ARC Analyst Forbes Describes Smart Grid's Impact

July 15, 2010
Understanding the impact of the "smart grid" from Harry Forbes's perspective

Harry Forbes, senior analyst, manufacturing advisory service, at ARC Advisory Group described how he sees the impact of the "smart grid" during an address at  the ABB Automation & Power World conference in Houston.
He said that residential applications already in use on a small scale are the bell weather for what industrial use will look like. These applications 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 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."

Forbes added that regional energy demands and local forces will play a huge role in the smart grid's development. "The business conditions for utilities are much different in North America than they are in Europe or in developing economies," he said. "We're seeing 10% load growth in emerging economies versus 2% to 3% in developed economies."

Many other regional factors will drive the evolution of the smart grid. North American and EU stimulus spending will slow dramatically because of the sovereign debt crisis, explained Forbes. 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."

Market Forces

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/benefits 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."