Why do we need a Smart Grid?

It is rare that an emerging market gains immediate support from government, industry and the public. The U.S. Government has appropriated $11 billion through the American Recovery and Reinvestment Act of 2009 to fund projects for “clean, efficient American energy.” So why is there such a sense of urgency surrounding the Smart Grid?

The market for smart grid enabled devices is driven in the short term by the business needs of utility companies. Increased energy demand coupled with aging generation and delivery infrastructure are driving utility companies quickly to the point where they will not be able to meet peak demand. From the utility perspective, Smart Grid technologies must be deployed, so that they can continue to operate reliably.

In the medium term, both the utility companies and consumers will drive the market for smart grid enabled devices. Smart Grid technologies, driven by two-way communications, will enable a new class of consumer devices and markets in much the same way as the Internet has enabled everything from online shopping to Smart Phones.

Utility driven market phase

Nationwide, electricity demand is forecasted to grow by 30% by 2030. However even now, the electrical power grids that deliver the electricity by which we work, play, communicate and live are rapidly running up against their limitations, in the United States and around the globe. As digital-age economies grow, risks associated with relying on an overtaxed grid also grow in size, scale and complexity. From power system security to global climate change, lawmakers, technology and industry leaders and consumers agree that a rapid migration to a smarter grid is a top national and global priority.

The Problem with peak

Since electricity must be consumed the moment it’s generated, we can’t produce energy and store it for when we need it most – say on a hot summer day when we all run our air-conditioners. These times when energy is most in demand are referred to as “peak” periods. Electric grids must be built to provide enough capacity to meet the needs during peak periods; although to do so creates inefficiencies during off peak periods. One of the primary goals of the Smart Grid is to help flatten the peak and smooth out demand.

Peak Margin

Since 1982, growth in peak demand for electricity has exceeded growth in transmission capability from electric utility companies by more than 25%. With today’s grid, there is no good supply side solution, and at the current pace, 2011 is the year when we could start seeing rolling blackouts in the Mid-western part of the US.†

For the utility companies, this means lost revenue for every Watt-hr of energy they cannot deliver to consumers, but they are not the only ones who lose during a blackout.

Consider the following:

• On average, one hour of power interruption costs a semiconductor manufacturer $2 million, a credit card operation center $2.58 million, and a brokerage operation $6.48 million.
• The U.S. Department of Energy estimates that power outages cost Americans at least $150 billion every year. That translates to $500 for every man, woman and child.
• Since 1982, growth in peak demand for electricity has exceeded growth in transmission capability by more than 25%.

Even today, utility companies are forced to bring additional “peaker” plants online at times of peak demand. Peakers are often older and expensive to operate because they use fuel bought on the spot market instead of through long-term contracts. In addition, they generate additional greenhouse gases when they are in use, but typically sit unused during off-peak times without generating revenue.

The DoE estimates that investments totaling approximately $1.5 trillion will be required over the next 20 years to pay for infrastructure alone to support growing demand. This infrastructure investment will be partially borne by the utility companies, but will also be passed down to consumers. Smart Grid implementation is the best hope for reducing and/or delaying these costs.

Consumer Driven Market Phase

During the winter of 2007/08, 20% of Americans fell behind in their energy payments and an astonishing 8.7 million American consumers were disconnected from utility services according to the US Department of Energy. 33-50% of consumer electricity bills already go to fund the upkeep of current grid infrastructure. Add an additional $1.5 trillion over the next 20 years in infrastructure required meeting rising peak demand, and pressure on the consumer escalates. With rates forecasted to rise by 50% over the next 7 years, Americans are losing the ability to afford the power that enables our modern way of life.

Embracing the Smart Grid provides the best hope for relief from these rising energy costs. Enabled by HAN technologies, a multitude of smart consumer products including meters, appliances and thermostats are being developed and deployed to allow consumers to take control of their energy demand and therefore their energy costs. In addition to energy costs, the Smart Grid will allow consumers to actively contribute to environmental conservation while experiencing new levels of convenience and control over household tasks.