MBA 651 Smart Grids

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					MBA 651: Smart Grids
Aimee Antonio, Haoming Chang, Byron Chew, Sarah Krasley & Jason Lane

March 17, 2009

I. Executive Summary

       More than ever, environmental concerns have reared their head and cost

savings and efficiency have become the talk du jour. President Obama and his

current administration have made a point to address these concerns and has

pledged governmental support and investment into the “green” industry for the

purpose of producing jobs and identifying areas of opportunities to allow US to gain

independence from foreign energy sources such as oil.

       While there are many areas that have sprung up in a short period of time

such as solar, wind and water energy, a focus has been on how to improve existing

systems and infrastructure that we currently leverage. One of these existing systems

is US Power Grid and their associated sourcing, storage, distribution and

consumption systems. In this report, we will explore the term “smart grids” and

available technologies that can help us realize incremental efficiency in the

distribution, collection, storage and use of today’s energy resources.

II. Introduction to Electricity Grids

       An electricity grid is a network of transmission and distribution channels

that bring electricity from a power station to end-use customers (or rate-payers).

The transmission activities of the grid are separated into high-voltage and low-

voltage activities. High-voltage transmission systems collect electricity from

power plants and transmit it over large distances to areas where the electricity is

pooled and lies in wait for consumer demand. Low-voltage distribution systems

take electricity from the transmission lines at a lower voltage and deliver it to rate-

payers.1 The entire system enables electrons to move to the electric outlets where

they are needed to power lights, large machines, and appliances. With that said, the

electricity grid is a good example of just-in-time inventory, electricity is delivered

when needed and is controlled by two oversight bodies that govern interstate

electricity transmission and grid maintenance within regions.

       In most cases, the electricity grid transmits electricity in one way—from the

power station to the end-use consumer. As solar power and other on-site generation

technologies become more popular, however, the flow of electricity begins to move

in both directions as end-use consumers use less energy than they produce. Smart

grids and smart metering stand to increase a two-way flow of electricity so demand

can be met more efficiently. Smart grids also stand to provide more real-time insight

on grid vulnerabilities enabling faster, more proactive repairs.

1DOE, Energy Efficiency and Reliability Webpage, Distributed Energy: How
Electricity Grids Work.
Retrieved March 13, 2009.

The United States Electricity Grid

         The electricity grid

in the United States is a

series of regional grids

that all join together to

make a national grid. The

picture to the left, from the

Department of Energy,

shows the regional grids

that make up the US grid as a whole. Each region governs their portion of the grid,

but interregional transmission often occurs based on power supply. The regional

grids in Alaska and Hawaii are slightly different, in that each state has a patchy grid

system that connects major cities. Smaller rural areas rely on minigrids and remote

areas often use diesel-powered generators or solar power (considered off-grid

entities). All in all, the US grid connects more than 9,000 electricity-generating units

(coal-powered plants, wind farms, solar farms, hydroelectric dams, etc.) with

300,000 miles of transmission lines enabling more than 1 Million megawatts of

electricity to pass over our heads every year.2

         The United States electricity grid is over 100 years old. Per the Department of

Energy, our national grid system is over 97% reliable, but power outages still occur,

like the notable blackout of 2003 that left over 50 Million people without power for

2   Department of Energy. “The Smart Grid: An Introduction.” Published 2007.

over two days. The blackout cost an approximate $6 Billion dollars and left 11

people dead. 3

         As demand for electricity grows and innovations like plug-in hybrids seem

like they could potentially have some traction, updates to the United States

electricity grid become a more urgent concern. As real and projected demand for

electricity grows, transmission infrastructure should grow proportionally—

however this is not the case. Only 668 additional miles of transmission lines have

been added to the grid over the past nine years—this level of growth will not sustain

energy needs of the future.4 Improvements to the grid stand also to improve energy

efficiency, greenhouse gas mitigation, and security – benefits we will discuss later in

this paper

Stakeholders/ Regulatory Bodies

         The United States Electricity grid is governed by several regulatory bodies.

As referenced above, the grid is split up into various regions across the United

States. Each region creates operating rules for how electricity is generated within

the region. This responsibility falls in the jurisdiction of individuals called “grid

operators”. These individuals work with state Public Utility Commissions to comply

with state regulations, but most importantly, facilitate transfers of electricity

between power producers within the region. Grid operators also work with their

contemporaries in other regions to allow for interregional power transmission. Here

4   See footnote 2.

is a breakdown of the regulatory bodies that have a stake in the United States

electricity grid:

1. National Association of Regulatory Utility Commissioners (NARUC): NARUC is a

non-profit composed of utility regulators from all 50 states. These individuals,

appointed by State Governors, work to ensure that policies are implemented in

ways that serve rate-payers. NARUC governs not only energy but water,

telecommunications, and transportation.

2. Federal Energy Regulatory Commission (FERC): FERC is an independent

government agency set up to regulate interstate energy transfers. FERC regulates

the transmission operations that occur over the grid system. FERC has set smart

metering as a strategic objective of 2008.

3. North American Electric Reliability Corporation (NERC): NERC is a non-profit set

up by utilities to ensure bulk wholesale power distributions were carried out

according to contract. NERC was founded in the late 1960’s as an adhoc group that

facilitated conversations between utility managers when disputes about interstate

electricity transmissions took place. In 2006, NERC applied to FERC to take on the

task of being the single entity in the US that handles electricity reliability on a

wholesale level. FERC granted their request, and created reliability standards for

power producers and grid operators. As of late 2007, compliance with the standards

is mandatory. NERC is tackling the issue of smart grids by looking at advanced

metering technologies and disaster response rates.5

4. State Public Utility Commissions (PUCs): PUCs exist to protect the rights of rate-

payers within the state and defending them against the agendas of investor-owned

utilities. California leads most of the PUC engagement with the topic of smart grids.

Commissioner Dian Grueneich, known as a huge proponent of energy efficiency, has

ordered the California PUC to lay out an aggressive plan for smart grids along with

utility activities to install smart meters to track electricity more efficiently. The

mini-case study presented later in this paper goes into more depth on the PUC’s role

in spurring smart grid growth at a state level.

B. Regulatory Bodies

    1. NERC & FERC

Federal Energy Regulatory Commission is an independent agency inside the United

States Government that regulates electricity transmission across state lines.

III. An Overview of Smart Grid Technologies

       The smart grid conversation has come into clearer view as a feasible solution

to concurrent conversations about global warming, the environment and energy

independence. By leveraging smart grid technology, power delivery from suppliers

5 Staff Report. “Problems loom, says NERC... Smart Grid for San Diego?... Meter data
is key.” Smart Grids Newsletter.
ays_NERC_Smart_Grid_for_San_Diego_M_179-179.html . Retrieved March 15, 2009

to consumers can be done with higher efficiency in order to reduce cost and

increase reliability thereby reducing costs. While cost prohibitive and complex to

implement, the return on investment is quite impactful whereby if the current

electric grid in the US was to be 5% more efficient, it would equate to the

elimination of the fuel and greenhouse gas emissions from 53 million cars! Outside

of the positive environmental impact that we would realize in leveraging smart grid

technology, the cost savings are quite impactful as well and showcased by a study

that was performed by the US Department of Energy that if used, smart grid

technology would help us save $46-$117 billon over the next 20 years. 6

         When one mentions smart grid technology, it does not refer to a specific

technology alone but rather, a host of technologies that if leveraged, could add up to

the positive impacts as mentioned above. This would require an update to multiple

parts of an already complex network of systems that allow each of us to enjoy the

standard of living that we have come to take for granted. These sections include the

distribution and transmission sides of the existing grid. Smart grid technology could

also be leveraged on the consumer side or the demand side to reduce consumption

of power by non-essential items during peak use hours. The set of technologies and

the scope at which the technologies could realize maximum incremental efficiency

and cost savings are unique to each grid.

         Some examples of technologies that could be used today are the following:


   i.        Intelligent Electronic Devices (IEDs), AMI meters, Phasor Measurement

             Units (PMUs)

   ii.       Local intelligence and control of the system with improved

             communications infrastructure (peer to peer) and the ability to

             interoperate devices

   iii.      Improved usage of energy storage and renewable forming micro-grids

   iv.       Interface with Home Area Networks (HAN)

   v.        Integration and standardization of alternate energy sources tapping into

             the existing grid

Despite the many options available in the market place to improve the efficiency of

today’s power grids, challenges arise when considering the implementation of smart

grid technology on a large scale.

          Other challenges facing the implementation of smart grid technology are the

risk averse nature of utilities to adopt new technologies. Basically, if it’s not broken

and profits are made, why fix it? This is typical for companies that are already

operating on thin margins and are required to identify opportunities to drive

profitability vs. opportunities to reduce greenhouse emissions that can only be

measure within a 5-10 year timeframe. For those who would like to invest in smart

grid technologies, regulatory panels are unwilling to step back and allow these

utilities to take those risks for the fear of “buckling the system”.7

       Below is comparison of factors related to the existing grid and what a future

smart grid could look like8:

IV. Mini Case Study: California

PIER Program9

       In 1996, California’s Governor Wilson signed an energy bill to fundamentally

restructure California’s electric services energy. This bill required at least $62M be

8 Quanta Technology Presentation: Smart Grid, Aug 5th, 2008

collected from electric utility ratepayers for “Public Interest” energy RD&D efforts

not adequately provided by traditional markets. These funds are administered

through the PIER (Public Interest Energy Research) program. PIER brings new

energy services and products to the marketplace with funding areas focused on the

following areas.

   1. Buildings End-Use Energy Efficiency

   2. Energy-Related Environmental Research

   3. Energy Systems Integration

   4. Environmentally-Preferred Advanced Generation

   5. Industrial/Agricultural/Water End-Use Energy Efficiency (IAW)

   6. Renewable Energy Technologies

   7. Transportation Research

       Significant issues have been identified in each of these areas and the PIER

program has been focused on resolving them and meeting overall program goals

and objectives of improving affordability, reliability, health and safety, California’s

economy, environmental outcomes, and consumer choices relevant to electricity

supply and use in California.

Smart Grid 2020 RFP

       Recently, the term “Smart Grid” has become a popular phrase, however due

to the complicated nature and newness of the technology and concepts, there is no

single source of the truth or definition as to what a “Smart Grid” really is, and

California wants a clear definition that brings together various perspectives,

including the National Energy Independence and Security Act, which was signed in

December 2007.

       In February 2009, California issued an RFP to select two contractors to

conduct “Smart Grid” research. One team will focus on the utility business side and

the other team will focus on the technology side, together commissioned to research

and define in detail the elements, technologies, applications, and business cases for

the “Smart Grid” of California for the years 2010 to 2020. This RFP is asking for the

teams to focus on the following areas:

      Identify key smart grid drivers, including top energy policy goals

      Define what “Smart Grid” means for California between 2010 and 2020

      Identify Smart Grid technologies and the minimum number of use cases to

       understand the applications

      Identify potential costs and benefits for the new smart grid

      Develop plans to define “Smart Grid” technologies

      Define any codes, standards, and protocols for the Smart Grid 2020

      Provide a draft implementation schedule

   At this point, California has not yet made a stance on how it plans to move

forward with “Smart Grid” technology, but it is clear that it does want to upgrade the

aging energy infrastructure for many reasons, such as lowering energy costs,

reducing green house gases, improving energy efficiencies, and meeting the future

needs of renewable energy integration.

     By August 17th 2009, the two contracts will be awarded, and the project scoping

and definition will begin. The teams have until March 2010 to complete the project

of defining the future California “Smart Grid.” California is one of the largest states

in the US, and drives a very big majority of the entire US economy, so all eyes will be

on this project as it rolls on, especially as the Obama administration pays

particularly close attention to renewable “Green” energy projects.

V. A New Era of Smart Grids

     The future for smart grids definitely looks promising. As the global population

continues to increase, energy consumption follows suit. With technology advancing,

the electricity network needs to be able to connect to a multitude of devices and still

be able to work reliably. A new smart grid needs to be able to be more flexible than

the one that is currently in place today. Part of this flexibility will require utilizing

new avenues in terms of power distribution to solve rising environmental concerns.

However while many people understand and agree on the future on tomorrow’s

utility grid, few people are willing to “pay for it.”10 Because the new age of smart

grids requires a change in the structure of the utility company’s business models,

the future for these grids will require a new behavioral shift.

        The new age of smart grids will require more digitization and automation.

The way electricity will be delivered to homes and businesses will utilize various

10LaMonica, Martin May 16, 2007. Will anyone pay for the ‘smart’ power grid?.
Retrieved March 12, 2009 from

power sources as opposed to how it is currently done today. Because of this change,

energy customer’s expectations regarding energy will need to change. The energy

business landscape will transform into a more participatory network where

consumers will be enabled to control and be controlled by “smart appliances” and

“intelligent equipment” in homes and businesses. Consumers will be able to better

manage their energy use and reduce their energy costs. The advanced

communication capabilities of these new grids will equip customers with tools to

exploit real time electricity pricing. Consumers will naturally have to change their

behavior around variable electric rates or pay vastly increased rates for the

privilege of reliable electrical service during high demand conditions. This real time

electricity will also allow customers to be compensated for their efforts to save

energy and also allow them to sell back their energy through net metering.

Individual homes and small businesses will be able to sell back power to their

neighbors and back to the grid. This democratization of energy will eventually lead

to concerns regarding privacy and the overall “fair” availability of electricity.

       In conjunction with the shift in behavior regarding smart grid technology, the

new business landscape for smart grids will also inevitably evolve. New smart grid

projects will require utilities to upgrade the electricity distribution network with

communications and data-gathering tools.11 This data will provide insight into the

 LaMonica, Martin November 26, 2008.IBM snags smart-grid pilot deals. Retrieved

March 12, 2009 from

demand for electricity allowing operators to be able to run the grid more efficiently

and spot any problems earlier on. An example of the type of data collected can be

seen below.

This graph shows how much energy a typical home appliance uses per year and its

associated cost based on national averages. Although this suggests new business

opportunities for new and emerging businesses, companies such as IBM seem to

have cornered the market in terms of acquiring new business deals with large

utilities companies such as PG&E. What IBM does is it meets with start-ups and VCs

to pick up on emerging trends and promising companies and then plans out ways to

align these emerging trends with IBM’s strategies and service divisions. There are

four main reasons why smart grid technology is attracting a large amount of

attention from venture capital firms. The first reason is that a great amount of

energy in the U.S. is wasted. Of the energy that is actually consumed directly by the

customer, almost half of the energy gets lost as waste heat or by other means before

it can actually be used by the customer. Smart grid technology can help solve this

problem by redirecting power loads over a network and decrease the amount of

energy that is wasted considerably.12 The second reason why smart grids are so

attractive is that the technology itself better fits into the VC mold for building

companies. Most smart grid companies don’t need to build huge factories to produce

the end product. Most of the work around smart grids involves developing software

or networking devices which do not require a great deal of land mass to build. The

third reason is that the current smart grid technology clearly needs improvement.

The current grid is made to send electrons in one direction and not designed for a

two way communication which is what the new era of smart grids is proposing to

achieve. Lastly, the attraction of smart grid technology lies in the fact that this is a

relatively new market. There are no set standards or practices currently in place.

The new start-ups will have an opportunity to set the landscape themselves as to

what the business model should look like.

       Since IBM is a large established company, they currently have the resources

to invest in these new smart grid projects. In November of 2008, IBM partnered

12 Kanellos, Michael December 22, 2008. IBM:It’s All About Smart Grid in 2009.
Retrieved March 12, 2009 from

with American Electric Power, an Ohio based Utilities Company to be its systems

integrator for its gridSmart initiative. IBM will supply the IT gear and services for

this initiative which is designed to upgrade the distribution grid to better handle

distributed power generation, storage, and efficiency programs.13 IBM is also

involved in several utility smart grid updates around the world. Just last month, IBM

joined a research consortium called EDISON, which is a Denmark based

collaborative aimed at developing an intelligent infrastructure aimed at the

adoption of electric powered vehicles powered by sustainable energy.14 Electrical

hybrid cars are an example of this alternative source of power. These cars with

larger battery packs can store up to 10 kilowatts of power. The average home

consumes about 2 kilowatts in an hour which means a car battery could essentially

fuel a home’s power for about five hours. IBM’s dedication and willingness to invest

in these new smart grid projects is demonstrating where the future of technology is

inevitably headed. The outlook for Cleantech companies especially in the smart grid

landscape still appears to be promising despite the struggle of many start-ups in

obtaining VC funding. As Drew Clark of IBM’s Venture Capital Group stated in an

interview last December, “Cleantech may be the only category [of venture funding]

that is left relatively unscathed and [VCs] are looking to put money into traditional

 LaMonica, Martin November 26, 2008.IBM snags smart-grid pilot deals. Retrieved

March 12, 2009 from

14Horn, Emily IBM Media Relations February 29, 2009. IBM joins EDISON Project to
Build Smart Grid for Electric Cars. . Retrieved March 12, 2009 from http://www-

IT type of companies and smart grid is exactly that.” 15 However unlike the

computer revolution where the customer base was huge, the customer base for

these smart grids will mainly be the utility companies. And in order to implement

the smart grid technologies in the future, many trials and tests must be done before

massive deployments take place. For this reason, utility companies such as PG&E

will most likely be willing to do business with larger more established companies

rather than start-ups.

       Although companies such as IBM are leading the way to setting the path for

smart grids, all is not lost with new smaller smart grid companies. There were ten

smart grid companies in 2008 that were able to receive VC funding. Among these

ten is Trilliant. Trilliant is a smart grid company based in Redwood City, Ca. who

provides network solutions and software to utilities for advanced metering, demand

response and Smart Grid management. Trilliant produces communication chips that

are to be added to standard electrical meters. These chips will allow utilities to

stream-line their service and homes can monitor and control their overall usage. But

like most start-ups, in this relatively new industry, one of the challenges facing

Trilliant is the uncertainty regarding standards and communication protocols which

will most certainly affect funding.16 This uncertainty regarding standards and

15 Kanellos, Michael December 22, 2008. IBM:It’s All About Smart Grid in 2009.
Retrieved March 12, 2009 from
16 Morrison, Chris February 3rd, 2009. Trilliant Looks Toward a Year of the Smart

Grid. Retrieved March 12, 2009 from

protocols will aid in changing the landscape for these new smart grids. With Obama

signing the stimulus bill on Feb 17th, $11B was allocated for “smart grid”

investments.17 With this new support from democratic lawmakers in the U.S., the

smart grid sector could finally have the traction it needs for widespread adoption

amongst global utilities.

VI. Broadband & Smart Grids

User Interaction with Smart Grids

        One of the first steps for users to conserve energy would be a way of

monitoring their and knowing about power consumption by item. The ability to

monitor the energy consumption of individual products would let customers have

the knowledge to make decisions about how to conserve power, as the current

method of energy consumption is a blanket statement of consumption and doesn’t

even let consumers really check for discrepancies in their consumption and their

bill.   Organizing this information in a way that lets users monitor household

consumption real-time would be a start, even better would be adding the capability

to adjust power levels individually in real time. Data would be compiled per device

and transmitted through wireless low-power chipsets; users of smart monitoring

systems can view and adjust their energy consumption remotely (online) (Google).

17Galbraith, Kate February 17, 2009. Obama Signs Stimulus Packed With Clean
Energy Provisions. Retrieved March 12, 2009 from

       Tendril is a company that offers a full packaged solution of online

management through a supplied network of smart power meters. Their users can

view real-time graphs and metrics of power consumption per item, then adjust as

felt necessary.

       Current meshing of technology such as the memory card morphing into

=>the integrated GPS+Wifi+memory all in one card (same size) allows retrofitting of

Wifi into older consumer devices of all sorts which may have power meters in them

already- computers, and cars being the 2 that come to mind. Adapting technologies

such as online grocery ordering or e-receipts for brick and motor customers would

allow information to optimize refrigerator power consumption- if capacity of the

fridge was not at full, the fridge could sense (from weight and proximity sensors)

the capacity, have a baseline reference of inventory from consumer receipts, and

automatically or manually be adjusted for minimal power consumption.

       Current electric and hybrid car technology could be adapted to benefit from

smart grid technology as well, the V2G (vehicle to grid) (clean tech blog) model

allows electric and hybrid cars to share power network with homes, they can buy or

sell on grid - a consumer could use the hybrid car generated electricity to power a

home for an evening easily. If recycling centers had veggie oil filters, and true

recycled veggie oil cars had were also adapted to hybrid power, wasted vegetable oil

could be converted relatively easily by consumers to power their homes on grid or

sell back to grid at peak hours.

       Current electronics manufactures are advancing their energy conservation

efforts as well; there is a market shift towards LED displays to conserve electricity,

ambient light sensors, and reduced emphasis on power - speed from efficiency and

optimization in system development. Wasted power while items are idle is also a

previously un-addressed issue, manufactures are recently moving to improving

their efficiency ratings on power supply units.

Behavioral Changes

       GE and Google have partnered to bring changes to both power supply and

power users, Google is collecting energy data and making it visually quantifiable and

manageable to users, GE is opening up the black box of power supply to consumers

and encouraging consumers to manage their energy consumption wisely and

efficiently. Using meters with data logging, power consumption can be monitored

and reduced.

VII. Conclusion

       In conclusion, while technologies are existent today that would allow for the

existing grid to become more efficient and case studies showcase the positive

results, regulatory, market and implementation challenges need to be addressed

prior to the adoption of said technologies on a mass scale. Large scale partnerships

that cut across governmental agencies and corporations and even multi-national

accords would most likely need to be worked out in order to arrive at the ideal

scenario of being energy grid efficient. The positive trend is that these conversations

are currently happening vs. not and we hope to be able to land in a world where

concern with the environment and a higher, more cost efficient standard of living

will be favored over short term profitability.


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