Smart Grids and Small Utilities
A Preliminary Analysis on the Contribution of Utility Size to Successful Smart Grid
Deployment
Kristina Tajchman
Community & Regional Planning, University of Texas, University Station, Austin, Texas, U.S.A.
Keywords: Smart Grid, Infrastructure, Electricity, Grid Modernization, Utility Size, Small Utilities.
Abstract: Modernizing the electric grid and turning the smart grid vision into reality is a complex and multi-decade
undertaking presenting significant challenges for utility companies. This paper highlights the particular
challenge smaller utilities face as they consider smart grid initiatives. Six key barriers to smart grid
implementation are selected and presented here in a qualitative assessment including 1) the need for
individually tailored solutions, 2) a questionable value proposition, 3) the lack of communication and
information technology (IT) infrastructure, 4) mixed consumer engagement, 5) an aging workforce, and 6)
an awkward progression of regulations and standard development. The objective of this effort is to stress
the missed opportunity that may exist to promote the early engagement of smaller utilities in national smart
grid deployment efforts.
1 INTRODUCTION
Implementation of the smart grid vision promises
advancements in the areas of energy efficiency,
customer visibility, cost savings, reliability, and
congestion among many others. Despite these
benefits, only small subsets of utilities are
implementing smart grid projects to modernize their
electric infrastructure. According to the Smart Grid
Information Clearinghouse, a project funded by the
U.S. Department of Energy (DOE) to populate and
maintain a list of smart grid projects, there are only
174 smart grid projects in the country (SGIC, 2012).
When compared to the existence of over 3,000
utility companies, this ratio is disappointingly low.
These numbers are especially disappointing in
consideration of the efforts made by the federal
government to promote investment in the smart grid.
A condensed list of these efforts includes 1) creation
of the Smart Grid Advisory Committee, the Smart
Grid Task Force, the Smart Grid Systems Report,
and the Smart Grid Interoperability Framework
through the Energy Independence and Security Act,
and 2) funding the Smart Grid Investment Program
(SGIG), the Smart Grid Demonstration Program
(SGDP), the Smart Grid Information Clearinghouse,
and the Smartgrid.gov website through the American
Reinvestment and Recovery Act (ARRA) funds.
Together these efforts represent billions of dollars
spent encouraging states and utility companies to
begin successful smart grid deployment.
Admittedly, electric grid modernization is
expected to be a work in progress that will take 40-
50 years and immediate nation-wide results are
unrealistic. The heavy reluctance of the majority of
utilities to initiate smart grid projects, however, is
worth evaluating. Fundamentally, this reluctance is
a reflection of multiple barriers of implementation.
Not only do smart grid projects require individually
tailored solutions and have a questionable value
proposition that discourages investment, but also
there is a lack of communication and IT
infrastructure in the industry, a lack of consumer
engagement, an aging workforce, and a difficult
progression of regulation and standard development
which all contribute to slow progress.
The concern presented in this paper is that while
these barriers present significant challenges for the
major utilities, smaller utilities are especially
discouraged. Operating with a smaller customer
base, these utilities have limited resources which
lead to their reduced ability to explore emerging
technology options, improve cost effectiveness, and
promote customer engagement. Consequently, the
small utilities may be least successful in attempts to
71
Tajchman K..
Smart Grids and Small Utilities - A Preliminary Analysis on the Contribution of Utility Size to Successful Smart Grid Deployment.
DOI: 10.5220/0004398600710076
In Proceedings of the 2nd International Conference on Smart Grids and Green IT Systems (SMARTGREENS-2013), pages 71-76
ISBN: 978-989-8565-55-6
Copyright
c
2013 SCITEPRESS (Science and Technology Publications, Lda.)
engage in smart grid initiatives and may be among
the last to move in this direction.
Existing literature pertaining to the progression
of smart grid objectives under-recognizes the lack of
progress by these stakeholders and overlooks the
opportunity there may be to better promote their
inclusion in nationwide modernization movements.
The objective of this effort is to bring attention to
this problem and promote debate that may generate
ideas and initiate action to foster the engagement of
smart grid projects by the smaller utilities.
To accomplish this objective, six key barriers to
implementation are qualitatively accessed and
highlighted against the particular disadvantages
small utilities face to mitigate each barrier. This list
is not exhaustive and additional barriers are left for
consideration in future work. Additionally,
systematic studies of each barrier against well-
defined utility sizes are suggested for future research
on this topic.
2 BARRIERS
OF IMPLEMENTATION
The following sections individually describe barriers
to implementation commonly found in existing
smart grid literature and relate them to small
utilities. For a more detailed description of the
technical, business, and financial challenges facing
utilities readers are directed to the DOE Smart Grid
System Report to Congress in 2012 (USDOE, 2012).
2.1 Individually Tailored Solutions
The first barrier that emphasises the challenge small
utilities face to deploy smart grid projects is that by
nature smart grid projects require individually
tailored solutions. The existing electric
infrastructure is a patchwork of interconnected
transmission and distribution lines that incorporate
multiple sources of energy, include widely varying
ages, conditions, capacities, and cross multiple
regulatory environments (EDRG, 2011). As a result,
there is no one size fits all smart grid solution.
In this respect, each utility must consider its own
infrastructure and evaluate the emerging
technologies that meet their specific needs.
Unfortunately, this makes the effort more time
consuming and less affordable during a time that
research and development (R&D) efforts have
significantly declined in the industry. Before the
functional unbundling of the electric industry in the
1990’s there may have been funds available for this
purpose, however, R&D became the favorite cost-
cutting target as the industry became more
competitive. As a result, fewer utilities are investing
in long-term projects, especially where those utilities
are privately owned (Sterlacchini, 2010).
For this reason, smaller utilities have an
incentive to delay their efforts and let the larger
utilities go first. Not only do the larger utilities have
more resources to research and develop smart grid
technologies, but their efforts are much more likely
to develop a market for those technologies. The
result is that small utilities can then take advantage
of these cost reductions as they evaluate the
solutions that are most appropriate for their service
area. As noted by a manager from a small utility in
the state of Massachusetts, “It’s cheaper if you’re
one year behind the curve,” (Clamp, 2012).
Herein lays the opportunity for the federal
government to make a significant difference in the
number of utilities engaged in smart grid projects.
By providing general guidance, such as lessons
learned, technical and financial analysis on the value
of smart grid investments, and communicating
information openly across the industry, the R&D
burden utilities face may be reduced. For small
utilities reducing this burden may be enough to
counteract their current tendency to delay initiation
of these projects.
2.2 Questionable Value Proposition
In light of the individually tailored solutions
challenge, the cost effectiveness of a smart grid
project is a major hurdle. This is primarily because
some of the greatest benefits are to the society at
large and are not specific to the utility owner or their
investors. Societal benefits may include downward
pressure on energy prices, the integration of cleaner
distributed generation, and the associated
environmental benefits. As energy use during peak
demand is reduced by load-shifting designs, for
example, the need to build new peak power
generation plants and new transmission lines is
reduced along with the associated environmental
impact of new infrastructure. Unfortunately,
measuring these benefits and allocating them to
specific benefactors is extremely difficult and they
are not likely to be reflected in cost-benefit analysis
as companies evaluate smart grid options.
Adding to this problem is that the ability to
secure credit is also an issue. Depending on whether
or not a utility is in a regulated or unregulated
market, investors face a trade-off between funding
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projects in regulated markets with greater certainty
but a reduced incentive to sell less energy, and
unregulated markets with greater risk that costs will
exceed benefits (SGCR, 2012). Investors are
further deterred due to the moving set of possibilities
as technology, energy mixes and energy policies are
in a constant state of flux, and the cost-benefit
analysis are primarily based on research instead of
historical or on the ground performance (SGCR,
2012). As mentioned previously, with limited
resources small utilities are less able to fund
research to support a cost-benefit analysis. Without
a well-documented justification, their ability to be
issued credit and secure funding is further reduced.
Another consideration is that utility types range
from investor-owned, to municipalities,
cooperatives, river authorities, aggregators,
transmission and distribution, retail, and power
generation companies each with their own
organizational structure and authority. The
difference between these types is important.
According to a report by the National Science and
Technology Council (NSTC) on the 21
st
Century
Grid, a utility company’s motivation to engage in
smart grid efforts is impacted by their business
model and their level of incentive to sell less energy
more efficiently.
Investor-owned utilities (IOU), for example, are
profit making enterprises that exist to make a return
on investment for their stockholders. Thus an IOU
has a strong interest in selling more power and is
likely to view smart grid technology less favourably
unless it can help avoid building new peaking plants
(NSTC, 2011). Rural cooperatives, on the other
hand, provide service to their own members and
return profits to them directly. These types of
utilities are likely to have a greater interest in selling
less energy more efficiently and may be particularly
attracted to smart grid investments.
The questionable value proposition is magnified
for a smaller utility whose lower customer base
reduces the cost effectiveness of expensive capital
equipment. Some types of smart grid technologies,
such as smart meters and transmission line sensors,
may be correlated to the number of customers in a
service area. Communication and IT infrastructure
necessary to collect, maintain, and aggregate data
from these systems, however, are a necessary
component regardless if utilities are serving a few
thousand customers or a hundred thousand
customers. Thus smaller utilities with fewer
customers are less able to justify the heavy capital
investment.
With these concerns, lawmakers may need to
consider more targeted incentive programs.
Encouraging investors to fund smart grid projects in
specific utility demographics, such as, size or
ownership type may help balance the additional
funding challenges those utilities face as a result of
their customer base and organizational structure.
2.3 Lack of Communication and IT
Infrastructure
Unfortunately, with a few exceptions by large
utilities, the collective electric infrastructure has not
been kept up to date with modern technology in the
way that other industries such as banking or
telecommunications have. As a result, the third
barrier to smart grid implementation is the enormous
amount of new communications and IT
infrastructure required to support smart grid
operations with data collection, aggregation,
maintenance, and communication.
The Electric Power Research Institute (EPRI)
describes, for example, that although many
transmission and distribution substations are already
equipped with sensors, there is limited bandwidth
connecting substations to the enterprise. This means
that even if new smart grid sensors are deployed,
there is a limited ability to transmit their data back to
the utility. As a result, estimates range from
$50,000 - $70,000 per substation just to build upon
communication and IT infrastructure of existing
platforms, and these estimates are not including the
additional need to build new substations (EPRI,
2011). On the distribution side, costs run over
$500,000 per feeder to incorporate the necessary
communications (EPRI, 2011).
Thus although smart meters with demand
response, running approximately $940 per customer
(EPRI, 2011), are considered the basic building
block of the smart grid (EEI, 2011), funding the
smart meter itself is not the only cost. Depending on
the legacy system, synchronizing new technology
with existing systems may be problematic and may
delay deployment.
In this manner, the advantages of smart meters
can only be fully realized when the communication
network incorporates all appliances and devices in
the distribution and metering chain, (Depuru, 2011).
The result is that smaller utilities may deploy smart
meters without the ability to take full advantage of
their capabilities. Unfortunately, this further
contributes to the reduced value proposition
discussed above and provides additional justification
for governments to target incentive programs to
smaller utilities and their investors.
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2.4 Consumer Engagement
Despite advantages in increased visibility of energy
use and the associated ability to reduce or shift
energy loads and lower energy bills, consumer
perceptions and attitudes towards smart grid projects
vary. The fourth barrier facing utilities then is the
level of customer engagement or opposition.
Depending on regional or personal experiences with
energy or environmental issues, customer
willingness to adopt smart grid technology varies by
region (Horst, 2011).
Some areas of the United States, for instance,
have experienced significant consumer opposition to
smart meters and advanced metering infrastructure
(AMI). In the state of Texas the Public Utility
Commission (PUC) is considering opt-out rules for
customers who are against the installment of smart
meters for potential health hazard and privacy
concerns (Llorca, 2012). This means that utilities
may have to maintain two systems at an additional
cost if some of their customers are allowed to opt-
out of using a smart meter.
Again, this contributes to the cost-benefit
analysis utilities conduct to weigh the pros and cons
of initiating a project. In areas where utilities need
to mitigate customer opposition, smaller utilities
may be much more likely reject smart grid projects
that already have minimal direct financial incentive.
This is important because a report by The Edison
Foundation concludes that individual, utility, and
societal benefits could significantly increase with
increased investment and focus on consumer
education and engagement (EEI, 2011).
Consequently, this is one area where state or
regional level education or initiatives to promote
customer engagement may be especially beneficial
to smaller utilities in their efforts to deploy smart
grid initiatives.
2.5 Aging Workforce
The fifth barrier to smart grid implementation is that
as an industry, electric utilities are facing imminent
retirement of much of their workforce without the
security of adequate numbers of mid-career level
personnel with on-the-job training and experience,
or future graduates and professors to fill their
positions (Sen, 2012). This is especially challenging
as smart grid initiatives have greater demands for
personnel with specialized skills. A report from the
National Energy Technology Laboratory (NETL)
and the Office of Electricity Delivery and Energy
Reliability cautions that rebuilding staff reductions
and attracting technical talent back to the field is a
valid barrier to realizing smart grid initiatives such
as AMI deployments (NETL, 2008).
This barrier is especially important to small
utilities in rural versus suburban areas, as they are
less likely to attract technical staff or new college
graduates. While some movement of college
graduates has been tracked increasingly to the
suburbs of metropolitan areas (Forbes, 2011),
college graduates still tend to migrate to cities of
greater density than rural areas. Thus smaller
utilities in outlying and rural areas may be especially
vulnerable to the ability to attract the technical talent
they need to deploy and maintain new smart grid
systems.
Again, this may be an opportunity for state or
federal initiatives to balance the greater challenges
facing small utilities. Governments, utilities, and
universities are already taking action to increase
participation in the energy industry (Sen, 2012), thus
it is likely that there is an opportunity to add to this
effort through additional incentives for technical
graduates to seek employment in lower density
areas. In doing so they may promote a faster
deployment of smart grid efforts by small utilities
that will help broad policy initiatives to improve
energy efficiency and realize the smart grid vision.
2.6 Regulation and Standard
Development
Finally, the sixth key challenge facing utilities is the
uneven progression of regulations and standards in
an industry that is not fully regulated, nor fully
deregulated. While developing regulations that
encourage interoperability, cyber, reliability, and
interconnection standards, policy-makers struggle to
balance the need to provide a lower risk
environment for investors while allowing for
flexibility that may promote innovation in the new
energy market (SGSR, 2012). Monitoring the action
of government authorities to move in this direction,
however, is especially tough for small utilities with
less staff to keep track of regulatory change.
Additionally, small utilities by design have less
ability to influence these regulatory changes. Not
only are they more restricted by their influence from
the perspective of their smaller customer base and
fewer resources for lobbying, but as discussed above
they are moving slower than their larger counterparts
towards smart grid deployment. This means they are
less likely to identify and vocalize their preferences
to decision-makers in time to pre-empt or confront
the preferences larger utilities have already
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promoted in the path forward to standards
development.
To balance these challenges, federal authorities
should take deliberate care to better communicate
the status of regulatory change, and assist states in
developing and implementing their policies with
greater confidence and fewer delays. Furthermore,
both authority levels are encouraged to specifically
solicit input from small utilities in public workshops
as they weigh pros and cons of various regulatory
options.
3 CONCLUSIONS
Exploring the vast array of smart grid technical
solutions, analyzing cost-effectiveness, evaluating
cost-recovery options, securing funding, and
gauging customer support are challenging steps for
any utility. Conducting these steps on a limited
budget, with limited staff, limited credit, and a small
customer base, the effort may be overwhelming.
The intent of this paper is to show how specific
barriers to smart grid integration are particularly
challenging for smaller utilities and explain why
targeted government efforts are needed to promote
their involvement.
First, the high cost of individually tailored
solutions driven by the complexity of the electric
infrastructure is especially problematic for small
utilities that have fewer resources committed to
R&D. These costs may be mitigated by government
efforts to provide general guidance, technical and
financial analysis and improve communication
across the industry, thereby alleviating some of the
R&D burden.
Second, the questionable value proposition of
smart grid projects is exacerbated for small utilities
with reduced abilities to secure funding and fewer
customers to spread out costs of expensive capital
equipment. This is especially true considering the
lack of existing communication and IT infrastructure
common across the industry. Targeting incentives
for investment in small utility smart grid projects
may balance the additional challenges they face to
improve affordability.
Next, regional and local consumer opposition to
smart grid projects is especially troublesome for
small utilities due to their reduced ability to fund
consumer education programs. Thus by increasing
awareness of societal and individual benefits of the
smart grid vision, federal or state level consumer
education programs may be especially helpful to
smaller utilities.
Additionally, in the face of a national aging
energy workforce, smaller utilities are more
vulnerable due to their locations in areas of less
population which typically receive fewer college
graduates. Thus federal level programs that
encourage energy and electric technical
professionals and college graduates to migrate to
areas of less dense populations may reduce the
impact on smaller utilities located in these areas.
Finally, the awkward progression of federal level
regulation and standard development is more
troublesome for smaller utilities with less ability to
monitor and influence these requirements. To
improve their participation federal efforts to engage
diverse stakeholders from all utility types and sizes
in public workshops may improve the participation
rate of these utilities.
In conclusion, by exploring each barrier to smart
grid implementation this paper seeks to highlight the
particular susceptibility of small utilities. By
suggesting additional federal or state level
involvement specifically targeted to promoting their
engagement and fostering debate on measures that
may be taken to dampen these obstacles, the final
objective is to achieve a greater ratio of utilities
initiating smart grid projects.
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