrated Utility. • Should a difference exist for the
• Their charter often limits them to quantification of the Cost / Benefit
“Wires Issues” Analysis?
• What criteria should a Distribution • Is it valid to account for potential
Utility use in performing the Cost / benefits associated with customers
Benefit Analysis – should it who are procuring from
include the generation benefits? competitive suppliers?
• What if a customer procuring
competitive power does not want
to participate in a smart grid
information program?
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 22
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- 24. Regulatory Issues » Prudency
Investment prudency will remain a critical review item for regulators.
• Is the proposed program design reasonable and will it withstand
Initial Decision scrutiny in a post-implementation review?
Making Process
• The implementation of smart grid typically triggers early
Treatment of retirement of infrastructure – will the utility face disallowance risk?
Existing
Infrastructure
• Is the utility ready to implement the “soft-side” of the smart grid
Customer including pricing design and customer education?
Implementation
Issues
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
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- 25. Regulatory Issues » Cost Allocation
Allocating costs must properly reflect the accrual of benefits to
different classes of customers, and the system as a whole.
• The value of benefits is perceived to generally follow the customer
Who Benefits from groups who participate directly in smart grid programs
the Smart Grid?
• Although System Benefits provides significant value to all,
System-Wide customers arguments are made to re-allocate or disallow the costs
Benefits
• Most approaches to cost allocation are based upon traditional
approaches (e.g., Allocated Cost of Service) and ignore how
Existing Cost
Allocation consumers benefit from the smart grid
Approaches
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 24
ENERGY
- 26. Regulatory Issues » Cost Recovery
Cost recovery strategy is integral to the utility’s overall smart grid
strategy.
• A large smart grid implementation may trigger a rate case
Will a Rate Case opening up every issue in the utility revenue requirement
Triggered?
• Many utilities have chosen to isolate smart grid cost recovery
Isolated Smart Grid
Cost Recovery
• The timing of the cost recovery – current or deferred
Timing Issues
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 25
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- 27. Regulatory Issues » Pricing Design
Pricing design must carefully balance the enhanced functionality of the
smart grid, with the core interests of customers.
• How were the existing tariffs designed and are they appropriate
Existing for the smart grid?
Tariffs
• How will you establish Dynamic Pricing and wide-spread TOU?
Dynamic Pricing / • Is it feasible for your customer base?
TOU
• Any new pricing design or product offering needs to be
Adverse Customer implemented in a manner that targets receptive customers
Reactions
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
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- 28. Regulatory Issues » Strategy Success Factors
Winning regulatory strategies for smart grid will rely on traditional
success factors.
Don’t Over-Promise
•The death knell of many good ideas occurs when reality and expectations collide
Provide Customers What They Want – Not What You Think They Should Have
•Most customers don’t want to think about electricity – they just want it there when they need
it!
Maintain Price Stability
•People like utilities that are boring -- significant price increases are tantamount to painting a
target on your back
Listen to Markets and Behave Appropriately
•Wholesale energy and ancillary service prices are volatile
•Smart grid strategy should account for energy price
•Market designs change
Design programs so that no customer groups feel like they are being treated unfairly
•Cost allocation really does matter
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
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ENERGY
- 29. Building Support for the Next Wave of Smart Grid
Agenda
1 The First Wave
2 The Next Waves
3 Regulatory Issues
4 Smart Grid Cost-Benefit Tools
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
©2011 Navigant Consulting, Inc. 28
ENERGY
- 30. Smart Grid Cost-Benefit Tools » Overview
Business cases for the next wave of projects will be more rigorous, and
require more capable tools.
• Flexible Tools Will Be Required
⁻ Regulatory structures, mandates and requirements vary widely
⁻ Every utility has different characteristics, approaches, potential avoided costs, etc.
⁻ Every project has unique aspects
⁻ Some costs and benefits are difficult to quantify in dollars (e.g., reliability, GHG
emissions)
• Key Issues Must Be Addressed
⁻ Defining the “smart grid”
⁻ Establishing a deployment timeline and technology/function evolution path
⁻ Establishing a baseline approach
⁻ Developing an approach to stakeholder benefits and costs accrual
⁻ Applying appropriate time value to benefits and costs
• Proper Methodology and Tools Can Clarify and Simplify the Business Case
⁻ Help organize thinking about difficult-to-quantify benefits
⁻ Help plan and prepare for measurement & verification (M&V)
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- 31. Smart Grid Cost-Benefit Tools » Framework and Tools Examples
The three tools discussed here are based on a framework developed by
DOE, EPRI and Navigant.
1. Smart Grid Computational Tool (SGCT)
– Focuses on utility project investment analyses
– Can model a wide range of smart grid project types
2. Residential Technology Benefit/Cost Test Tool
– Focuses on residential technology (e.g., HAN) behind the meter
– Specialized for ROI analysis
– Provides standardized cost tests (e.g., TRC test, Utility Test, etc.)
3. Regional Cost-Benefit Assessment Model
– Extends the DOE/EPRI Smart Grid Methodology
– Examines Regional Investment Scenarios
Building Support for the Next Wave of Smart Grid Projects, May 5, 2011
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- 32. Smart Grid Cost-Benefit Tools » Framework
DOE’s Smart Grid Benefits Framework is based on the idea that smart
grid assets and functionality lead to benefits.
What are smart grid What does the How does it What “goodness” What is the
technologies? smart grid do? do that? results? goodness worth?
Monetary
Assets Functions Mechanisms Benefits
Value
Benefits are assessed in the following
categories:
•Economic
•Reliability
•Environmental, and
•Security
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- 33. Smart Grid Cost-Benefit Tools » 1 – SGCT Inputs and Outputs
The SGCT is an Excel based tool that uses a variety of data inputs and
assumptions, and provides standard outputs.
Inputs Examples Outputs
Smart grid project AMI/Smart Meters,
Assets, Functions, Automated Feeder
and Line Switching
Monetary Value
and Mechanisms
of up to 22
Data that Annual Generation Benefits
corresponds to Costs, Number of
Impact Metrics Tamper Detections
All Output
Data derived from Value of Service, is calculated NPV Analysis
estimates and Price of Capacity at over of Project
assumptions Peak, Value of CO2
SGCT multiple
Discount Rate, years
Cost Parameters
Inflation Rate,
and Escalation
Population
Factors Growth
Sensitivity
Analysis of
High and Low case Project
Sensitivity Factors
Value of CO2
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- 34. Smart Grid Cost-Benefit Tools » 2 – Residential Technology Benefit/Cost Test Tool
Calculates the benefits, costs and the five standard benefit/cost ratios
for demand-side smart-grid technologies.
Input, output &
model structure
are easily
accessed via
graphical user
interface
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- 35. Smart Grid Cost-Benefit Tools » 2 – Residential Technology Benefit/Cost Test Tool
Outputs include total benefits and costs by category as well as five
standard benefit/cost test ratios.
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- 36. Smart Grid Cost-Benefit Tools » 3 – Regional Cost-Benefit Assessment Model
Six refined benefits categories—from generation to consumption—each
comprises a group of functions.
Automated
Wide Area Voltage & 6 Benefit Categories
VAR Control Dynamic
Monitoring 30 Functions
Capacity
& Visual-
Rating
ization
Improved
Power Flow Conductor
Control Line
Efficiency
Infra-
Phase structure
Balancing T&D Life
Optimization Extension
Utility
Grid
Operational
Reliability
Efficiency
Smart
Grid
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