Around the world billions of dollars are being invested in clean-energy technologies of one sort or another, from solar arrays and wind turbines to electric cars. But there is a problem lurking in the power grid that links them together. Green sources of power tend to be distributed and intermittent, which makes them difficult to integrate into the existing grid. In order to accommodate the flow of energy between new sources of supply and new forms of demand, the world’s electrical grids are going to have to become a lot smarter.

19th Century Network for 21st Century Needs

Even though the demands being placed on national electricity grids are changing rapidly, the grids themselves have changed very little since they were first developed more than a century ago. The first grids were built as one-way streets, consisting of power stations at one end supplying power when needed to customers at the other end. That approach worked well for many years, and helped drive the growth of industrial nations by making electricity ubiquitous, but it is now showing its age.

One problem is a lack of transparency on the distribution side of the system, which is particularly apparent to consumers. Most people have little idea how much electricity they are using until they are presented with a bill. Nor do most people know what proportion of their power was generated by nuclear, coal, gas or some form of renewable energy, or what emissions were produced in the process. In the event of a power cut, it is the customer who alerts the utility, which then sends out crews to track down the problem and fix it manually. As Heather Daniell of New Energy Finance, a research firm in London puts it:

“I can’t think of another industry that still has that lack of visibility over its networks”

According to projections from America’s Energy Information Administration, electricity generation around the world will nearly double from about 17.3 trillion kilowatt-hours (kWh) in 2005 to 33.3 trillion kWh in 2030. Poor countries will show the strongest growth in electricity generation, increasing by an average of 4% per year from 2005 to 2030, compared with 1.3% per year for their richer counterparts. In some countries, including America, the grid has not kept up with the growth in demand for power. The deregulation of America’s utilities in the 1990s encouraged companies to transfer power over long distances. At the same time, regulatory uncertainty and increased competition led to reduced investment in new transmission lines. As a result, some parts of the system have become increasingly congested. Black-outs cost America an estimated $80 billion a year, according to a study by the Lawrence Berkeley National Laboratory.

Plugging In

The cure, many believe, is to apply a dose of computer power to the grid. Adding digital sensors and remote controls to the transmission and distribution system would make it smarter, greener and more efficient. Such a “smart grid” or “energy internet” would be far more responsive, interactive and transparent than today’s grid. It would be able to cope with new sources of renewable power, enable the co-ordinated charging of electric cars, provide information to consumers about their usage and allow utilities to monitor and control their networks more effectively. And all this would help reduce greenhouse-gas emissions.

“We have a fundamental belief that a fully effective smart grid is going to radically change the way an energy grid operates,”

says Michael Carlson, until recently a senior executive at Xcel Energy, a power company that is using the city of Boulder, Colorado, to test various smart-grid technologies.

What exactly would a smart grid look like? Many of the changes would be invisible. On the transmission and distribution side, sensors and digital relays installed on power lines will enable utilities to operate systems with greater efficiency and reliability. Today’s supervisory control and data acquisition systems, for example, typically provide data on the state of transmission lines every four seconds. Devices called synchrophasors can sample voltage and current 30 times a second or faster—giving utilities and system operators a far more accurate view of the health of the grid.

Other smart-grid technologies would be more visible to consumers. Probably most important would be the introduction of smart meters, which track electricity use in real-time and can transmit that information back to the power company. Smart meters have been used by commercial and industrial customers for decades but in recent years they have become cheap enough for wider deployment.

Smart meters establish a two-way data connection between the customer and the power company, by sending information over a communications network that may include power-line, radio or cellular-network connections. Once smart meters are installed, power companies can determine the location of outages more easily, and no longer need to send staff to read meters, or to turn the power on or off at a particular property. Smart meters also help to curtail the theft of electricity. Altogether some 76m of them have been installed worldwide and that number is forecast to increase to 175m by 2015. So far the pioneer is Italy, where the main utility, Enel, has deployed more than 30m smart meters to its customers since 2001.

How smart meters work in practice
How smart meters work in practice

From Smart to Savings

But the smart meter is only the first step. Eventually smart meters will communicate with smart thermostats, appliances and other devices, giving people a much clearer view of how much electricity they are consuming. Customers will be able to access that information via read-outs in their homes or web-based portals, through which they will be able to set temperature preferences for their thermostats, for example, or opt in or out of programmes that let them use cleaner energy sources, such as solar or wind power.

As well as giving utilities more control, smart meters also give them more flexibility. In particular, they can vary the price of electricity throughout the day in response to demand. Telling people that electricity is more expensive when demand is high will encourage them to do their laundry when demand has fallen and electricity is cheaper.

This is done by showing real-time price and usage information on a display so that consumers can decide whether to turn on the washing machine. Studies have found that when people are made aware of how much power they are using, they reduce their use by about 7%. With added incentives, people curtail their electricity use during peaks in demand by 15% or more. But eventually it should be possible to do it automatically, so that the dishwasher waits for the price to fall below a certain level before switching on, for example, or the air-conditioner turns itself down when the price goes up. This is more complex than today’s pricing, of course, but customers will be able to save money if they are prepared to put up with a bit more complexity.

“If you don’t want to participate, then you’re going to pay a much higher rate per kilowatt-hour and if you want to opt in, you may save a whole lot of money.”

says Peter Corsell of GridPoint, a company that has developed a web-based portal that lets people respond to price changes from utilities.  During a one-year pilot study carried out by PNNL, for example, consumers reduced their electricity bills by an average of 10% compared with the previous year.

The advantage from the utility’s point of view is that it becomes easier to balance supply and demand by reducing consumption at times of peak demand, such as during very hot or cold spells, when people crank up their air-conditioners or heaters. As well as improving the stability of the system, it could also enable utilities to postpone the construction of new power stations, or even do without them altogether, by reducing the peak level of demand that they have to meet.

Moreover a smart grid will make it easier to co-ordinate the intermittent and dispersed sources of power, from rooftop solar panels or backyard wind-turbines, for example. And, of course, a smart grid could also help manage the charging of electric vehicles. The best time to charge vehicles is at night, when lots of cheap electricity is available. The flow of energy between the grid and electric cars need not be one-way. With millions of electric cars plugged in at any one time, they could act as an enormous energy-storage system, absorbing excess power from wind turbines on windy nights, for example, but also feeding power back into the grid if necessary (an approach called “vehicle to grid”, or V2G) if the wind suddenly drops.

Front loaded costs cutting deep

Implementing all this will not be cheap. A smart meter costs about £150, and can cost several hundred  more to install, once the necessary communications network and data-management software at the utility are taken into account.

The American government is spending some $4 billion from its economic-stimulus package on smart-grid initiatives, but providing a smart meter for every American home would cost far more: California’s investor-owned utilities alone are spending about $4.5 billion on deploying smart meters over the next few years. That implies that a nationwide implementation could cost around $50 billion. But PNNL estimates that $450 billion would have to be poured into conventional grid infrastructure to meet America’s expected growth over the next decade anyway.

Rollout in the UK

At the start of 2014, three of the UK Big Six energy suppliers – EDF Energy, ScottishPower and npower – called on ministers to review the £12bn nationwide rollout of the meters.

EDF Energy argues that “a comprehensive review of the smart meter programme could save £1.8bn”. By 2018, the peak year of installation, the cost on bills could be reduced from £45 to £30, it argues. It says the government obligation for suppliers to “take all reasonable steps” to install meters in 100pc of customers homes is too ambitious and that reducing the target to 80pc by 2020 would be “more effective and affordable”. In one trial in London it found that just 15pc of people wanted a smart meters. The installation process cost about £70 each for the first 80pc of homes but rose to £120-a-time for the final 20pc of meters where customers were hard to reach or apathetic. EDF also wants ministers to consider centralised procurement of the meters to save money and to review the obligation on suppliers to offer every customer a stand-alone in-home display panel, costing up to £40 a time, to read their energy usage, arguing it would be cheaper to allow customers to use free apps on mobile phones or computers.

Another supply giant, ScottishPower, has already spoken out about the potentially redundant display units, and that removing the obligation could “significantly reduce the costs of the smart meter programme to consumers” and calling for a “careful review of the entire smart metering programme in order to reduce costs”. Npower has also called for the costs to be reviewed. Simon Stacey, its managing director of energy services, said:

“The Smart programme is an essential one, but we need to always look to keep its cost down because this cost is ultimately borne by the consumer. Now that we finally have clear guidance of the technology platform that is to be used, we need a more flexible deployment model that allows for current and future technologies to keep costs down.”

British Gas has installed more than 1m smart meters, although almost 600,000 of them are likely to need replacing by 2020 because they are not deemed smart enough under government regulations. The supplier, which is also selling customers services to control their heating via mobile phones, is understood to be privately sympathetic to the argument that the in-home displays may not be needed for all customers. However, a spokesman for the company said:

“British Gas continues to fully support the roll-out of smart meters. The in-home display plays a crucial role in giving people, for the first time, a clear and real-time understanding of how they’re using their energy and encouraging greater engagement.”

A spokesman for the Department of Energy and Climate Change said: “

“Smart meters will put consumers in control of their energy use, bringing an end to estimated bills and helping people to save money and switch supplier. The Government’s vision is for every home and smaller business in Great Britain to have smart electricity and gas meters by 2020. Energy suppliers have the job of installing smart meters in people’s homes, but it is the benefits to individual consumers that are our focus.”

Long terms Gains for short term pains?

Clearly, apart from the upfront costs, power companies are understandably reluctant to invest in technologies that will reduce consumption of the product they sell, even if there are other benefits. One way to realign the public interest with that of the utilities is through a process called “decoupling” which breaks the direct relationship between electricity sales and profits, a measure that has been successfully employed in California. Energy use per person has remained largely flat over the past 30 years in California, but it has increased by roughly 50% for the rest of America. But in some instances the business case is straightforward. Enel spent around £2.1 billion installing its 30m smart meters in Italy, but now saves around £500m a year as a result, so its investment paid for itself within five years.

As well as producing savings from improved operational efficiency, a smart grid could also save utilities money by reducing consumption, and with it the need to build so many new power stations. Reducing peak demand in America by a mere 5% would yield savings of about $66 billion over 20 years.  Moreover, studies have shown that the best in-home smart-grid technologies can achieve reductions in peak demand of up to 25%, which would result in savings of more than $325 billion over that period. It would appear that the technology is expensive but not using it will be even more so.

Open standards needed

Smart-grid technology offers a wide range of possibilities, so deployments will vary depending on each utility’s business needs, existing infrastructure and regulatory environment. Some utilities may seek to use the technology to maximise energy efficiency, for example, while others may focus on the integration of renewable energy sources. “You’re never going to build the same smart grid twice, so you have to look for overriding themes,” says Brad Gammons of IBM, a computer giant, which has helped dozens of utilities with their smart-grid implementations. Amid all the variations, however, one point of consensus has emerged. To handle all of the information that must be sent to and fro to make a smart grid work, “more bandwidth is better”, says Mr Gammons.

Although smart grids are often likened to an internet for energy, there is one important difference. The internet is built on open technical standards, from internet protocol to move packets of data around to hypertext mark-up language to define the appearance of web pages. But agreement on standards has yet to be reached for smart grids, which can pose a problem when different networks and technologies are expected to work together.

One area where such interoperability will be critical is in the home. Many utilities want people to be able to buy smart thermostats, smart appliances and other smart-grid technologies in shops. Another complication is that there is currently no standard way to access historical billing information or real-time metering data, which would be extremely helpful to developers of web-based billing and energy-analysis services for consumers.

Once these issues are ironed out, though, the smart grid could provide the platform for a huge range of innovation and applications in energy, just as the internet did in computing.


The Economist – Technology Quarterly: Q2 2009

The Telegraph – Energy giants call for review of smart meter roll-out to save consumers £1.8bn – Helping Households to cut Energy Bills

I'd love to hear what your thoughts are...please feel free to leave a reply