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Why the smart grid is stuck in first gear

The smart grid is taking hold slowly, held back by utility industry regulations and the lack of compelling applications for consumers.

WASHINGTON D.C.--The smart grid was hyped and then deflated. Now, it's looking to rebound, this time with consumers along for the ride.

Consumer "engagement" is a persistent theme at the GridWeek conference here, where people said new grid technologies need to be made relevant to consumers.

Smart-grid technology is already bringing more information about energy usage, shortening power outages, or generating tips to improve home efficiency. The problem is that many advanced services are only offered to small groups of people as part of pilot programs.

So what will it take to speed up the smart grid? Here are five insights gleaned from the GridWeek conference.

Consumer technology is still nascent
How would you like to control your thermostat from your smartphone? Or get an e-mail to tell you that there's something wrong with your air conditioner?

These applications are already possible, but they're not widely available because the infrastructure--both the communications needed and the business models--isn't yet developed.

Imagine the telecom industry about 10 years ago. Broadband opened up a whole new set of applications, like streaming movies to a tablet. But in the first few years, the availability of broadband was spotty depending on where you lived and it took a while for compelling Web services to be developed, noted Kris Bowring, senior director and platform lead for Best Buy. The same is true for the energy-related applications.

If done right, the technology can serve different types of people--even those who don't want to change anything. Some people may want a bit more information on usage and an easy way to program a thermostat through a Web page or smartphone. Others will be willing to participate in demand response programs where utilities offer a rebate to adjust air conditioners during emergency peak power periods, such as heat waves. More environmentally minded people will want to maximize efficiency and potentially purchase green power.

It shouldn't be surprising that most consumers aren't excited by the smart grid: by one estimate, Americans spend an average of 6 minutes a year thinking about their electricity bill.

Regulations are the biggest barrier to the smart grid
The bulk of utilities in the U.S. aren't regulated in a way that creates an incentive to invest in energy-saving technologies, according to many GridWeek speakers.

The traditional model is that utilities invest in new power plants or transmission equipment and earn a return on that capital equipment. Utilities recoup the investment by raising utility rates to a degree agreed upon by regulators.

Shown are some of the components of the smart grid, the idea of modernizing the grid with technology for better reliability and efficiency. Electric Power Research Institute

But the promise of the smart grid is that utilities can use information to offer new services. For example, a consumer could sign up for an alert to let them know if a monthly bill will exceed $200. A utility could send an alert midway through the month and, based on an analysis of energy data, offer some recommendations on saving money, said Charles Dickerson, the vice president of customer care at Pepco.

"We need a regulatory construct to earn a return on services. Right now, we can't. We can only earn a return on assets," he said. Many utilities have to pay "mortgages" on power plants and don't have an incentive to introduce energy-saving products, he said.

One of the key changes that hasn't rippled through the entire system is variable utility rates, which reflect how the price of energy varies depending on demand. With flat pricing, consumers have little incentive to change their habits, such as running the dishwasher or clothes dryer at off-peak times. People should have a choice between a flat rate or picking varying rates in an effort to save money and energy, said Adrian Tuck, CEO of grid software company Tendril.

The benefits of improved reliability are undersold
During Hurricane Irene, Maryland-based utility Pepco was able to restore power to people much more quickly because it could communicate with its smart meters.

The CEO estimated on Tuesday that the new system improved reliability by 50 percent by being more precise in finding which homes were brought back online after power lines were reconnected. Consumers can also go to a Google Maps Web site to get up-to-the-minute updates on service restoration.

With sensors, this sort of reliability can be embedded all along the grid. Big expensive equipment such as transformers can be wired so utilities can remotely monitor their health and do preventive maintenance. The benefit to consumers? In theory, this should lead to more reliable service and mean the utility can defer equipment upgrades tied to rate increases.

A better-instrumented and robust grid is important in regard to renewable energy as well. Because wind and solar are variable sources of power, grid controllers need to switch the flow of energy from different sources quickly and maintain steady power.

Utilities are struggling to reinvent themselves
The job of utilities for 100 years has been to keep the lights on. End of story. Now, they're being asked to make the grid more efficient and reliable, integrate renewable sources, and introduce consumers to new technologies. That's a culture shock they're struggling to adjust to.

Instead of utilities being the sole energy provider, different companies are offering energy-related services. Best Buy in October will launch a trial of home energy management gear at three of its stores, which it will do in conjunction with utilities.

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Other channels are broadband providers that also offer home automation services with an energy component and home security companies, such as ADT Pulse and Vivint, which offer a programmable thermostat and energy monitoring. As new companies enter energy, new business models still need to be worked out to offer new services.

"It's going to accelerate whether utilities are in or not because the technology is coming and there are industries looking at your (utility) customers and seeing gaps that can be filled," said Bowring from Best Buy. "As a utility you could look at it as a chance to innovate like you never have before with big companies that are also trying to figure this out."

Another likely channel? Social media. Most people don't often interact with utilities and they may even be distrustful of information they provide on rate plans. But people increasingly rely on friends who could recommend a beneficial rate plan or service, such as home energy audits.

EVs are likely to accelerate change
Charging a plug-in vehicle to the grid draws about as much power as a whole house. So an EV driver has a financial incentive to get cheaper rates, which are typically at off-peak times in the overnight hours.

As more cars plug into the grid, varying rates, as opposed to flat rates, will creep into the system, predicts Ronald Binz, a former utilities regulator and principal of public policy consulting. "EVs will begin the movement to dynamic pricing because drivers will demand it," he said.

Off-peak pricing rates for EVs are crucial for grid stability. If multiple cars in a neighborhood all charge at 6 p.m. during peak times, that could easily overload local distribution grids. With smart charging equipment, utilities can control the pace of charging and still ensure a car's battery is fully charged when the driver requests it.

Ultimately, the smart grid is about infrastructure and it can be difficult to appreciate the benefits of a robust infrastructure--until it fails. The stimulus plan put $3.4 billion into the grid, which was coupled with more than that from utilities. Those 100 or so projects--and many others--are still being rolled out and will take time to demonstrate the projected benefits, such as lower operating expenses at utilities and home energy management services.

People in the industry wonder out loud what the "killer app" of the smart grid will be, but the challenge right now is building out the platform and choosing good applications with available technology. "You don't have to deploy a lot of new exotic technologies. You just have to do it right," said David Green, executive vice president from smart meter maker Elster.