Most of the recent hype regarding the smart grid involves far-off technologies for the home, such as the capability to plug in hybrid vehicles, in-home generation and storage, and residential demand response. Industrial electric customers always have used large volumes of electric power and will continue to do that in the future, but changes in the smart-grid system could open new opportunities for industry.
What Is a Smart Grid?
"There's a consensus of smart grid definitions," explained Harry Forbes, senior analyst, manufacturing advisory service, at ARC Advisory Group, who spoke at ABB Automation & Power World this week in Houston. To provide context, he offered a list of smart-grid characteristics that are well-accepted. A smart grid enables active participation by customers; accommodates all generation and storage options; enables new products, services and markets; provides power quality for the digital economy; optimizes asset utilization and operates efficiently; anticipates and responds to system disturbances; and operates resiliently against attacks and natural disasters.
Forbes made three major points: Determining how smart today's grid is depends on where you're looking; growth or advances in the smart grid are going to be regional in nature because of varied energy demands; the applications that will impact industrial customers most are participation in markets, demand response and energy storage. Ultimately, however, the applications will come from a lengthy list of residential applications already in use on a smaller scale.
"There's a really broad list of applications," said Forbes. "And a lot of these are deployed now in a small scale." These include advanced metering, remote connect/disconnect and renewable generation.
"The vision of the smart grid is to take these applications and make them part and parcel of the grid," said Forbes. "There's a big set of applications. Underneath them are some enabling services. The apps need communication services, but they need security because of the wide distribution. And what will come later is mobility. As people start to drive around in hybrid vehicles, they will need to maintain their customer identities as they move around."
On the network communication side, enabling services include utility internal communication, metering, transmission management, building automation and even device-level communications.
The nature of the smart grid demands attention, whether you're an industrial customer or a utility. "From inside the utility perspective, the smart grid has the ability to change every business process," said Forbes. Impacted utility business processes include system operations, such as operation and distribution management, and business operations, such as customer service, billing, outage and field workforce management, load forecasting, generation and transmission planning, and rate design.
"Today's grid has many attributes of a smart grid," explained Forbes. "If you're a refiner or large chemical company, you can probably actively participate, but if you're a dry cleaner or convenience store, probably not. Major plants have the opportunity to participate, but smaller scale facilities don't. Today's grid already has many attributes of tomorrow's smart grid, but only within parts of the utility, and they're not extended to most utility customers."
For enabling new products, services and markets, Forbes gives today's smart grid a grade of D-. "There's nothing going on in the utility's genetics to do that," he said. "That's a new goal for utilities. This falls to the regulations that have to change over time." Customer-utility interaction is minimal, and rate structures are far from optimal. However, utilities recognize power quality as an issue, and some power quality metrics have been developed."
What's at Stake and Where It's Driven
"With the smart grid you can look at a large number of stakeholders," explained Forbes, who identified many dimensions of a smart-grid analysis, including the number of applications, customer segments, regulations, the enabling services, organizations, including the utilities, regulators and suppliers and the short-, medium- and long-term time horizons, but regional energy demands play a huge role. "We did a forecast for North America combining smart metering and smart grid," said Forbes. "Every time you talk about the smart grid, you should have a regional context to it. The business conditions for utilities are much different in North America than they are in Europe or in developing economies. We're seeing 10% load growth in emerging economies versus 2% to 3% in developed economies."
A study of the eastern interconnection of the United States found out power prices would rise in the Southeast and Midwest if power transmission were unconstrained, explained Forbes. "We mostly have regional, not national, markets for electricity," he said.
Many factors will drive the evolution of the smart grid in different areas too. North American and EU stimulus spending will slow dramatically because of the sovereign debt crisis, explained Forbes. And the global recession has caused a decrease in energy demand as well. Asia's higher historical growth rates will mean a faster return to peak loads seen in 2008. But overall, commodity price inflation and gas price deflation has affected demand for smarter energy.
The best smart grid applications for the North American business climate include demand response, distribution automation and energy storage, explained Forbes. "They improve energy efficiency and they improve reliability of the grid as a whole."
There is also much talk about smart metering, said Forbes. But smart metering is not a smart grid, although it has some effects on its development. "We've seen that stimulus funding lowered the ROI hurdles," said Forbes. "Smart meters are an enabler of time-of-use tariffs. That gives public policy a lot more flexibility to match cost and price. While time-of-use tariff is not the same thing as real-time pricing, there are people in the smart grid world who are convinced that customers need to be exposed to those very highly fluctuating prices in elastic markets." However, residential exposure to real-time pricing is an analyst fantasy. The political process will not allow exposure of consumers to price risk from inelastic markets, he explained.
Electric markets traditionally don't work well because of the huge barriers to entry, generating plants' long life spans and relocation issues, limited storage capacity and lack of price signals to consumers, explained Forbes.
Although the market is highly elastic, suppliers can't respond to high spot prices, and generation and transmission capacities are limited. Electric market participation is complex. Markets were designed for utility participation and by large-scale independent power producers. "Smart-grid adoption should greatly enlarge participation in markets," said Forbes. But will customers participate directly or not? Generally, we participate through an intermediary. This is an area industrial customers need to watch," said Forbes. "There are different ways people can interact in the future. This will allow the grid to be load responsive to the spikes."
A level playing field for demand response means that commercial and industrial cost/benefit would be comparable with residential, and that rate structures would be neutral with respect to new peaking capacity vs. demand response. Energy aggregators also only would be able to address simple demand response situations. "They cannot address complex manufacturing sites that require real-time tradeoffs, like choosing between energy costs and production," said Forbes.
Energy storage is the final piece to the opportunity puzzle. "It's easy to evaluate energy storage," said Forbes. "It provides systemic benefits to the grid. Any system with capacity is easier to keep stable. The costs of energy storage are going in the right direction with respect to investments, and they're being targeted at the commercial and industrial space. Energy storage is a no-brainer ROI calculation, but that's not to say it will happen."