Can smart grids save us from the 'death spiral'?

Like telcos before them, energy utilities are facing a disruptive technology in the form of the 'smart grid'. But consumers and utilities could yet both benefit, with ramifications for the demand death spiral.

The electricity demand 'death spiral', which has been covered often in this and other publications, is not really a new phenomenon, nor is it restricted to electricity. Telecommunications have seen a similar pattern with the move to mobile phones and internet telephony technologies, such as Skype, impacting telcos’ ability to recover fix line network costs. 

There is a new set of energy technologies that will significantly impact the lay of the land for utilities. This suite of technologies and its associated potential business models are collectively know as the 'Smart Grid'.

This should not be, as it often is, confused with smart meters. Smart meters are just one of many components of the 'smart grid', as are solar panels and, in the not-too-distant future, residential and commercial-scale batteries.

Utilities have been pursuing the smart grid in a somewhat half-hearted manner. This is perhaps because they have not been able to answer the question of how to fit them into their business model. Now they have a new question to answer: can the smart grid save them from the Death Spiral? 

Before we know that, we need to answer two questions:

1. What are smart grids more precisely? And;

2. What is the relationship between electricity supply costs, customer prices and the decline in electricity demand?

Once these points are clarified, we should also consider whether smart grid technologies could provide the levers for the current federal government to act in the interests of consumers, and finish the job started by Hilmer in the 1990s and revisited by Parer in 2002. The Council of Australian Governments' own watchdog, the COAG reform council, has recently highlighted the urgency of completing the reforms, in February and December 2012.

What are smart grids?

While descriptively useful, the term 'smart grids' is a bit of a misnomer as it suggests it’s all about the supply-side grid infrastructure. This is partially correct; the 'smart' part of the term does describe the deployment and integration of remote monitoring, control and automation technology deeper into the grid. However, the 'full' smart-grid also includes smart appliances at the domestic and small business level. Moreover, it also includes solar generation and other developing technologies, such as batteries and electric vehicles.

So the smart grid has two major aspects: 'grid-side' and 'customer-side' technologies. Grid-side technologies can penetrate right down to the distribution transformer substation or even to pole-mounted transformers on suburban streets. These transformers gradually step the voltage down from the transmission grid. Other devices throughout the distribution grid can also be 'smartened-up'. Devices such as protection switches, which 'trip-off' sections of the network in the case of a short circuit are first off the rank. These smart devices can be enabled either by wi-fi or wired data connections to utilities’ control centres where they can be rapidly activated.

In theory, this rapid response will make managing the system more efficient. It should therefore make power less costly for the consumer. But we are still in the early stages of implementation of smart grids globally and these savings are yet to be fully realised anywhere in the world.

So what about 'customer-side' technologies? Aside from trials such as the government’s Smart Grid Smart City project in NSW or the Malaga Smart City in Spain, these have not yet been deployed to any great extent. However, all their component technologies are already available in an 'off-the-shelf' form and are just waiting for new market frameworks and business models. These technologies include smart-grid enabled domestic appliances such as refrigerators, air conditioners, electric hot water systems, pool-pumps and so on. These can be remotely monitored and controlled by either their owners, or the utilities, if given permission by the owners.

Why would you want to allow electricity utilities to control your appliances? Because when utilities can control enough appliances across their network, these can be either switched off or just turned down in a coordinated fashion. This can relieve congestion in the network and ultimately benefit the entire supply chain. When deployed grid-wide, this will reduce the absolute level of peak (MW) demand for a given level of energy (MWh) demand and thus require less infrastructure to support. They natural lend themselves to supporting large (and small) scale renewables as an alternative to open cycle gas turbines.

So there we have our theoretical smart-grid… but wait! We already have one major component of the smart-grid in place: “distributed generators, these are electricity generators connected to the distribution network.” We have nearly 3000 MW of solar generation in Australia now, mostly on people’s roofs. When combined with battery storage (and/or EVs), which could be affordable within 10 years, this creates a domestic power station. This is a serious game changer for the power industry.

Because of the opportunities offered by these consumer-side technologies, I would go out on a limb and suggest that the majority of the economic benefits of smart-grids reside in the consumer side. These domestic power stations will, if used correctly, revolutionise the efficient use of the transmission and distribution system by flattening the load profile and moving towards the holy grail of electricity systems – the 100 per cent utilisation factor.

This is an immensely powerful capability when realised. It is 'when' and not 'if' because now that the actual components of the smart grid are available on a mass scale, the transformation is somewhat inevitable.

The question is who will take this up and run with it as a commercial model, and when or how quickly will this happen. And as in any high-tech market, there will be winners and losers. Technology trumps business models and regulatory frameworks every time. Just look at Apple’s iPhone. It has taken out two telecommunication giants in the past few months, Nokia’s mobile division, bought by Microsoft, and RIM, the Blackberry maker, nearly bankrupt, is laying off thousands of workers and about to be sold at a bargain basement price.

In this very early stage of the development of the smart grid, it is hard to know how things will evolve. However, future outcomes depend on decisions made, or avoided, right now. Governments, particularly the federal government through the Australian Energy Market Commission and its Power of Choice Review, has the opportunity to help the transition to new technologies be as smooth as possible while protecting consumers. 

Inaction is not an option; the market will still do its thing. We don’t really want our energy industry to be another Blackberry or Nokia!

*This is part one of a two-part series. For part two, click here.

Dr Ariel Liebman is a senior research fellow and director of Energy and Carbon Programs at the Faculty of Information Technology, Monash University. Monash is running an industry focused Smart Grids short course in November.