On the Grid

Their backers claim that ‘smart grids’ are the most promising development the energy industry has seen in a very long time and that by combining a two way communication with a ‘smart’ computerised panel, urban electrical grids can finally move on from the wasteful and unreliable current model. Others counter this by saying that they’re a costly waste of money, an invasion of privacy and a hackers dream.

The US Department of Energy has estimated that making the national electric grid just five percent more effecient would have the clean air benefits of eliminating the emissions of 53 million cars. Additionally, the American Electric Power Research Institute has concluded that, with adequate investment, smart grid technologies could reduce the cost of power interuptions by more than 75 percent and save the energy industry over $150bn by 2020.

Converting a standard grid into a smart grid takes great investment and involves not only replacing the existing grid network, but also installing in-home-or-office smart energy displays that allow consumers to monitor and manage their power usuage. One of the biggest challenges faced by conventional grids is the growing amount of renewable energy coming onto the network.

Renewable energy sources have been on the rise in the last few years, but the intermittent nature of the energy flow from these sources means that much is wasted. For example, photovoltaic (PV) cells produce most energy in the middle of the day, when the sun is at its peak, however, household demand peaks between seven and nine O’clock in the evening, when PV cells are hardly producing any energy. The computerised two-way communication between consumers and energy suppliers – the key feature of a smart grid – allows the network to redistribute energy from these renewable sources to where it is needed, avoiding waste.

Smart Opportunities

The opportunities smart grid technology presents are almost limitless. From incorporating solar and wind power efficiently to integrating electric cars, innovative energy companies can create many rewards for customers. The rise of smart grids has also created a niche market for small energy providers and technology development companies, which have been gaining significant ground in the energy market.

Though American smart grid markets remain the biggest in the world, emerging markets like India, China and Brazil have also been investing heavily in the technology. According to the International Energy Agency, China’s energy consumption has grown by 208 percent between 1970 and 1990. It is the world’s biggest energy consumer, and its needs are expected to further double by 2035. China’s State Grid Corp has announced it intends to build a smart grid by 2020.

In 2009, China spent more on making its grids smarter than on its own power generation with Bloomberg estimating that China’s ambitious project will require around £8bn in annual investments if it is to meet its goal.

Smart Grid Investment Revenue by Region (2012 to 2020
Smart Grid Investment Revenue by Region (2012 to 2020)

Ambitious Investment

India has similar smart grid ambitions though it lacks China’s investment power. The Centre for the Study of Science, Technology and Policy (CSTEP) in Bangalore has suggested that India and other emerging markets have much to gain from smart grids. Countries like Brazil and India suffer with power theft because of the high number of irregular buildings as has been previously discussed on this blog. Smart grids can also help to address the reliability of power in developing economies, which often suffer with grid load balance and extreme distribution issues. These problems are accentuated by the discrepancies from one region to another; Delhi and Mumbai have extremely well developed grids, which consume copious amounts of energy, but parts of rural India have no access to electricity at all or have restricted access at certain times.

Smart on the supply but frustration on the demand?

Good neighbours avoid doing laundry in the small hours. Yet householders in the north east of England are growing keener on late-night loads. Watched by academics at Durham University, volunteers are testing a tariff that makes power more expensive when demand is high.

Britons are used to paying variable prices for hotel rooms, train tickets and telephone calls. Now some hope that smart electricity meters, which the government wants installed in every home by 2020, will help energy suppliers charge in a similar way. Boosters say dynamic pricing can hold down bills and help save the planet. It is also likely to make power firms even less popular than they already are.

Flexible pricing is supposed to discourage power use at peak times, thereby bringing down the overall cost of generation by cutting the need for power stations that run only a few hours each day. Controlling energy use would also help network operators handle fluctuations in renewable power, which rises and falls depending on how windy or sunny it is. These problems will get more serious as Britain decarbonises:  using more green electricity to power things such as cars and heating will make demand spikes bigger—and thus more costly—just as growth in renewables makes supply less dependable.

This load curve diagram shows that much of the electricity demand is in fact for continuous 24/7 supply (base-load), while some is for a lesser amount of predictable supply for about three quarters of the day, and less still for variable peak demand up to half of the time; Some of the overnight demand is for domestic hot water systems on cheap tariff
This load curve diagram shows that much of the electricity demand is in fact for continuous 24/7 supply (base-load), while some is for a lesser amount of predictable supply for about three quarters of the day, and less still for variable peak demand up to half of the time; Some of the overnight demand is for domestic hot water systems on cheap tariff

Some Britons have been using cheaper off-peak power since the late 1970s, when “Economy 7” tariffs were created to encourage overnight demand for juice from nuclear power stations. Smart meters, which will add about £12 billion ($20 billion) to energy bills as they are rolled out over the next five years, are meant to save suppliers money by wirelessly transmitting meter readings, and to provide households with information that can help them to use less power. What excites energy experts is that, by recording full details of energy consumption, they could also make it easier for suppliers to create several peak and off-peak periods during each day, or even let prices float freely depending on the weather. Last month Ofgem, the energy regulator, said it was mulling reforms that could enable rates to change every half-hour.

The problem is that a proliferation of complex tariffs risks making it more difficult for bill-payers to identify the cheapest ones, even as regulators battle to simplify the market. Critics also say that punitive charges at peak times could affect the poorest families disproportionately, because they already use power only when it is essential. And some fear that, without stronger competition, energy firms would use dynamic tariffs to raise prices, not just to even out demand.

The biggest worry is that people will not be persuaded to change their routines. Many already pay too much for their energy because they have never bothered to switch supplier. A study in 2012 by Consumer Focus—now part of the Citizens Advice Bureau—found that 38% of households with Economy 7 or similar tariffs did not use enough off-peak power to make it cheaper than a standard rate. Trials of more dynamic tariffs report mixed success—and almost all of those have involved green-minded volunteers, not busy families.

Enthusiasts say variable pricing will work best when people can set gear such as freezers, boilers and air-conditioners to respond automatically to pricing signals broadcast to their smart meter, in exchange for a discount from their supplier. Fridges need not run constantly to keep their contents fresh, for example; clever ones might perhaps turn themselves off during peak demand periods.

Yet bill-payers will probably find it creepy to hand outsiders control of their appliances. A household full of smart devices would delight hackers. And it will bring chewy legal problems, such as working out who to blame should faulty appliances churn through premium-priced power. As Britain’s smart grid expands, rumbling washing machines may not be the only thing keeping people awake.

Three sides for success

Deploying smart grid technology is expensive, but the opportunities to reduce energy waste and incorporate renewable energy sources efficiently into the mix are increasingly necessary. Supporters highlight the necessity, as energy consumption worldwide continues to grow, of urban centers being forced to rethink how they deploy resources. Smart grid technology, they argue, is the best answer despite the associated upfront costs. There is no doubt that smart grids do impose a heavy upfront costs and this will need to carried by the industry, government and ultimately the consumer. How willing, and what benefits, they will bring will be critical to the success of smart grid roll outs in the developed world as are fears over privacy and data leakages. There is little doubt that smart grids could bring a host of new benefits to network operators and generation suppliers and – given the right roll out of transparent prices and tangible gain – to consumers too.

  1. On the Grid – The New Economy – Spring 2013 P.60-61
  2. Remote Controls – The Economist May 24th 2014
  3. Smart Meters in every home by 2020 – The Guardian

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