While the original electrical grid facilitated the industrial innovations of the 20th century, the smart grid will inspire the green advances of the 21st. “Without it, most of the other green technology won’t work,” says Ben Kortlang of KPCB, a Silicon Valley venture-capital firm. While technologies in fields such as communications and medicine have steadily advanced in the past century, electrical grids still utilize nineteenth century technology to power twenty-first century appliances. Half of the grid is more than forty years old. This antiquated network creates several problems. Currently, peak power plants are built in order to supply power to the grid during peak demand hours on just a couple of the hottest days of the year. Constructing new plants requires an investment of $1 billion or more and overcoming numerous regulatory obstacles, making the process take years or even decades to complete.
Moreover, utilities are still dependent on customers to tell them when there is a power outage. Recent figures suggest that outages cost the U.S. economy $150 billion every year. Nearly 10% of electricity is lost from the U.S. grid due to technical problems and theft. Connecting the grid via a communication network will allow utilities to reroute broken paths and repower the grid almost instantaneously.
Interest in smart grid technology that will make our electricity grid much more efficient is picking up steam. Since the grid is aging and needs to be updated soon, it is sensible to upgrade to the best available technology. Venture capital firms have invested over $1 billion in smart grid start-ups since 2004. Also, the federal government is overseeing a $3.4 billion program to modernize the grid through a series of infrastructure and efficiency projects across the country. According to the Brattle Group, a consultancy, the benefits of a smart grid may reach $227 billion over the next 40 years, depending on which other policies are implemented in tandem. If utilities provide customers with real-time usage information and introduce dynamic pricing models, charging rates based on the concurrent electricity demand, consumers will realize $45 billion in cost savings.
If consumers were just able to access real-time usage information, they would reduce consumption by 6.5% on average. If variable pricing schemes were also implemented, users would reduce their demand by 10 to 15% during peak hours. Essentially, variable pricing and real-time monitoring would allow consumers to implement their own micro demand response programs voluntary, scaling back their electricity usage when price signals compel them to do so. Customers would save money and the overall electricity demand curves would be less volatile. Thus, utilities would no longer have to purchase as much backup capacity. The customers’ and the grid operators’ interests would therefore be better aligned, especially if revenue decoupling programs were implemented nationwide to maintain utility’s profit margins as electricity usage decreased.
A more intelligent grid design would allow the transfer of electrons from locations with an oversupply of power to points where demand is high and the grid is stressed. Smart appliances such as clothes dryers and dishwashers could be programmed to run only during times of low demand. If a plug-in electric car were not being used during peak daytime hours, the utility could pay the car owner for withdrawing some of the storage power out of the car battery to redistribute electricity across the grid where it is needed. Smart grid technology would also allow renewable energy sources to be better incorporated into the grid. Smart appliances could be programmed to run only when wind turbines or solar panels are feeding power into the grid, making these intermittent sources of energy more useful and the grid cleaner.
Morgan Stanley predicts that growth in smart grid technology will exceed 8% per year, reaching $100 billion by 2030. Cisco expects the smart grid communications network to eclipse the size of the internet. Although the specifics of these predictions may vary, they all include one overarching theme; smart grid is a sensible way to improve the nation’s energy infrastructure, and if planned properly, the returns on smart grid investments will generate cost savings that will greatly exceed the up-front capital expenses of modernizing the grid.
