Summary and some thoughts regarding the SmartGrid Conference at the Brookings Institution

Summary The Brookings Institution hosted an event titled ‘Beyond the Smart Grid: Challenges in the Electricity Markets’ on September 11, 2009 with approximately 100 individuals in attendance. A smart grid, otherwise known as a smart electric grid, smart power grid, or intelligent grid among other names, is a method of electric energy delivery that relies upon digital technology to reduce costs, increase reliability, and foster security as well as reduce the economic impact of wasteful energy delivery and storage. Though there are many technological aspects to a smart grid at every stage of transmission, it essentially utilizes smart meters at the end user’s location to determine, via digital feedback, peak usage hours, lapses in service and security breaches in real time. It would also potentially allow consumers to monitor their own use analyze what hardware, such as appliances, or which activities are most costly to them. Some of this technology is in place and being utilized today. Other potential benefits of a smart grid system could be interoperability with electric vehicles, which would serve as alternative storage facilities for electricity, a more integrated local grid, or mesh, system which would provide greater support in the case of shortages or failures, and integration between regional grids to take advantage of cost imbalances between different areas of the nation. This is particularly true in the U.S., which was the focus of the event. However, smart grids are being explored in many nations, and are in use to an extent in a few already. The Event Following is a summary of the event as well as some of the main talking points during each session. The event was kicked off by the keynote speaker and recent Obama appointee Jon Wellinghoff, who is serving as the Chairman of the U.S. Federal Energy Regulatory Commission (FERC). Chairman Wellinghoff is an energy law specialist with over 30 years experience in the field working in private practice. The Chairman was followed by two panels of specialists, with the first focusing on smart grid transmission issues, and the latter geared toward distribution issues. On the first panel were moderator Charles Ebinger, Director of the Brookings Institution, Bill Gaines, CEO of Tacoma Power, Charles Gray, Executive Director of the National Association of Regulatory Utility Commissioners, Peter Huber, Fellow of the Manhattan Institute, and Larry Mansueti, Director with the U.S. Department of Energy. The second panel was moderated by Lynne Kiesling, Senior Economics Lecturer at Northwestern University, and included Cheryl Hinds, Director with Baltimore Gas and Electric, Richard Morgan, Commissioner with the District of Columbia Public Utilities Commission, Jeffrey Ross, EVP of GridPoint, and Lisa V. Wood, Executive Director with The Edison Foundation. Chairman Wellinghoff started the event with a discussion of transmission, basically the status of the current electric grid. He believes that the system is overly fragmented, that much of the system, including newer parts, does not have a high enough voltage capacity and that the antiquated system of local management, which made sense 100 years ago, needs to be overhauled. Therefore, the first step in creating an integrated, modern system with the capability to evolve in the future is through infrastructure improvements. He identified three areas that remained in focus throughout the remainder of the event where improvements can be made; planning, siting, and cost allocation. The Chairman focused on planning first, suggesting that regulators need to look at long term forecasts to determine how to meet future energy loads reliably. He identified the disparity in our nation’s three area grid system, which is defined as West, East, and Texas, suggesting that it was inefficient to have such a fragmented system. He also noted that the main innovations in power generation are occurring in ‘the flyover states,’ while most of the demand exists on the coasts, and suggested that more efficient delivery systems will be necessary. Discussion became more political as Chairman Wellinghoff shifted to siting. As previously noted, much of the new infrastructure improvements occurring in the states are completed on direction of local authorities, typically at the state level. However, with a more universal approach necessary for completion of a smart grid ready network, he suggested that a federal approach may be required. It is notable that this is already the approach taken in the natural gas market, with federal direction of pipelines taken for granted. However, the historically fragmented electricity market has always been controlled at the local level, and many believe that local authorities will relinquish this power with reservation. Interestingly, the Chairman believes that, despite a lack of explicit statutory authority, the Department of Energy and FERC may already have the power to direct future infrastructure improvements. This is in part due to recent legislation that contains loose terms allowing FERC control over hydro facilities and in areas of congestion. There may also be support in several Supreme Court cases, both in holdings and dicta. Despite this apparent position of power, there would still be potential pushback from local pols if too much authority were asserted. Therefore, the conclusion was that further legislation from Congress may be necessary in the future. The final focus area of the Chairman was cost allocation. Essentially, the question is at the point where infrastructure is planned, who will be responsible for paying for it; the nation from tax revenue or the end users, states in this case. This is possibly the most politically charged question of all, and no conclusion was reached on this point. However, it was noted that legislation might be required in this area as well. The first panel essentially picked up where the keynote address ended. The participants agreed that siting, cost allocation, and planning were all critical areas for dialogue. Following are some of the highlights of the discussion. There was lively debate over whether the costs of infrastructure development should be socialized or the burden should be borne by end users. Some of the main points were that it is very difficult to determine how much each pass-through state benefits or loses as a result of grid siting in their states, and it is perhaps even harder to measure exactly how much electricity flows to end users from a grid with multiple electricity sources. The conclusion was that a socialized burden would be the only way to handle construction. However the political difficulties in this were held out as a reason why this may not be possible. There was also discussion about how goals for improvements could best be met, with the panel seeming to agree that it would be better for the government to clearly state its end goals, (such as carbon reduction) and allow market players to innovate around such goals. The alternative, which seems to be in vogue currently, is the government mandating exactly which technology is to be used, a seemingly less efficient way of handling these changes. An additional area of agreement was on the benefits of localized planning, while adopting the Chairman’s ideas that the federal government should, and would, step in when local authorities were not able to come to satisfactory results. After this, the panel discussed the ways in which the push for green technology is impacting siting. The group seemed to agree that there was a dramatic impact, particularly in the west. It was noted that nuclear is not a viable option currently, and that coal has been disincentivized. Therefore, heavy usage areas, such as Southern California, are increasingly looking toward renewable sources, and how to get the cheap, clean energy from wind farms in the Mid-West to the West coast most efficiently. The panel concluded with thoughts that echoed those of Chairman Wellinghoff; namely that further legislation would probably be necessary to skirt the difficult political issues inherent whenever states feel federal authorities are usurping a long-held power. The second panel shifted the focus of the discussion to distribution issues. Where the first part of the event focused on infrastructure and some of the problems faced in developing it, the second panel focused on the consumer and some of the ways that consumer behavior could impact the future of smart grid technology. In general terms, the group shared many conclusions on big picture ideas. The biggest of these was the impact that variable pricing schemes could have on consumers who were aware of them and understood how they worked. Essentially, if consumers face higher prices during peak usage periods when the system is strained, they will conserve more energy. This can be accomplished both via credits for reduction and penalties for overuse. In actual test groups, there was a nearly 30% reduction of peak usage when educated consumers were involved in variable pricing schemes. Here, some of the technological aspects and future capabilities of a smart grid came to the forefront. These consumers, in some cases, had the ability to monitor specific usage by certain appliances and fixtures, and could react accordingly. In a smart grid world, this information could be relayed to transfer stations and electricity managers as well to determine the most efficient way to satisfy the needs of consumers on a real time basis. There is, additionally, already technology available which allows consumers to make determinations based on the information they receive to impact their behavior to an even greater extent. For example, if they know that running their air conditioners from 5 to 7 in the evening is more expensive, they may shut it down for an hour, either manually, or on a timer in their central system. Here, the conversation also drifted into potentialities whereby electric cars could serve as storage units for excess capacity, and even the possibility that those with extra energy in electric cars, or those who produce energy via solar panels, could sell back into the grid, a truly market-based approach to energy consumption. Conclusion All in all, the technology already available, along with some changes to both the infrastructure and legislative regimes, would allow the U.S. to move forward dramatically toward a more modern electronic transmission system. This system would provide more efficiency, more security, and would move the nation to more green-friendly sources such as wind and solar due to the system’s ability to transfer this capacity to end users. The potential for a more market-based approach to energy consumption would hopefully prove to be yet another step toward energy independence. However, political considerations, costs, and proper planning are all huge factors, and perhaps hurdles in the way of reaching this possibly utopian end result. In the meantime, the Obama administration’s commitment to moving toward the potentially unviable perfect world should at least result in some improvements to an infrastructure and legislative regime which are not currently conducive to meeting the needs of the 21st century and beyond.