Waiting for the Digital Electrical Grid, Part I

Why haven’t utilities made more progress?

Co-authored by Earl Simpkins & Josh Stillman

Consumers have heard that digital technologies are revolutionizing electrical systems across the country, promising new services and lower prices for customers. Local utility may have installed a “smart meters” at customers’ homes. And maybe the power company is sending monthly notices comparing electricity consumption to that of their neighbors.

But unless you work for an electric utility, you probably haven’t seen many, or any, concrete benefits from the smart grid. Bills bills haven’t come down, power outages haven’t decreased, and nobody’s offering any of those innovative services—like home automation—that the digital grid is supposed to spawn.

What happened? Many in the utility industry wonder if the hype around digital grid technology outpaced individual utilities’ ability to deliver, or got ahead of regulatory willpower to support the needed investments (through rate hikes). The first wave of smart-meter installations fueled expectations that falling rates and amazing new services would soon follow for businesses and consumers alike.

Those expectations haven’t been met. So far, the main beneficiaries of the technology have been utilities. Automated metering infrastructure, where implemented, has made power companies more efficient, but those savings for utilities haven’t translated into significant reductions in customers’ bills.

The lack of obvious customer benefits opened the door to a range of concerns, mostly unfounded, about the health effects, costs, and privacy implications of automated metering. Consumer backlash ensued, slowing smart-meter deployment in some states and undermining utilities’ messages about the consumer benefits of the digital electric grid.

The truth is that customers won’t see meaningful benefits until utilities fully digitize and integrate their infrastructure. Notwithstanding the hoopla, smart meters are only a starting point. A genuinely smart grid requires a panoply of new hardware and software throughout the power distribution network, where the real benefits of the digital grid will be realized.

Utilities have only begun to install these network components. Full roll-outs of digital grid technology will take several years. The pace will vary from state to state and utility to utility. Different benefits will materialize at different times for different customers, based on the type and timing of the technology deployed. To further complicate matters, the technology is still evolving as new systems, devices, and vendors offer integrated solutions.

Much will depend on each utility’s inclination and ability to make the necessary investments. Industry studies suggest that full digitization of the entire US electrical grid could cost between US$338 billion and $476 billion, many times the estimated $8 billion invested in digital technologies so far. Bigger utilities are likely to move faster and invest more than smaller ones, because the investments represent a significant portion of any utility’s balance sheet and equity. In most cases, the pace of investment must also be balanced against the value to the customer.

But resources aren’t the only issue. Utility investment decisions will depend to a great degree on the willingness of state regulators to add digital infrastructure costs to customers’ bills. Regulatory attitudes, in turn, will mirror public perceptions. Regulators who sense widespread demand for a digitized grid are more likely to approve cost-recovery efforts, and thus accelerate deployment. Utilities can stoke public demand for the digital grid if they do a better job of communicating the immediate and long-term benefits.

Despite these hurdles, the digital grid is coming incrementally, and it will transform your experience as an electricity consumer in fundamental ways. Early benefits will include greater reliability and more-transparent pricing. Down the road, digitization will lead to supply–demand integration; rapid product and service integration; and eventually a fully automated, resilient, “self-healing” electrical network.

In next week’s article, we will discuss benefits of the digital grid and how utilities can get there.

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