seven steps to a smarter grid

Paul Komor is a Director at theRenewable and Sustainable Energy

Institute (RASEI), and teaches courseson energy technology and policy at theUniversity of Colorado-Boulder. Priorto joining the CU-Boulder faculty, hewas a member of the Professional Staff

at the U.S. Congress’ Office ofTechnology Assessment (OTA). He

holds a B.S. in Engineering fromCornell University and M.S. and

Ph.D. degrees in Engineering fromStanford University.

Anderson Hoke is a Ph.D. candidateat the University of Colorado, Boulder,

in the Power Electronics andRenewable Energy Systems research

group. He is researching advancedrenewables-based grid support under

Dr. Dragan Maksimovic. He alsoworks at the National Renewable

Energy Laboratory, where he developsinterconnection tests for distributed

resources. He previously was leadproject manager at Bella Energy, a PVcontracting firm. He received his A.B.

in Engineering Physics fromDartmouth College.

Ruud Kempener is an Analyst withthe International Renewable Energy

Agency (IRENA). He has previouslyheld research positions at the Kennedy

School of Government at HarvardUniversity and the Science Policy

Research Unit at the University ofSussex. He received his Ph.D. in

Complex Systems and Sustainabilityfrom the University of Sydney in 2008.

This article is based on a 2013 reportentitled ‘Smart Grids and Renewables,’

published by the InternationalRenewable Energy Agency (IRENA).

However this paper does notnecessarily reflect the views of IRENA,

and the views in this paper are theauthors’ own.

M
arch 2014, Vol. 27, Issue 2 1040-6190/$–see f
Seven Steps to a Smarter Grid

Smart grid technologies can ease the transition to asustainable electricity system. A flexible and thoughtfulsmart grid implementation strategy that balances risk andreward, coupled with openness to private sector directinvestment in the electricity system, is the most promisingapproach.

Paul Komor, Anderson Hoke and Ruud Kempener

I. Introduction

Smart grid technologies can

enable the transition to lower cost,

environmentally friendly,

market-driven electricity systems.

For developing and emerging

countries, smart grid technologies

are essential to avoid lock-in of

outdated energy infrastructure,

attract new investment, and

create efficient and flexible grid

systems that can accommodate

rising electricity demand and a

range of different power sources.

S mart grids show particular

promise as an enabler of high

renewables penetrations in

electricity systems. Integrating

variable renewable resources

such as wind and solar

ront matter # 2014 Elsevier Inc. All rights reserved.

photovoltaic systems is typically

done by cycling existing power

plants and/or buying and selling

electricity from neighboring

systems. These two approaches,

while effective at low (<10

percent) renewable electricity

penetration systems, can become

problematic at higher penetration

levels: steam-cycle power plants

have limited ability to cycle, and

depending on neighboring

systems means exposure to

market and even political risk.

Smart grids, along with related

strategies such as storage and

demand response, can ease the

way to high (30 percent +)

renewables penetration.1

However, the lack of experience

and associated uncertainties—in

, http://dx.doi.org/10.1016/j.tej.2014.02.001 61

http://dx.doi.org/10.1016/j.tej.2014.02.001

Table 1: Smart Grid Technologies—Summary Table.

Technology Maturity Estimated Capital and O&M costs Problems mitigated

Advanced metering

infrastructure (AMI)

Commercial; advanced AMI

in R&D, demo

$50–$250/meter; up to $500/meter

including communications and IT;

O&M $1/meter/month

Lack of distribution monitoring;

outage detection and location;

energy conservation; energy theft

Advanced electricity

pricing

Some methods mature;

others R&D, demo

Depends on program; generally low

if AMI already exists

High peak loads; load shedding;

outage frequency

Demand response (DR) Basic DR mature; automated

DR demo/early commercial

$240/kW capacity (vs. $400/kW for

gas peaking plant); O&M costs low

High peak loads/prices; load shedding;

outage frequency

Distribution

automation (DA)

Some techs approaching

mature; others in R&D,

demo

Depends on specific tech; IVVC/FLISR

demo �$150,000/feeder

Inefficiency; voltage regulation;

outage frequency and duration;

distribution maintenance costs

Renewable resource

forecasting

Wind commercial; PV early

commercial; improvements

in R&D

Wind forecasting service $2,500/month/

plant; PV expected to be similar

Reliability issues and cost of wind/solar

variability; voltage and frequency

regulation

Smart inverters Commercial; becoming

standard

<5 percent more than conventional

inverter; O&M same as conventional

inverter

Power quality; voltage/frequency

regulation; undesired inverter

tripping offline

Distributed storage Demo, R&D, becoming

commercial in some areas

Tech-dependent; typically higher than

other energy/power production

methods

Voltage/frequency regulation; power

ramps; overloaded lines

Virtual power plants

(VPPs)

Demo, R&D Low Solar/wind variability; high peak

loads/prices

Microgrids Demo, R&D Tech-dependent; �$5/W capacity Power outages; power quality; solar/wind

variability; high peak loads/prices

Source: Authors’ estimates. See IRENA (2013) for details.

Refer to (IRENA 2013) for acronym definitions.

62

technology cost and performance,

in costs and benefits and in

nontechnical issues such as

privacy—make it challenging to

settle on a strategy that makes

best use of smart grid

technologies. One of the key

questions for decision-makers is

when and how to introduce smart

grid technologies. To assist in

setting a smart grid and

renewables strategy, this article

draws on experience to date—

limited as it is—to draw some

pragmatic lessons learned on how

to implement smart grid

technologies. In our full report2

we detail the costs and

1040-6190/$–see front matter # 2014 Elsevier

performance of a set of grid

technologies that fall under the

‘‘smart’’ category (Table 1).3 Here

we focus on higher-level

strategies and technology

recommendations.

II. Strategies andRecommendations

1. Match smart grid

technologies to system needs

Choosing which smart grid

technologies to use is a system-

specific decision, requiring a

detailed look at the current state

Inc. All rights reserved., http://dx.doi.org/10.1016

of an electric system as well as

projections of its possible future

states. However, experience to

date does point to several general

recommendations.

W hen grid upgrades are

required, whether to

accommodate renewables or for

other reasons, it is typically much

more cost-effective to include

smart grid technologies than to

use only conventional

technologies. For example, a

study of Denmark’s plans to

increase wind energy penetration

to 50 percent by 2025 compared

the cost of using smart grid

technologies to the cost of

/j.tej.2014.02.001 The Electricity Journal


ith AMI technologieshanging quickly,tilities should carefullyvaluate the flexibilitynd upgradability ofmart meters beforenstallation.

M

traditional grid upgrades to

accommodate this goal. It found

that the social net cost of the

necessary smart grid upgrades

would be about 80 percent less

than the social net cost for

traditional grid upgrades.4

I t is of course important to

choose specific smart grid

technologies wisely. Although

each electricity system differs

depending on the mix of energy

sources and demand profiles, the

following general guidelines are

for electric systems that are

considering smart grid

technologies:

� When first implementing

smart grid technologies, start with

distribution automation (DA) and

demand response (DR). These are

well-established technologies that

directly enable renewables and

are usually cost-effective, even

without considering renewables-

related benefits.5

� Under the general category of

DR, start with commercial and

industrial customers, and use DR

for economic reasons, not just for

emergencies.6

� If a new peaking plant or an

energy storage facility is planned,

consider using DR instead. It can

achieve many of the same benefits

as storage and natural gas

peaking plants, but at a much

lower cost.7 Automated DR can

provide faster response times as

well, ramping up in 5 min as

compared to up to 30 min for gas

peaking power plants.8,9

� Under the general category of

DA, conservation voltage

reduction (CVR) has been shown

to provide energy savings with


short paybacks.10 Economic

payoff for a utility is more

complicated since CVR results in

less electricity sold, so regulators

need to directly incentivize

energy savings to encourage

CVR.11

� Advanced metering

infrastructure (AMI) and

advanced pricing are not strictly

necessary for renewables, even at

higher penetration levels, but they

can be beneficial.12 Advanced

Wcueasi

pricing, in particular, can help

nudge consumer prices toward

the actual costs of production, and

thus increase economic efficiency.

Both should be assessed carefully,

particularly with respect to costs/

benefits and customer acceptance.

Financial paybacks for AMI are

typically in the range of three to

10 years.13,14 At least one utility

reports that if automated meter

reading is not already

implemented, the financial case

for AMI is good, but if meters are

already read automatically then

the financial case for AMI is

substantially weaker.15 The

economics of AMI are expected to

improve as the technology


matures. Technologies that take

advantage of AMI are changing

quickly. With this in mind,

utilities should carefully evaluate

the flexibility and upgradability

of smart meters before

installation.

� Renewable resource

forecasting is not generally

necessary if RE penetration levels

are less than 10 percent (both grid-

wide and in each grid

section).16,17 It becomes

noticeably helpful from around 10

percent to 15 percent capacity

penetration (on any section) and

essential as capacity penetrations

approach 30 percent.18,19

Resource forecasting can easily be

added when needed as a third-

party service, so it does not need

to be incorporated into plant

design in areas of low renewable

penetrations.

� Smart inverters cost little

more than conventional inverters

and are quickly becoming

standard/required equipment, so

it does make sense to use smart

inverters for any new renewable

installations, even when

renewable penetrations are

low.20

� Distributed storage,

microgrids, and virtual power

plants (VPPs) are generally not

mature smart grid technologies

and are less well developed. Most

utilities should focus on other

technologies first, unless they face

special circumstances (such as

grant funding, high reliability

requirements, or remote

locations). Technological

improvements are improving the

financial appeal of these



64

technologies, and we expect them

to be more widely applied in the

coming years.

Note that these are general

recommendations and are not

intended to replace system-

specific analyses.

2. Make the business case

Any decisions regarding smart

grid technology adoption should

involve a comprehensive look at

the many costs and benefits. Most

smart grid projects—especially

those that enable renewable

energy—provide socio-economic

benefits that accrue not solely to

the utility system but also to

customers and the local or global

community. These broader

benefits include economic gains

from greater reliability, improved

public health due to emissions

reductions, and long-term

environmental and economic

benefits due to reduced CO2

emissions.21 Valuing and

internalizing these external

benefits can be difficult, but many

studies and reports are available

for reference.22 For example, one

California utility found that its

[(Figure_1)TD$FIG]

Figure 1: Visions of the Electricity SystemPresent-day Arrows Show Electricity Flow. Fu


investments in smart grid and

renewables would result in

benefits to society worth $400

million to $1.3 billion and avoid

emission of 7.7 million tons of

CO2.23

M any of the benefits of

smart grids and

renewables depend largely on

how projects are implemented.

Effective project planning and

execution are essential to

realizing these benefits. It is

crucial to perform tests to ensure

that smart grid technologies will

integrate successfully with

legacy hardware and back-office

systems before developing a new

project. Power system data with

good spatial and temporal

granularity is important for

analyzing the potential benefits

of smart grid projects. Grid

operators considering smart grid

projects should start gathering

hourly load data as soon as

practical, preferably at the

feeder level or below. Once

smart grid projects are in

progress, success often depends

on realizing the substantial value

of the large amounts of data

generated.

ture Arrows Show Electricity and Information


3. Start with pilot and

demonstration projects

One logical path forward is to

introduce ‘‘smartness’’ into

electricity systems incrementally.

As shown in Figure 1, today’s

largely one-way electricity

systems have little or no

information flowing from

consumers to the utility.24 At the

other end of the spectrum is a

fully integrated system that

includes several types of

distributed resources, advanced

pricing, and other smart-grid-

related technologies and

concepts. Note, however, that

there is a wide range of

possibilities between these two

extremes.

P ilot or demonstration

projects that try out smart

grid technologies can provide

insight into how these

technologies perform in a specific

system. They can also ease

concerns about how the

technologies affect reliability,

how consumers react, and what it

means to open up the electricity

system to new actors and new

technologies.

Flows.



M

4. Recognize and respond to

technological conservatism

y enablingistributed renewableeneration, smartrid technologiesan also help attractrivate sectornvestment.

One of the greatest barriers to

smart grid implementation is the

utility’s inherent conservatism.

Utilities are traditionally

rewarded for providing reliable

service and they have few

incentives for implementing new

technologies that can be seen as

introducing risk of any sort—

performance, financial, or

political. As a result, utilities are

often understandably hesitant to

adopt smart grid technologies. In

addition, smart grids can be seen

as threatening the fundamental

business model of the utility:

producing and delivering a

product (electricity) and charging

a price that reflects the cost of

production. Here again, it is no

surprise that utility enthusiasm

for smart grid technologies may

be lukewarm at best.

T here are several ways to

overcome these barriers.

Pilot projects can ease discomfort

with new technologies. Providing

financial incentives (such as

allowing for a greater rate of

return on certain technology

investments, in the case of

regulated utilities) is often

effective. Smart grid technologies

that reduce energy usage also

reduce utility revenue and will

require creative incentives, such

as rewarding utilities for energy

savings. Technology mandates,

such as those requiring the use of

a certain technology, are not a

desirable approach due to the

rapid rate of technological change

in the smart grid field.


5. Leverage the need for

private sector investment

As noted earlier, smart grid

technologies can act as an enabler

for renewables, largely by

reducing the negative impacts of

renewables’ variability. However,

smart grid technologies also offer

many additional benefits. Two

particularly noteworthy benefits

are providing a path for private

investment into electricity

Bdggcpi

systems and allowing for better/

optimal use of existing electricity

infrastructure. These two

benefits can be of great value to

financially constrained electricity

systems.

Electricity demand in much of

the world—but particularly in

developing countries—is

expected to continue to climb. In

many countries, electricity

systems already struggle to

provide reliable service.

Significant investment is needed

to upgrade these systems to meet

future demand, and this essential

capital is unlikely to be available

from fiscally challenged

governments.


By enabling distributed

renewable generation, smart grid

technologies can also help attract

private sector investment.

Distributed renewable

generation allows anyone—an

investor, an individual user, a

commercial or industrial user—to

invest private capital in electricity

generation. An example of the

former would be a company that

aggregates demand-side

management (DSM) resources

and offers them to the utility as a

demand-side resource. (There are

several examples of private

companies successfully doing

this.) Similarly, a private

company could build rooftop PV

systems and lease them to

homeowners, overcoming the

problem of high capital costs for

such systems. (Here again there

are numerous examples.) The

significance here is that the

private sector provides the

capital, assumes the technical and

financial risk, and provides a

previously unavailable resource

to the electricity system.

6. Recognize the continual

nature of technological change

One of the many challenges in

smart grid technology adoption is

the rapid rate of technological

change, particularly in

communications and data

management technologies. In an

industry still using technologies

that have changed little in the past

50-plus years (steam turbines,

overhead power lines on wood

poles, and manual meter reading),

this is an unsettling situation.



66

It may be tempting to wait for the

rate of smart grid technological

development to slow; however,

that is unlikely to happen. In fact

the opposite is expected; as

investment in smart grid

technologies increases, the rate of

technological improvement is

likely to accelerate.

I t is pragmatic to consider

carefully all the costs and

benefits before proceeding,

recognizing that the technologies

will change and that the analysis

may need to be redone in a few

years with a new set of technology

characteristics. Those individuals

in information and computing

technologies, who are used to

decision-making in an

environment of rapid technical

change, should be brought into

the smart grid decision-making

process.

7. Rethink regulation

One key challenge of smart

grids is that some of their benefits

(such as enhanced grid flexibility)

can be diffuse and challenging to

define. Therefore, one critical

policy response is to devise a

regulatory framework that

clarifies these benefits, and helps

ensure that they flow to the

entities providing the upfront

investment. For example, a utility

will willingly invest in smart grid

technologies only if it is quite

confident that the benefits of that

investment (such as enabling

higher renewable penetration)

can be monetized. Therefore,

regulators must put in place

financial incentives structures


that appropriately reward smart

grid investments.25 Without such

a structure, such investments will

not be made.

III. Summary

Smart grid technologies can

help ease the transition to

sustainable electricity systems.

These technologies, however, are

continually evolving and

improving. A flexible and

thoughtful smart grid

implementation strategy that

balances risk and reward,

coupled with openness to

private sector direct investment

in the electricity system, is

the most promising

approach.&

Endnotes:

1. The levels of renewable penetrationconsidered ‘‘high’’ and ‘‘low’’ varydepending on grid characteristics; thenumbers used here represent typicalvalues.

2. International Renewable EnergyAgency (2013), ‘‘Smart Grids andRenewables: A Guide for EffectiveDeployment’’, Dec. 2013, available athttp://www.irena.org.


3. There is no universal agreement onwhat qualifies as a smart gridtechnology; however, it is generallyunderstood to include a wide range ofcommunication, informationmanagement and control technologiesthat contribute to the efficiency andflexibility of an electricity system. SeeTable 1.

4. Energinet.dk, ‘‘Smart Grid inDenmark,’’ undated. Available atwww.energinet.dk/SiteCollectionDocuments/Engelske%20dokumenter/Forskning/Smart%20Grid%20in%20Denmark.pdf.

5. IEEE (Institute of Electrical andElectronics Engineers)/PES (Powerand Energy Society), DistributionAutomation Tutorial, 2007/20008.Available at http://wiki.powerdistributionresearch.com/index.php?title=IEEE/PES_Distribution_Automation_Tutorial_2007/2008.

6. Hedrick, K., ‘‘Demand SideManagement: Why utility-directedload management programs makemore sense than ever before’’,Landis+Gyr, 2012.

7. Martinez, M.S., ‘‘Delivering Cost-Effective Demand Response: APortfolio Approach’’, SouthernCalifornia Edison, Sept. 2004.

8. Watson, D., et al., ‘‘Fast AutomatedDemand Response to Enable theIntegration of Renewable Resources’’,California Energy Commission,LBNL-5555E, 2012.

9. Pickard, A. and Meinecke, G., ‘‘TheFuture Role of Fossil PowerGeneration’’, Seimens AG Energy,2011. Available at http://www.energy.siemens.com/nl/pool/hq/energy-topics/technical-papers/The%20Future%20Role%20of%20Fossil%20Power%20Generation.pdf.

10. Electric Power Research Institute,‘‘EPRI Smart Grid DemonstrationInitiative: 4 Year Update’’, 2012.Available at www.epri.com.

11. Fairley, P., An Easy Smart-GridUpgrade Saves Power, IEEE Spectrum,Sept. 2010.

12. Hoke, A. and P. Komor,‘‘Maximizing the Benefits of


http://www.irena.org/

http://www.energinet.dk/SiteCollectionDocuments/Engelske%20dokumenter/Forskning/Smart%20Grid%20in%20Denmark.pdf




http://wiki.powerdistributionresearch.com/index.php%3Ftitle=IEEE/PES_Distribution_Automation_Tutorial_2007/2008





http://www.energy.siemens.com/nl/pool/hq/energy-topics/technical-papers/The%20Future%20Role%20of%20Fossil%20Power%20Generation.pdf





http://www.epri.com/


M

Distributed Photovoltaics,’’ TheElectricity Journal, Apr. 2012.

13. Sandlin, D., ‘‘Rate Design toComplement AMI Implementation inDanville, Virginia,’’ Danville Utilities,Sept. 2009.

14. MetaVu, ‘‘SmartGridCityDemonstration Project EvaluationSummary,’’ Meta Vu, Denver, 2011.

15. Ibid.

16. Hoke, A., R. Butler, J. Hambrick,and B. Kroposki, Steady-State Analysisof Maximum Photovoltaic PenetrationLevels on Typical Distribution Feeders,IEEE Transactions on Sustainable Energy,Apr. 2013.

17. Lew, D., M. Milligan, G. Jordanand R. Piwko, ‘‘The Value of WindPower Forecasting’’, 91st AmericanMeteorological Society AnnualMeeting, the Second Conference onWeather, Climate, and theNew Energy Economy, Jan. 2011.

18. Lew 2011.

One key challenge of smart gr


19. Hoke et al. 2013.

20. IEEE, ‘‘P1547a – IEEE DraftStandard for InterconnectingDistributed Resources with ElectricPower Systems – Amendment 1,’’ Jun.2013.

21. McGregor, T., et al., ‘‘Realizing theValue of an Optimized Electric Grid,’’Gridwise Alliance, 2012. Available atwww.gridwise.org/uploads/downloads/GridWiseAlliance_RealizingValueofOptimizedGrid_2_2012.pdf.

22. See e.g. Cornish, K. and E.Shepard, ‘‘Societal, EnvironmentalBenefits in the Smart Meter and SmartGrid Business Case,’’ Power GridInternational, Dec. 2009; EPRI (ElectricPower Research Institute),‘‘Estimating the Costs and Benefits ofthe Smart Grid,’’ Mar. 2011; EuropeanCommission, Joint Research Centre,‘‘Smart Grid Cost-Benefit Analysis.’’Available at http://ses.jrc.ec.europa.eu/smart-grid-cost-benefit-analysis.

ids is that some of their benefits can be diffuse


23. SDG&E (San Diego Gas & ElectricCompany), ‘‘SDG&E Smart GridDeployment Plan: 2011–2020,’’California Public Utilities CommissionFiling, Jun. 2011. Available atwww.sdge.com/sites/default/files/documents/smartgriddeploymentplan.pdf.

24. We use the term ‘‘utility’’ to referto the organization that operates ormanages the electricity system.Depending on the setting, this couldbe a government agency, a verticallyintegrated regulated private company,an independent system operator (ISO),or a private company operating in acompetitive market.

25. Options for regulatory changeto encourage electricity storage arediscussed in Kaufman, S., P. Komor,B. Langdon, and P. Vallett,Electricity Storage in RegulatedMarkets: Getting the Rules Right,The Electricity Journal, Jul. 2011,Vol. 24, Issue 6.

and challenging to define.


http://www.gridwise.org/uploads/downloads/GridWiseAlliance_RealizingValueofOptimizedGrid_2_2012.pdf



http://ses.jrc.ec.europa.eu/smart-grid-cost-benefit-analysis

http://ses.jrc.ec.europa.eu/smart-grid-cost-benefit-analysis

http://www.sdge.com/sites/default/files/documents/smartgriddeploymentplan.pdf


