Smart Grid or Smart Meters?

Is Installing Smart Meters Smart?

There is tremendous momentum driving the installation of Smart Meters across the U.S. as well as other international markets (e.g. Victoria in Australia, New Zealand and China). State laws (e.g. Pennsylvania Act 129 signed in October 2008) have been enacted to compel electric utilities to develop smart meter based solutions to support energy efficiency and demand reduction objectives. The federal stimulus monies assigned to revitalizing the electric grid ($4.5 billion) have shown a strong bias toward proposals that emphasize smart meters. However, the challenges regarding smart meters and their impact on reducing energy consumption remain:

• There is no doubt that customers can reduce load on peak days and therefore pay less. The visibility provided by smart meters and in home devices (IHDs) can play a critical role in accomplishing this goal.
• However, the industry has yet to demonstrate that these smart meter initiatives are the most cost-effective way to reduce demand. Independent of these meters, electric utilities have already established load reduction programs decades ago that are effective at achieving the desired demand reduction with much less costly equipment.

The challenge confronting the industry (both the electric utilities and their regulators) is that if these questions remain (and ultimately the desired results are not attained), there will have been significant investments in a failed technology financed by the customer.

How about Smart Grid?

The industry seems to be on a stronger footing with respect to investments in Smart Grid. In this context, the distinction between Smart Grid and Smart Meters is a follows:

• Smart Grid most often refers to the “middle mile” (where as smart meters refer to the “last mile”), or that part of the grid that operates between the supply (generation) and the customer premises (home or business).
• The investment in the “middle mile” portion of the network provides clear value (e.g. improved reliability, minimized volatility, and reduced emissions), and effective business cases can easily be constructed based on the avoided cost of a customer interruption and/or reduced CO2 emissions into the environment. Further, the realization of these benefits does not require customer “cooperation”, thereby decreasing any uncertainty that the actual value will be provided; and the actual results of these investments can be verified based on overall system performance.
• Any effort to bring Smart Meters on equal footing with these “middle mile”, Smart Grid investments will have to include incentives that drive a desired customer behavior (and more likely a change in behavior). They need to be so compelling as to ensure participation and to  achieve the targeted of reduced energy consumption and demand during peak loads.

An Integrated Solution

Recognizing that the “horse is out of the barn” with respect to Smart Meters and there may be little if any latitude to reverse the momentum of seemingly ill-informed legislators, electric utility executives must: (1) ensure the incentives are designed to promote the right type of customer behavior with respect to Smart Meters, and (2) strategically work with their regulators to upgrade the transmission and distribution networks to ensure their customers receive the full benefits of automation.