Smart Grid Scope Creep Costs More—a Lot More!

A new report by the Electric Power Research institute (EPRI) estimates the cost of creating a viable smart grid has risen to an estimated $465 billion.  In 2004, EPRI estimated that building out the smart grid would cost $165 billion. What happened to drive up the cost?

Here’s the mea culpa in the introduction to the EPRI Study:

“At first glance, it may appear the most obvious change from the 2004 report is the significant increase in projected costs associated with building the smart grid. In actuality, the increased costs are a reflection of a newer, more advanced vision for the smart grid. The concept of the base requirements for the smart grid is significantly more expansive today than it was seven years ago, and those changes are reflected in this report.”

TRANSLATION: The Federal Government got involved and now is driving the smart grid development process and, just like everything else, cost is not an object when the politicians decide to get involved.

The report actually says:

The Smart Grid as defined here is based upon the descriptions found in the Energy Independence and Security Act of 2007. The term “Smart Grid” refers to a modernization of the electricity delivery system so that it monitors, protects, and automatically optimizes the operation of its interconnected elements – from the central and distributed generator through the high-voltage transmission network and the distribution system, to industrial users and building automation systems, to energy storage installations, and to end-use consumers and their thermostats, electric vehicles, appliances, and other household devices.” (page 1-1)

If you are beginning to get nervous that all the sex appeal of smart grid as the bright, shiny, new high technology toy which will make our lives faster, better, cheaper and much more fun is turning into a big brother strategy to control our lives down to, and including, setting our thermostat and what kind of toaster we may use for our breakfast, then read on.  The report says one of its primary purposes is to provoke discussion about the goals and aspirations of smart grid among stakeholders. It surely will achieve that objective.

It is tough to tell at times when I read the report whether this is political correctness run amok or a parody sketch designed for a Saturday Night Live skit.   EPRI seems almost apologetic for the aspirations of politicians and spins how and why those policies in the Energy Independence and Security Act of 2007 are somehow good for the power grid. It is not a very convincing story. The report also compartmentalizes the expected costs making it more difficult to discern the real cost of smart grid at build out.  For example:

The costs include the infrastructure to integrate distributed energy resources (DER) and to achieve full customer connectivity, but exclude the cost of generation, the cost of transmission expansion to add renewables and to meet load growth, and a category of customer costs for smart-grid ready appliances and devices. (page 1-4)”

Notice that the report is careful to say that it covers only the cost of smart grid improvements to the power delivery system but EXCLUDES new power generation AND new transmission and also EXCLUDES any costs on the CUSTOMER SIDE of that smart meter.

Table 1-2 on page 1-5 tell us that transmission and substation improvements needed to make this smart grid vision viable will cost $82-90 billion.  Distribution system improvements will cost $232 billion-$339 billion and the cost to consumers on their side of the meter will be $24 billion to $46 billion.  But this investment will NOT be the high voltage transmission needed to bring all the remote new power generation from distributed renewable wind or solar energy resources to load center markets—that’s extra.  Nor will the smart grid investment solve the regulatory conflicts between state and Federal regulatory agencies over ‘who’s on first’ in designing the electric transmission ‘super highways of he future’ that cross state lines or the interconnected grid boundaries. None of that is included.

The report estimates smart grid costs while completely ignoring the power generation and fuel questions looming large over the industry including the fate of coal and nuclear baseload generation in our future power supply mix.  It ignores the rapid development of natural gas from unconventional resources which promises to allow substitutions for baseload generation and gasoline for transport if developed.  It ignores the changes in the grid required to accommodate a distributed generation future of millions of solar rooftops or microgrids implying, I guess, that is what we get from all the distribution system improvements.  Maybe EPRI is praying for energy storage that works or radical improvements in solar efficiency so every device will have its own solar panel like those ubiquitous calculators we stick in our briefcases and purses.

Estimating the true cost of smart grid must be more than adding up the cost of our politicians aspirations.  The real story behind this cost update from EPRI is not what it says but what if fails to say.

TRANSLATION: This is going to cost a lot more than this revised upward estimate of when we add the cost of all the ornaments on the politicians’ smart grid “holiday” tree!  And after that we will probably have to go back and fix the things they left out so they could substitute their earmarks or avoid irritating some senator. The cost of new transmission is left out because we know that no politician wants to be accused of requiring new power lines to be built near anyone.  The cost of changes in our power generation supply portfolio is left out because our politicians don’t want to admit we are killing off lower cost coal and nuclear baseload generation and substituting higher cost, subsidized, and non-dispatchable generation from renewables. Politicians only want things in smart grid that they can take credit for—not anything they can be blamed for.

Consumer Benefits are barely mentioned in this report by EPRI. That could be because a plain reading of the cost factors leads quickly to the conclusion that most of the benefits from this smart grid vision accrue to utilities in the form of improved distribution system optimization and system reliability.  Certainly those are worthy customer benefits but that is what reasonable and prudent rates have been set to produce for the past one hundred years.  That utilities failed to ask or state regulators failed to order investments in system maintenance, repair and replacement to mitigate rate increases is a very different question of prudence.  But CYA is working to label some of these smart grid investments as necessary for the future when, in fact, this is making up for what was not done to keep up with the changing needs of the grid.  Whatever the reason, system reliability is a clear customer benefit, but it is also a tough sell for rate spikes.

Holy Reddy Kilowatt!  How much will smart grid cost!!!

EPRI now estimates that the cost of smart grid for the average residential consumer is now $1,033-$1,455 (Table 1-3, page 1-7).  Commercial customer costs are now estimated at $7,146 to $10,064 and industrial customer costs are rising to $107,845-$151,877 in this revised estimate. Gulp!

You see here this is going don’t you?  Your utility rates are going up along with your taxes. And when it is built out this updated EPRI cost estimate says it will cost you an additional $46 billion on the customer side of the meter to get any benefit out of it.  Imagine all the new electronic toys and gadgets that will need to be under your “holiday” tree.

Does that come with the sports channel package?

There was a time when the purpose of the electric power grid was to enable America’s economic growth by providing low cost, reliable electric energy based upon a set of prudent regulatory principles called ‘least cost, best fit’ which forced a competition between supply side options for energy across fuel types and demand side choices for using it wisely.  The option with the least cost and best fit in assuring portfolio reliability won a preferred place in the  supply stack.  That principle served us well for decades and brought reliable low cost power.

Today those principles are being replaced by a creeping national industrial policy that chooses winners and losers by means other than a fair competition based upon least cost and best fit.  At the end of this smart grid process our power grid will surely be smarter, but it may not be better—-or even as good—-and is sure will not be least cost.

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