Waiting for the Digital Electrical Grid, Part II

by | Sep 4, 2013

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Co-authored by Earl Simpkins & Josh Stillman

In part one of this article, published last week, we discussed why haven’t utilities made more progress toward the digital electrical grid. Today’s article looks at the benefits of the digital grid and how utilities can get there.

Benefits of the Digital Grid

As a business or home utility customer, you are primarily concerned with reliability and price. You want lower electric bills and fewer, shorter power outages. The digital grid offers real benefits in both areas. Initially, digitization will make your utility more efficient, and give you more and better information about your electricity use. Eventually, it will change your relationship with the utility and turn electricity from a commodity into a tool for making daily life easier. These changes will occur in several principal areas:

Reliability: Preventing, mitigating, and resolving power outages is still a central challenge for utilities. Nothing angers customers more than a power failure. Digital technologies hold the promise of fewer, shorter, and less-extensive outages.

For example, automated notification of outages is one of the first digital grid technologies to be deployed by utilities around the country. No longer do power companies have to wait for customers to call in and report a loss of service. The network infrastructure itself detects outages and alerts the utility, which can immediately dispatch service crews to restore power. This avoids the costly and time-consuming process of sending restoration crews into the field to patrol power lines in search of trouble spots. At the same time, notifications automatically go out to customers through the Web and social media, followed by progress reports and estimates of when power will be restored.

Over time, utilities will implement self-healing capabilities that reduce the frequency, scope, and duration of power outages. Sensing mechanisms in the network will sniff out trouble before it causes an outage, enabling the utility to take preventive steps. Other technologies will limit the number of customers affected by an outage by eliminating the need to shut off power in adjacent areas while crews work to restore service.

Digitization also facilitates better voltage management, which should cut down on outages, especially in industrial areas where power use is heavy.

Pricing: Digitized electrical networks will give customers the information to manage their power consumption and cut their electric bills. The system tells customers how much power they’re using at various times of the day, and how much electricity costs at each time interval. This information reveals opportunities to save money by shifting more power usage to the hours when rates are lower. Although few consumers relish the prospect of turning on the dishwasher at 3 a.m., home automation technology eventually will take over the chore of managing power consumption for optimal pricing. And as more people spread out their consumption, price spikes at times of peak demand could moderate.

Skeptics may scoff, but digital grid technology is already saving money for some consumers in Texas. Energy companies in the state have set up a web portal, Smartmetertexas.com, that provides pricing and usage data that consumers need to monitor and manage their electricity consumption. Winners of an energy saving contest sponsored by the companies say the website helped them take steps that cut their electric bills.

Supply–demand integration: Digitization turns traditional one-way power distribution channels into two-way streets. Today, most electricity is generated at a utility’s power plant and sent over the grid to customers. That will change as new technologies enable power to flow back into the grid from alternative energy sources.

Customers who install solar panels on their roof or erect windmills on their property can offset electricity costs by selling some power back to the utility. At times of heavy demand, customers with on-site generating capabilities can also save by switching to their own power source, in response to a signal from the utility warning that rates are peaking.

Product and service innovation: The interactive capabilities of intelligent electrical networks open the door to a range of new products and services that will help customers use electricity in new ways. A closed loop that ties customers to utilities will become an open-ended system encompassing a range of vendors who will provide hardware, software, and services for the digital grid. They will help customers understand their electricity use and capitalize on digitization to squeeze more value from the watts they consume.

Although home automation hasn’t caught on in many markets, this area is ripe with possibilities for consumers and third-party suppliers. Already, electrical service is merging with home security systems to remotely activate alarm systems, turn lights on and off, and change thermostat settings. Moving forward, demand will grow for devices, software, and smartphone apps that use the communications capabilities of the digital grid to automate household appliances. Whether it’s remotely turning off an air conditioner in an empty house on a hot summer afternoon, or timing a dishwasher to run in the wee hours when rates are low, these tools will give consumers a degree of control they’ve never had before.

Network automation and utility efficiency. Grid digitization improves operating efficiency at utilities. Smart meters are already reducing the need to send technicians out for routine matters such as service activations and shutoffs, and, of course, meter reading. As utilities become more efficient, they can respond faster to customer needs. Greater efficiency can also slow the rise of electricity costs over the long term. That’s because in some cases, savings from efficiency reduce the need for capital investment that has to be recouped through customer rates.

Network automation has a similar effect, by maximizing the capacity of existing infrastructures and cutting the frequency and duration of outages. Self-healing technologies such as automated fault detection and advanced voltage management also ease stress on the system, extending the useful life of network assets. Digitization thereby reduces the need for utilities to build new plants and backup generators—big-ticket investments that are typically financed by raising rates.

How Utilities Can Get There

To make the smart grid a reality, utilities must balance their customers’ needs and work to understand them better. This means allocating investment priorities to emphasize full network digitization over a reasonable time frame, while continuing to reap internal operating efficiencies. And it requires a more effective campaign to reconnect with consumers who have come to doubt the promise of the digital grid. Considering the long and sometimes strained relationships between utilities and their customers, these changes may not come easily.However, several areas should be priorities among utilities.

Investing in customer benefits: Despite their traditional wariness of new technology, most utilities have by now embraced the inevitable digitized future. About 33.5 million smart meters have been installed nationally, representing 25 to 30 percent of residential utility customers.Installation rates approach 75 percent in some areas, and full penetration across the country could happen by 2020. That said, much of the investments have come in the front-end communications and data-gathering technologies. It’s time for utilities to focus on the capabilities that create customer benefits. They must now invest in back-end analytics that make sense of front-end data, translating that data into meaningful customer insights. These insights, in turn, will help utilities tailor products and services to better meet customers’ demonstrated and potential electricity usage.

Regaining customer trust: Digital grid technology won’t live up to its potential unless customers believe in it. The first step is building awareness. A survey of U.S. consumers last year by the Edison Electric Institute found that only 45 percent of respondents knew the term smart grid, and barely half of those familiar with the term felt they understood how digital grid technology worked and what it could accomplish.

Consumers often take a skeptical view of new technologies they don’t fully understand. Utilities can counter this skepticism with a stronger marketing mind-set, along with messaging that sets realistic expectations for the timing and nature of smart grid benefits. At the same time, they must address several concerns, some of them misplaced, that have arisen from the smart grid debate.

For example, utilities have faced lawsuits over the alleged health hazards of smart meters, even though studies purporting to show harm from radio frequencies have largely been discredited. Other lawsuits have challenged the costs and accuracy of smart meters.

A major issue for utilities will be control and access to smart-grid data revealing the usage patterns of individual customers. Consumers may consider such information private and object to the sharing—and particularly the sale—of their data among third parties. Rules for data privacy and sharing are evolving on a state-by-state basis, but a federal court ruling may be necessary to clarify the issue. Although the privacy debate is likely to continue for some time, as it has in other industries, data integrity must be a top priority for utilities.

Despite a slow start, the digital grid will bring real benefits to utilities and their customers. Utilities need to shift their investments from technologies that improve internal operating efficiency to those that focus on the network capabilities that will deliver on the promise of the digital grid for customers. To build customer trust and support for digital grid investments, they must communicate and market the benefits more effectively.

Businesses and households, meanwhile, should prepare for digital grid advances that will change their experience as electricity users. To capture those benefits, customers must take advantage of data flowing from the digital grid. Understanding usage patterns will enable customers to use electricity as a tool to manage their business and run their household better, and maybe even sell some power back to the electric company.

Donald Dawson is Partner at Booz & Co.

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