Smart grids without the dumb policy

The debate over electricity prices fails to recognise that the main costs power companies are passing onto consumers are fuelled by the investements needed to upgrade ageing infrastructure.

Prime Minister Julia Gillard has once again reaffirmed her commitment to force electrify companies to lower their prices. But as Paul Budde contends, higher electricity prices aren’t stemming from a lack of political intervention. They come from the costs electricity companies have to pay in order to renew our aging infrastructure.

Energy prices are not driving up the electricity bills, but the capital expenditure needed to renew the ageing infrastructure is. This infrastructure overhaul will also be used to make the network more intelligent; and after a few false starts most electricity distribution companies are now well and truly on the right track. The focus has shifted from simple demand side management and automated meter reading (AMR). The industry has moved on from this, with a large range of new technologies which, when combined creates a smart grid.

These smarts are also critical to develop much more sophisticated energy services and over-the-top systems that allow the utilities to better manage the network in times of peak demand.

It is this peak demand that is creating a serious headache for the electricity distribution companies. In Australia peak demand typically occurs on a few days in summer when temperatures rise above 38C. In general these days account for about 3 per cent of the year; however they also account for a disproportionate share of the total annual costs of the utilities. According to Energex, while household energy consumption only comprises 30 per cent of all energy, in peak demand times households contribute 60 per cent of that (much of it related to air conditioners).

What we are seeing now is that many of the investments in new infrastructure are aimed at coping with peak demand.  It could be argued that the intelligence that is now being deployed with the infrastructure could also be used by the utilities and the regulator to moderate this particular peak problem without the enormous cost involved in simply catering for that one-off demand.

To achieve such an outcome would require regulatory changes to the end-user tariff structure that the utilities can specifically apply to address the peak problem. If this is not done with peak demand control in mind, we could see an overall decrease in energy but still peak demand, this would be a disastrous outcome as that would still require ‘over-investments’ in infrastructure with overall lower revenues and this can only lead to further rises in electricity prices.

So it is not just smart grids that are needed, but also smart government policies and smart regulations that work together to drive progress in Australia’s national electricity infrastructure.

Also what is still not taken into account in these future investments is that, albeit slowly, more intelligence will move into the homes and as a result smart buildings will, over time, make a far more efficient use of energy. At the same time there is a global effort to make electricity devices more energy efficient, and this will lead to lower electricity use, which will again have a positive effect on the costs of infrastructure.

Last but not least, again gradually, the inclusion of renewable energy into the grid will increase .  Not only can this be facilitated by a smart grid, but above a certain level greater visibility and control becomes essential to ensuring network stability. Like the telecoms network and the internet, electricity networks will evolve as networks of networks.  What is needed is the intelligence and real-time communications capacity to manage all these energy-related activities within homes, between homes, and, of course, within the larger scale of the overall network.

Smart grids will deliver a wide variety of benefits and it is critical that all of this be taken into account in the design of policies, regulations and the network itself – long before we embark on the actual rollout. Without a smart design we might end up spending large amounts on unnecessary investments.

Paul Budde is the managing director of BuddeComm, an independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries