‘Smart’ Grid: New Critics of a Bad Idea (Part I of II)
by Robert Michaels
January 12, 2010
Possibly the most fascinating aspect of the Smart Grid is the absense of an economic rationale. But industry incentives being what they are (concentrated benefits, diffused costs), many have bet on much of it being built. Boondoggles must pass political tests, not economic ones.
But guess what? People are finally starting to wonder if this smart grid is worth the trouble. Intervenors, at last, are turning up at state proceedings. For a good sample of the issues and alternatives, look at Synapse Energy Economics’ July 8 filing at the New Jersey Board of Public Utilities on behalf of the state Department of Public Advocate. Synapse is possibly the best firm in the business to represent efficiency or environmental interests, but they stand with the skeptics on smart grids.
The utilities have yet to find consultants who can make an easy case for the grids. Advanced Metering Infrastructure (AMI) by itself recovers only 50 to 80 percent of its costs if all it gets used for is automated reading, data transmission, and service initiations and terminations. (See Brattle Group’s The Power of Five Percent, at p. 6.) Getting a positive cost-benefit figure requires time-varying rates for small customers and ways they can react to them, or giving their utility power to do that for them.
California is in the midst of distributing smart meters to everyone over the next few years, but it has already made certain that the necessary rate reforms and controls rate and controls won’t be there. First, the state just got a law that prohibits any mandatory form of time-varying pricing, with or without bill protection, prior to 2013. Mandatory real-time pricing without bill protection has to wait until 2020. Utility-controllable thermostats (originally deemed necessary for a positive cost-benefit figure) were removed from the state’s regulatory options a year ago by public protests.
But let’s say that redesigned rates somehow come to be. Then the increase in consumer bills to pay for the meters will be counteracted by reductions due to peak shifting. The actual levels and persistence of these adjustments are far from clear. The purported evidence for responsiveness comes from controlled experiments in which self-selected consumers got all the hardware for free and were rewarded for their participation. Brattle calculates that a reasonable shaving of the peak under smart metering will save about $3 billion a year nationwide in avoided generator investment ($2.4 billion) and operation ($0.6 billion). Relative to almost any dimension of the industry, this is a trifling figure. Edison Electric Institute (at p. 17) says that total investment by corporate utilities amounted to $84.2 billion in 2008 (these figures do not include IPPs).
Raise that to $112 billion to account for the 25-odd percent of power that comes through municipals and co-ops, and assume that about $40 billion of it goes to build transmission and distribution. Discounting at 9 percent on a 20-year horizon, Brattle calculates the present value of the savings at $35 billion, $28 billion if we look only at generation investment. After the smart glacier comes and goes, the detritus is equivalent to a four-month moratorium on generator construction, and that happens only once.
Things get better still once we realize that these are only figures from the utilities’ side. The smart grid’s promise only materializes after small consumers buy a bunch of their own equipment – flashy thermostats, premium-price appliances that can talk to the grid, controllers, assorted communications gear, etc. Add a few hundred bucks of costs like these, multiply them over, say, 80 million homes and small commercial units, and then use the same logic as environmental intervenors to calculate the “societal” cost, also known as the wealth loss to ratepayers. The utility? Unlike consumers, it gets a regulated return on its investments, and possibly even stranded cost recovery on unamortized equipment that the smart stuff replaces.
But as long as we are talking societal, exactly where is the smart grid’s environmental contribution? Just about everyone agrees that its main effect will be to time-shift peak consumption, with little if any effect on total power use, i.e. no carbon consequences. Synapse notes that there may be benefits from scaled-down versions of smartness – automated meter reading without advanced communications may be effective, and there surely are circuits that could benefit from smarter technologies. For cutting carbon they recommend mandated efficiency measures. The rollout of everything to everyone doesn’t help much, even assuming that it works and is secure. The smart grid does have one virtue – it’s something big and durable for utilities to spend on and manufacturers to produce, which is looking more and more like the entire point of the program.
Note to critics: If any of the figures here are wrong, tell me and I’ll cheerfully acknowledge it. Again: check the aforementioned reports from the Brattle Group and from Synapse.
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Kennedy Maize { 01.12.10 at 6:48 pm } I’ve been arguing that the smart grid is a bad, wrong-headed idea for months at POWER magazine’s blog (www.powermag.com). Michaels is absolutely correct that the smart grid simply shifts demand, with no benefit to society (but plenty to utilities).
My case has been for a strong grid — more robust interconnections between and among the existing grids, without regard to how smart those interconnections are.
There is no doubt in my mind that a smart grid would not have protected the nation in the most recent regional blackouts. Indeed, the cascading grid collapse might also have collapsed the information-based grid, and exacerbated the outage.
As best I can tell, it’s a con. The utilities recover the costs of the smart grid in rates, benefit from load smoothing, and consumers have to pay for the infrastructure and buy intelligent toasters and the like on their own accounts.
Sounds a lot like plug-in hybrid cars (which I regard as another enormous scam benefiting utilities and not consumers or society at large).
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Smart Grid Passion–It’s On Your Dime (Part II)
by Robert Michaels
January 15, 2010
In Part I earlier this week, I asked critics for corrections to the surprisingly weak figures on avoided investment that smart grid advocates use to push their program. Having gotten none, let’s see where the figures take us.
First stop is the home page of the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability (OE). Its most prominent link is to their own The Smart Grid: An Introduction. Intended by its own admission for impressionable readers, it is plagued with misstatements, deceptive graphics, and unsourced assertions. Its official author is Eric Lightner, Director of the Federal Smart Grid Task Force. Lightner has not bothered responding to my requests for the sources of his footnote-free document, which was actually put together by a PR firm. Perhaps this is to be expected from a federal department that has a policy to push and must point us underlings toward official documents favoring the policy. But do we taxpayers have to really put up with this?
Then on the homepage is a link to the Galvin Electricity Initiative, the project of a retired Motorola executive who wants “Perfect Power,” nowadays pushed by the former head of the utility industry’s Electric Power Research Institute.
Then there is a blurb on Gridweek, the annual convention for smart griddies. Its 2009 “Platinum Sponsors” include the usual mix of meter makers, utilities, and … Didja guess the Department of Energy? Right. $50,000. Yours. DOE was equally partisan before the election — It was a “Key Partner” in Gridweek 2008, whose financial and in-kind contributions I can’t reconstruct.
Another click takes us to the GridWise Alliance, an umbrella group for everyone pushing the smart grid. The Alliance’s web site states its purpose:
To facilitate the effective collaboration among all stakeholders, and to promote, educate, and advocate for the adoption of innovative smart grid solutions that will achieve economic and environmental benefits for customers, communities and shareholders.
Sound like a registered lobbying organization? The answer is yes, but in fairness I haven’t been able to find any spending records. The group’s press releases have titles like “GridWise Alliance Lauds Smart Provisions in Waxman-Markey Bill” (Media contact is the Podesta Group). Their newsclips include “General Electric Pursues Pot of Government Stimulus Gold.” Does anyone know of another federal department whose web site contains direct links to lobbying groups whose members will prosper if the department’s preferred policies become law?
DOE hosts lots of other neat stuff. Its National Energy Technology Laboratory is a counterpart of the National Renewable Energy Lab, but dedicated to fossil fuel technologies. For unclear reasons NETL also has a bunch of pages devoted to The Modern Grid Strategy – Moving Toward the Smart Grid. Why?
[T]o accelerate the modernization of our nation’s electricity grid… MGS is fostering the development of [1] A common, national vision among grid stakeholders, [2] Education and outreach tools for core smart grid concepts, and [3] Business case analysis tools to facilitate implementation of smart grid technologies.
Closer to the ground [p. 11], NETL explains the importance of schmoozing with regulators and holding “consumer” workshops. Then [p. 14] we learn that utilities will back the idea if someone can just get regulators to eliminate or reduce the risk of recovering the smart grid’s costs. And finally the numbers, some from an NETL plan for West Virginia that’s worth its critical post. Even after assuming that the smart grid will engender massive benefits by facilitating electric vehicles, the numbers still come out iffy. NETL shrewdly sees that the way around this is to appeal to the communards:
The consumer value proposition, while positive, may not be compelling enough to motivate wide spread (sic) acceptance of the smart grid by individual residential consumers. The benefits that the smart grid could bring to society, however, might provide the necessary incentive to motivate us all [p. 17].
The composition of “us” is not further specified. Rules for radicals: Enlighten the bumpkins.
Two key ingredients are needed to instill in ….stakeholders the passion [?] to support and invest in a smart grid. … the first is collective understanding. [italics in original. The second is motivation.]… Clearly, communicating smart grid concepts to a critical mass of diverse stakeholders is difficult, but it is essential to gaining their alignment.
If a “critical mass” of stakeholders learns the truth about the smart grid–that it is just politics as usual–then it is prone to self-destruction, not unlike a critical mass of uranium. Scrutiny anyone?
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