ame time increased light levels by 10 percent to 20 percent.To illustrate the amount of environmental benefit that a singlelighting retrofit can provide, Lime Energy’s lighting upgrade at Associated Foods prevented the emission annually of 5,060 tons of CO2 , 12tons of sulfur dioxide (the leading cause of acid rain), and 13 tons of nitrogen oxides (the leading cause of smog and acid precipitation).26 Theretrofit also eliminated the need to burn 2,300 tons of coal per year.27
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Lime Energy estimates the size of the market for products and services that produce electricity savings in lighting and HVAC at over $200billion. Lime also estimates that there are approximately 3 billion lightfixtures in the United States that could benefit from energy efficientupgrades and retrofits.28r Echelon Corporation (Nasdaq: ELON)—Echelon (www.echelon.com),with 2006 sales of $57.3 million, specializes in getting various components and equipment to work together on a network under acentralized control system. The company has control and automationproducts for a variety of applications including commercial, industrial,residential, utility, and transportation. The company has a building automation product, LonWorks, that allows all of a building’s variousfunctions (lighting, security, HVAC and others) to be tied into a single control and automation system. The company has NES, a two-waysmart meter product that it has sold to European utility customers andis now in the process of introducing it to U.S. customers.
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C H A P T E R 11
Smart MetersGetting Smart on Grid Efficiencyand Reliability
he issue of power efficiency clearly needs to be addressed at theelectricity consumer level through increased efficiency of appliances,lights, and heating/air conditioning, as detailed in the previous chapter. However, power efficiency also needs to be addressed at the utilitylevel, where inbalances between supply and demand cause excess powergeneration capacity, wasted capital, and unnecessary greenhouse gas emissions. Another key problem that needs to be tackled at the grid and utilitylevel is to modernize the entire electricity delivery system to make it morereliable. Smart electric meters, which are installed by the utility at its customers’ locations, are an important way to achieve the goals of both powerefficiency and improved reliability of the grid.
T
SMART GRIDThe American electric power infrastructure is extraordinarily complex,and it is a major challenge to get everything working together without anyhitches. A quote from a report by the Center for Smart Energy illustratesthe scope of the problem:The North American electric power industry comprises more than3,000 electric utilities, 2,000 independent power producers, andhundreds of related organizations. Together, they serve 120 million residential customers, 16 million commercial customers, and201
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700,000 industrial customers. With about $275 billion in annualsales, the industry is one of the continent’s largest—30% larger thanthe automobile industry and 100% larger than telecommunications.North American utilities own assets with a book value of nearly $1trillion, roughly 70% in power plants and 30% in the grid. The continent has 700,000 miles of high-voltage transmission lines, ownedby about 200 different organizations and valued at more than $160billion. It has about 5 million miles of medium-voltage distributionlines and 22,000 substations, owned by more than 3,200 organizations and valued at $140 billion. The North American electric powerindustry will purchase more than $20 billion in grid infrastructure equipment in 2005, nearly one quarter of the worldwide total of$81 billion.1The “grid” can be defined as the entire system involved in generatingand delivering electricity to customers. Table 11.1 illustrates the dramaticimprovements that need to be made to get a 20th century grid to the smartgrid that is needed now—for the 21st century. The major blackouts andtransmission disruptions that have been seen in the United States in recentyears demonstrate that the North American grid is in bad shape and thatTABLE 11.1 The Smart Grid of the Future20th Century Grid
21st Century Smart Grid
ElectromechanicalOne-way communications (if any)Built for centralized generationRadial topologyFew sensors“Blind”Manual restoration
DigitalTwo-way communicationsAccommodates distributed generationNetwork topologyMonitors and sensors throughoutSelf-monitoringSemi-automated restoration and,eventually, self-healing
Prone to failures and blackoutsCheck equipment manuallyEmergency decisions by committeeand phone
Adaptive protection and islandingMonitor equipment remotelyDecision support systems, predictivereliability
Limited control over power ﬂowsLimited price informationFew customer choices
Pervasive control systemsFull price informationMany customer choices
Source: Global Environment Fund, Center for Smart Energy, The Emerging SmartGrid: Investment and Entrepreneurial Potential in the Electric Power Grid of theFuture, October 2005, p. 2, http://www.globalenvironmentfund.com/GEF%20white%20paper Electric%20Power%20Grid.pdf.
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there is a huge amount of work that needs to be done to move to the smartgrid of the future. This process has barely started.The Center for Smart Energy lists the key elements of grid modernization based on recommendations from the U.S. National Energy TechnologyLaboratory:1. Self-healing. A grid able to rapidly detect, analyze, respond and restore
itself from perturbations.2. Empowers and incorporates the consumer. The ability to incorporate
consumer equipment and behavior in the design and operation of thegrid.3. Tolerant of attack. A grid that mitigates and stands resilient to physicaland cyber security attacks.4. Provides power quality needed by 21st century users. A grid that provides a quality of power consistent with consumer and industry needs.5. Accommodates a wide variety of generation options. A grid that accommodates a wide variety of local and regional generation technologies (including green power).6. Fully enables maturing electricity markets. Allows competitive markets for those who want them.7. Optimizes assets. A grid that uses IT and monitoring to continuallyoptimize its capital assets while minimizing operations and maintenance costs.Smart meters are a key element of grid modernization because theyallow a utility to gather data from customer locations and allow grid managers to see the entire picture of electric generation, transmission, and consumption. Smart meters can not only make the entire grid system more robust and reliable, they can also help to more accurately match supply anddemand and reduce the need for excess electricity generation capacity.
DEMAND RESPONSE AS A POWEREFFICIENCY SOLUTIONCreating a better balance of supply and demand of electricity in the overall power system would be a big step forward in improving efficiency andlowering electricity costs. Electricity cannot be stored and power utilities,therefore, face a peculiar and volatile market in which supply has to be
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continually ramped up and down to match demand, which is typically highduring the day and low at night.One solution is to make demand responsive to price, which is called“demand response.” The Federal Energy Regulatory Commission defines“demand response” as follows: “Changes in electric usage by end-use customers from their normal consumption patterns in response to changes inthe price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or whensystem reliability is jeopardized.”2 The goal of demand response is to flatten out demand by making electricity more expensive during times of highdemand and less expensive during times of low demand.Demand for electricity from household end-users, which account forabout 40 percent of overall electricity demand in the United States, is currently unresponsive to the variations in wholesale power costs becausemost household electricity consumers have flat pricing. Consumers haveno economic incentive to shift their discretionary electricity usage from periods of high grid demand (day time) to periods of low grid demand (nighttime) because the retail price of electricity is the same for household electricity consumers across all periods.Meanwhile, utilities are forced to maintain power generation capacitythat can more than meet the peak demand seen during the day and on afew hot days during the summer, even though that capacity goes to wasteduring periods of normal or low demand. This represents a very high costfor the utilities, which need to build extra power plants or buy expensivewholesale electricity from other utilities on peak days, just to meet theextraordinary demand seen a few days a year.Utilities are extremely interested in creating a flatter power demandcurve and “shaving” the peak electricity usage seen during the day and seasonally on particularly hot days. One of the best ways to create a flatterdemand curve is to introduce “time-of-use pricing,” where electricity consumers pay an electricity rate as much as three times higher during the fewpeak hours of the day and then pay a lower rate during the other non-peakhours of the day. This encourages consumers to shift their discretionaryelectricity usage to non-peak hours of the day, reducing overall grid demand during peak hours of the day and “shaving the peak” of the demandcurve (see Figure 11.1). Consumers can turn down their heating/coolingduring peak hours and can also shift electricity usage for clothes washers, clothes dryers, dishwashers, and other power-intensive appliances toevening nonpeak hours.Utilities can also implement “critical use” pricing that imposes veryhigh electricity prices during the few days of the year when power demandis very high and utilities are bumping up against their reserves. Consumersare typically notified when critical use pricing goes into effect, thus givingthem a chance to cut their power usage and avoid the higher costs. The
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FIGURE 11.1 Schematic of Peak Shaving from Demand ResponseSource: Federal Energy Regulatory Commission, Assessment of Demand Responseand Advanced Metering, August 2006, p. 80, http://www.ferc.gov/legal/staﬀreports/demand-response.pdf.
advantage to the utility is that the high critical use pricing will encouragecut-backs in power usage by price-sensitive consumers, thus cutting theoverall power load on the utility’s power generation system.The flatter demand curve that results from variable pricing allows theutility to maintain lower generating capacity and reduce their overall costs,which is a cost savings that can be passed on to electricity consumers.Variable pricing also reduces the spikes in wholesale electricity prices thattypically occur on particularly hot days when reserve electricity is in shortsupply, thus providing another source of cost savings to utilities.Time-based pricing has already been introduced to most commercialand industrial electricity customers in the United States. However, thenext step is to introduce time-based pricing at the household level on awidespread basis, thus further smoothing power demand and reducing theoverall cost of providing power. Studies of existing retail demand responseprograms have shown that these programs have potential savings of asmuch as 10 percent to 20 percent of peak load.Another program that utilities can use to reduce discretionary powerdemand during critical periods is “curtailment programs.” Under a curtailment program, the electricity consumer agrees to cut power usage duringtimes of stress on the system in return for a payment from the utility. The
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utility has a self-interest in paying to curtail demand because of the moneythat the utility saves by reducing the peak generation assets that it musthave on hand to cover a few hot days of the year. There are a variety ofways that the utility can notify the customer when the curtailment programis activated, including automated systems or by telephone or email.
THE ROLE OF SMART METERSIn order to introduce variable pricing, advanced electricity meters are necessary that can measure when electricity is used, not just the total amountof electricity used. The old electromechanical meters that have turningwheels are typically physically read by a meter reader once a month. Theold meters only give a read-out on the total amount of electricity usedduring the month, not the day and time when the electricity was used.Thus, variable pricing cannot be introduced with the old electromechanicalmeters.A modern electricity meter, on the other hand, is a digital meter withan integrated electronic solid-state circuit board that collects data on theamount and time of electricity usage. The utility can then retrieve the datasaved inside the meter whenever the utility wishes—continual, every 15minutes, hourly, daily, or monthly. Figure 11.2 shows an old electromechanical meter that has turning wheels. Figure 11.3 shows a newer digitalelectricity meter that collects and saves detailed electricity usage data.A utility can retrieve the data from a smart meter using four differentnetwork transmission methods:1. Public wireless. Public wireless operates like the public wireless Inter-
net, using public wireless frequencies for the base unit to communicatewith the meters at customer locations.2. Radio frequency (RF). Radio frequency also involves wireless technology but uses special frequencies (either licensed or unlicensed) thatare typically more reliable than public wireless Internet frequencies.The collection methods for wireless transmission include handheldunits, mobile systems, or fixed network collection towers.3. Broadband over power line (BPL). Broadband over power line involves the use of the Internet over electricity power lines (as opposedto normal broadband usage over cable or DSL telecom lines).4. Power line carrier (PLC). Power line carrier is a slower system thatinvolves installing modem-type gear at both the customer and the utility ends of the power lines to transmit communication messages.
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FIGURE 11.2 Old Electromechanical Electric MeterPhoto credit: Greg Niemi.
FIGURE 11.3 New Solid-State Digital Electric MeterPhoto credit: Norman Morin.
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FIGURE 11.4 Automatic Meter Reading (AMR) One-Way SystemSource: Itron Inc., 2005 Annual Report, p. 4.
The most obvious benefit of a smart meter is that it eliminates the costof having a utility employee visit every household each month to visuallyread the meter, which reduces costs and eliminates safety problems. Themuch larger benefits from smart meters come from the utility being ableto provide better customer service, size its transmission assets more efficiently, and flatten the demand curve to reduce the amount of excess electricity generating reserves that must be available to meet peak demand.The process of reading meters automatically is called automatic meter reading (AMR). Figure 11.4 shows a schematic diagram of how AMRworks with data from an electricity meter being collected via a handheld,mobile unit, or fixed communication network, and then being funneled intoa database/software system.However, smart meters can also be set up to communicate on a twoway basis, i.e., where the utility can both receive a meter reading of electricity usage from the meter and also transmit various signals to the meter.Two-way meter systems are typically referred to as advanced meteringinfrastructure (AMI). An AMI system includes the meters, the transmission assets, and the software to run the system and analyze the data. Figure11.5 shows a schematic diagram of an AMI system.The two-way meter communication available through AMI allows theutility to send information to the meter to input variable electricity pricing schedules, transmit automatic connect/disconnects, test for outagesor theft, implement curtailment programs, or interface with smart thermostats and smart appliances (lighting, water heaters, dryers, dishwashers,etc) in order to minimize a consumer’s electricity usage and overall electricity bill. The smart meter then becomes part of a more efficient powersystem that can benefit both producers and consumers of electricity.
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FIGURE 11.5 Advanced Metering Infrastructure (AMI) Two-Way CommunicationSystemSource: Southern California Edison, “AMI Program Overview,” 9 October 2006.
A homeowner, for example, can use a smart thermostat that communicates with the smart meter via wireless. The smart thermostat is capableof retrieving real-time pricing data from the utility and then automaticallycalculating how to minimize electricity costs while staying within heating/cooling parameters set by the homeowner. Figure 11.6 shows a photo
FIGURE 11.6 Smart ThermostatSource: Converge Inc. SuperStat smart meter, www.comverge.com.
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of the smart thermostat marketed by Converge Inc (Nasdaq: COMV) andmanufactured by Emerson Electric (NYSE: EMR).
DEMAND RESPONSE AND ADVANCEDMETERINGThe Energy Policy Act of 2005 made demand response an explicit policygoal of the United States federal government. More specifically, Congressrecognized that the increased usage of advanced metering is important forthe future development of electric demand responsiveness in the UnitedStates. Congress instructed the Federal Energy Regulatory Commission(FERC) to assess demand response resources and conduct a comprehensive survey of electric demand response and advanced metering. FERC issued its report, entitled Assessment of Demand Response and AdvancedMetering, in August 2006.3FERC estimated that the potential peak reduction from existing demand response systems is about 37.5 gigawatts, which is equivalent to theamount of electricity used by about 28 million homes. The report confirmedthe importance of implementing demand response systems as a way to reduce U.S. electricity usage, thus reducing the need for new power plantsand cutting the overall cost of the U.S. power system.
BENEFITS OF SMART METERSOne of the main goals of smart meters is to allow utilities to implementvariable pricing. However, there are other important benefits of smart metering as noted by FERC:
r Enhanced customer service including more accurate billing.r Automated meter reading, which eliminates manual meter readingcosts.
r Remote connect/disconnect and reduction of service calls.r Tamper detection and theft reduction.r Load forecasting and reduction of excess capacity.r Outage management and lower outage repair costs.r Asset management including transformer sizing.r Premise device/load control interface or capability, e.g., with smartthermostats or appliances.4
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CURRENT SMART METER USAGEFERC’s survey found that advanced meters currently account for onlyabout 6 percent of the total 144 million electric meters in the UnitedStates.5 Smart meter usage varied considerably by region and by type ofpower company entity. The states with the highest usage of smart metersare Pennsylvania and Wisconsin, as seen in Figure 11.7. The survey foundthat 42 states have usage rates of less than 10 percent.By utility type, the FERC survey found that the highest usage rate foradvanced metering is found among smaller rural power companies. Thismakes sense since rural utilities can save more money by eliminating theneed for utility employees to travel long distances to read meters at customer premises every month.Table 11.2 shows some of the large advanced metering deployments inthe United States. The deployments mainly used fixed RF (radio frequency)as the meter reading collection method, although power line carrier (PLC)and broadband over powerline (BPL) have started appearing in the past2 years. Most of the projects included in this list are automatic meter reading projects and not the new two-way advanced metering infrastructuresystems.
FIGURE 11.7 Smart Electric Meters as Percent of Total—Top 15 U.S. StatesSource: Federal Energy Regulatory Commission, Assessment of Demand Responseand Advanced Metering, August 2006, p. 30, http://www.ferc.gov/legal/staﬀreports/demand-response.pdf.
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Announced Large Advanced Metering Deployments in the UnitedStates
Utility
Commodity
AMI type
Units
Year Started
Kansas City Power & Light (MO)Ameren (MO)Duquesne Light (PA)Xcel Energy (MN)Indianapolis Power & Light (IN)Puget Sound Energy (WA)Virginia PowerExelon (PA)United Illuminating (CT)Wisconsin Public Service (WI)Wisconsin Public Service (WI)JEA (FL)PPL (PA)WE Energies (WI)Bangor HydroColorado SpringsLacledeTXUAmeren (IL)PG&E (CA)PG&E (CA)Hundreds of Small Utilities
ElectricElectric & GasElectricElectric & GasElectricElectric & GasElectricElectric & GasElectricElectricGasElectricElectricElectric & GasElectricElectricGasElectricElectric & GasElectricGasElectric & Gas
Fixed RFFixed RFFixed RFFixed RFFixed RFFixed RFFixed RFFixed RFFixed RFPLCFixed RFFixed RFPLCFixed RFPLCFixed RFFixed RFBPLFixed RFPLCFixed RFVarious
450,0001,400,000550,0001,900,000415,0001,325,000450,0002,100,000320,000650,000200,000450,0001,300,0001,000,000125,000400,000650,0002,000,0001,000,0005,100,0004,100,0005,000,000
199419951995199619971997199719991999199920002001200220022004200520052005200620062006na
Source: Federal Energy Regulatory Commission, Assessment of Demand Responseand Advanced Metering, August 2006, Table III-3, p. 32, http://www.ferc.gov/legal/staﬀ-reports/demand-response.pdf.AMI types: Fixed Radio Frequency (RF), PLC (power line communication), BPL(broadband over powerline)
ADVANCED METERING COSTS AND BENEFITSThe FERC Demand Response and Advanced Metering study provided someuseful cost benchmark information. Specifically, FERC noted that theaverage cost for a meter has recently been in the range of $75 to $85per meter (see Table 11.3). However, the meter typically represents only45 percent of the total system cost, with other costs including networkhardware (20 percent), installation (15 percent), project management(11 percent) and IT (9 percent). The total capital cost per meter system hasrecently been in the $135 to $150 area, according to information collectedby InteliPoint International.
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TABLE 11.3 Advanced Metering Cost Benchmarks
Utility
Year
Meters(mlns)
DLCoVirginia PowerPREPAENELJEAPPLBangor HydroTXUPG&ESDG&E
1996199719982000200120022004200520052006
0.60.51.3300.71.30.10.39.82.3
Hardware($mln)
TotalCapital($mln)
HardwareCostper meter
TotalCapital Costper meter
$60$44$130$2,673—$112$7.50$19$721$199
—————$160$15$38$1,328$329
$99$98$100$89$150$86$68$76$74dollar;86
————$214$123$136$150$135$143
Source: Federal Energy Regulatory Commission, Assessment of Demand Responseand Advanced Metering, August 2006, Table III-4, p. 35, http://www.ferc.gov/legal/staﬀ-reports/demand-response.pdf.
There are a variety of financial benefits for a utility that offset thecapital cost of the meters. These cost savings include reduced meterreading costs, the elimination of estimated bills, the ability to bettersize electric generation and transmission assets, reduced outage management costs since crews can more accurately determine the scope ofa problem, reduced invoicing time (thus reducing receivables), amongothers. As the buyers of the smart meters, utilities must see a positivereturn from their capital investment through cost savings and/or by apass-through of the costs to customers before they will decide to proceed with smart metering programs. This book’s companion Web siteat www.ProfitingFromCleanEnergy.com has a link to a video that explains the benefits of the smart meter project at Hydro One in Ontario,Canada.The business case for AMR depends on the circumstances at a particular utility. No single economic analysis applies across the board. However,a study by Gary Fauth and Michael Wiebe came to the following conclusions about the cost benefits from advanced metering:Properly measured, advanced meter reading benefits can amount tobetween $1.35 and $3.00 per customer per month, over the useful lifeof the hardware. In contrast, advanced meter reading in many situations can cost $1.25 to $1.75 per customer per month, measuredover the useful life of the hardware and including both capital and
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operating costs. These cost and benefit numbers by themselves produce a positive business case outcome in most cases. Business casesfor advanced meter reading can produce internal rates of returnranging from 15–20% and payback periods of less than six years.6
SOUTHERN CALIFORNIA EDISON’SBUSINESS CASE EXPERIENCE FORADVANCED METERINGSouthern California Edison, a subsidiary of Edison International (NYSE:EIX), is currently in the midst of implementing a 5-million-unit smart meterprogram that provides valuable data for analyzing the future of smart meters. After the California power crisis of 2001–2003, the California PublicUtilities Commission (CPUC) ordered major California utilities to developa cost analysis for implementing advanced metering. Southern CaliforniaEdison in its first go-around found that an automated meter reading system based on existing technologies would create a net loss of $500 millionfor the utility.7However, Southern California Edison went back to the drawing boardand looked at a more sophisticated advanced metering infrastructure thatwould provide two-way communications to allow the use of automaticconnects/reconnects, time-of-use pricing, load control, and other benefits.With the additional benefits from a more sophisticated AMI system, thebusiness case analysis changed from a $500 million net loss to a $514 million net gain. The net gain resulted from estimated benefits of $761 million(i.e., demand response worth $315 million, remote connect/disconnect capabilities worth $298 million, improved communication system coverageworth $45 million, reduced meter failure rates worth $33 million, and various other smaller benefits worth a total of $70 million), minus the $247million cost of the meters and infrastructure. Further details on the Southern California Edison AMI program are available at www.sce.com/ami.Southern California Edison is moving ahead with the most sophisticatedAMI project yet conceived in the United States.
INTEROPERABILITY AND INDUSTRYSTANDARDSUtilities have an important concern that current advanced metering equipment may become a stranded asset because of rapid technology improvements or because a particular vendor of proprietary equipment may go
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out of business and not support the equipment. In order to address thisproblem, there is a strong movement toward adopting industrywide interoperability standards, thus giving utilities more assurance that they willhave a wider choice of vendors and a longer shelf life for their advancedmetering assets.The American National Standards Institute (ANSI), in conjunction withthe Automated Meter Reading Association (AMRA), has already issuedstandards for meter communications and meter data storage. The nextstandard (ANSI C12.22) covers meter communications over a network.Some of the leading smart meter vendors have already announced thattheir products are compatible with the new standards, thus placing pressure on other AMI vendors to conform as well.8There is some concern that the movement toward standards and interoperability could be a negative factor for advanced metering vendors because it may commoditize the product, increase competition, and reduceprofit margins. On the other hand, standards and interoperability may overcome a major concern of utilities about stranded equipment and lead tomuch wider adoption of advanced metering systems and much higher unitsales for advanced metering vendors. On balance, the move toward standards and interoperability will likely be a net negative factor for smallervendors that have limited and propriety systems, but will be a net positivefactor for the larger advanced metering vendors that can meet the standards and take advantage of larger unit volume sales.
GLOBAL DEMAND RESPONSEThe focus on energy efficiency and demand-side management is a globalmovement, as seen by the activities of the International Energy Agency(IEA). The IEA in its 2006 annual report Implementing Agreement onDemand-Side Management Technologies and Programmes provides awealth of information on various initiatives on efficiency and demand-sidemanagement in the United States, Canada, Europe, Japan, and elsewhere.9The IEA’s report notes that energy efficiency has reduced global energyneeds by some 50 percent since 1973, but that energy efficiency improvements have progressively slowed in the last two decades.