Extracting value from Arra to revitalise America’s energy system


By Ray Gogel

The utility industry might well be unique in its complexity and challenges. I am hard pressed to identify another sector that has, at its core, the societal obligation and fiduciary duty to deliver a level of service and suite of products with the exceptional degree of accuracy, reliability, safety and affordability that is mandated for the electric utility industry.

When I hear people lament about the lack of innovation and agility that allegedly plagues the utility industry, it is usually clear that they are outsiders who don’t grasp the level of accountability for economic health and prosperity that serves as the underpinning of the energy industry and results in its lack of innovation and risk taking.

The industry delivers a degree of reliability that is almost incomparable: Can you envision the web never going down or slowing even though “the flow” of activity has increased or diminished exponentially? And yet, the utility industry has miraculously built such a marvel; built it so well, in fact, that Americans pay little attention to the cost of their energy service in relation to other expenditures that consume their monthly budgets.

The building of this marvel, coupled with energy subsidies that enabled the “era of cheap energy”, helped spur the rise of America to the status of the world’s leading super power, all through the delivery of reliable and affordable energy to our businesses and our communities; be they in big suburban sprawl, in dense cities or through the rural landscapes that make up the entirety of our nation’s fabric. In fact, our utility leaders have kept electricity delivery and price stable over the last fifty years while inflationary pressures have hit every other aspect of American living. Yet, surprisingly, we don’t see a lot of statues built to honour the industry which made this happen. On the contrary, as we all know, utilities are easy to scapegoat – invisible when they do their job well and singularly conspicuous in those rare moments when power is disrupted. That is something that probably won’t change either, for as we look forward as an industry and move to both retrofit and revitalise our infrastructure, global projections for the next quarter century from 2005 to 2030 predict a doubling of net electricity generation to more than 33.3 trillion kWh in an energy acquisition, utilisation and green-tech innovation dance now playing out on the global stage with China, India and the rest of the developing world. This trend undoubtedly will accelerate and the pressures of providing reliable low cost power will be magnified over the coming years.

I share these points because we are embarking on a journey to revitalise America’s energy system and it is important to keep in mind the enormity of what we are asking our energy infrastructure to do – not to mention the new behavioural paradigms we are asking our customers to engage in. There is a staggering degree of complexity behind the integration of the many moving parts which need to be enabled with real time smart devices that will sit on the transmission line and talk by sending signals, or will sit on the distribution lines signalling and talking, or reside in the home – all talking to each other all the time. At the same time, we are enabling “smarts” throughout the entire energy value chain while we are simultaneously altering/shifting fuel sources to reduce our dependency on foreign oil and reduce the effects of carbon. We plan to do all of this while maintaining the same degree of safety and reliability while responding to varied policies that stutter-step their way across the nation like patchwork. This is the equivalent of driving down the highway in your car while replacing your tyres at the same time – while looking for the map somewhere in the back seat. What other industry would we ask this from, let alone expect it from?

In today’s traditional utility model (Figure 1) energy flows one way down the value chain to the end customer. Sounds simple, doesn’t it? Anyone who has worked in the industry knows it is not. For while that electron is moving down on its journey to somewhere, a vast amount of data has been amassed in traditional mission critical enterprise applications that are enormous in size, expensive to maintain, proprietary and cumbersome – all to maintain this one way flow of electrons and data to manage and bill for those electrons.


Figure 1 – The traditional utility model

In tomorrow’s smart grid we will have to run electrons multi-directionally, send data multi-directionally, add hundreds of thousands of “sensor” points, which will send millions of additional signals into systems that were too big and unwieldy before we started using the word “smart” to describe the grid. We then intend to ask those systems to handle these exponentially scaling data streams and manage them in a way so as, at a minimum, to make real time decisions and handle dynamic pricing. That’s a big lift on a legacy backbone.

This, in short, is an effort which will involve risk and require innovation beyond anything the energy industry has encountered since its inception over 100 years ago.

President Obama, in his first State of the Union address, spoke on his track record to date and outlined the journey ahead. Jobs, energy, the economy all intersect with the American Recovery and Reinvestment Act (ARRA), which serves as the intro act of an entirely new play for the energy industry and our leadership in Washington DC.

I want to urge a bit of caution and hopefully shed some light on immediate smart grid efforts by highlighting a few critical prerequisites to ARRA investment success. First, it is imperative that we move beyond a sole focus on “technologies” as we advance our knowledge and efforts to assess the achievable potential of smart grid and expand our focus to address changing business processes, business models, and transformative disruptive solutions that move us beyond the incremental.

Number One: Technologies are not the solution – they are tools that enable change.

While technology is important to implementing the smart grid, ultimately the consumers, businesses, and industries who rely on electricity will know no more about the technologies that are used in its generation, transmission and distribution than they do today. What they will know, however, is that they have choices, opportunities, and services that are more reliable, safer, and more secure to support the management of energy and their digital strategies.

By redirecting our focus to the energy value chain and evaluating smart grid in that context, versus technologies against technologies in a horse race to win the “drive most efficiency” blue ribbon, it is much easier to clearly define expectations and necessary outcomes across the energy value stream. And, industry and utility decision makers are in a much better position to evaluate benefits, costs, risks and opportunities in the context of business models, policy mandates and capital constraints.

Number Two: Business leaders and policy makers need intelligence (field learning translated) in the context of their desired outcomes for smart grid instantiation – energy security, energy reliability, energy management (demand management), integration of renewables (sustainability), and the new energy business model, including both industry structure and the integrated fabric of national and state regulation. The ability to measure, verify and validate smart grid benefits in the context of these outcomes is critical.

Richard Silverman, chairman of EPRI, states it best in EPRI’s “State of Technology Report” in response to the question, “What is the state of the technology in today’s electricity sector?” His answer: “One way to answer the question is to assess the state of expectations. It is fair to say we have never placed greater expectations on our electric infrastructure, systems and technology. These expectations frame the challenges we must address through rigorous programmes in research, development and technology demonstration.” He summarised the challenge – Meet growing demand; cleanly, reliably, and sustainably; at low cost. Unless field learning is captured and transformed into intelligence around these outcomes, we will sorely miss the opportunity offered by ARRA and the energy investment it engenders.

Number Three: The industry must frame the challenge, establish a common and shared vision of success, identify the measures, milestones and targets to get there, and remove barriers.

When we evaluate the role of ARRA investments, we must look beyond technologies to infrastructure, emerging breakthroughs in materials science, new market structures (virtual power plants, etc.), new economies of scope and scale, policy shifts and entirely new forms of collaboration inviting new stakeholders to an ever growing table. We already see shifts in collaboration between regulators and utilities in pilot projects and investment to meet national priorities. The age of dynamic tension between the regulator (representing the economy and the consumer) and the utility (representing the shareholder and their franchised responsibility) has come to an end. As the new energy business model emerges, the consumer will have a greater voice in his energy management and energy choices, with the market providing the “regulatory” framework to assure fair pricing and range of options. By the same token, new regulatory responsibilities will emerge around energy security, energy supply, environmental and economic sustainability. Engagement will require a broader range of experts to provide sound policy options (not simply economists, but ecologists and life scientists) and a collaborative regulatory/industry model to allow all stakeholders a valid voice and all decisions a holistic foundation.

Number Four: We must bring entirely new and broader stakeholder sets together to participate and contribute in this effort.

Number Five: Not only must we not forget the customer – we must not forget the ageing employee. We must recruit, hire, and “transition in” a new workforce concurrently during these key field projects in order to prepare for the large swath of utility personnel who will be retiring within the next five years.

The relationship between all stakeholders is changing and ubiquitous information throughout the energy value change will accelerate the change. Skills required of energy workers, whether in deregulated or regulated segments of the energy value chain or engineering or non-engineering jobs, will change dramatically as will virtually every business process within each of these segments. New skills and capabilities will emerge for traditional utility jobs, requiring new training and new capabilities for both remaining and entering employees. These will be defined by the emerging smart grid-enabled energy value chain. Industry leaders and the organisations of human resources that support our energy infrastructure will require new skills and abilities. And, our secondary and university programmes must be aligned with these needs if we are to develop the flow of talent to support the new energy market.

So, what does “smart grid” really mean? Definitions are plentiful enough. I’m not sure I’d want a common definition to a business and technology area that is just starting to evolve. Definitions constrict. Smart grid is all about innovation and opening up new horizons for future value sets. What I find when speaking with individuals from around the world is that the definition of smart grid varies by stakeholder and depends on the problem that stakeholder is trying to solve. For some, it’s all about getting the consumer involved in demand management; for others it’s about keeping the grid reliable. In my mind, both approaches are “right”, but the time-to-value horizon of those approaches is very different.

By evaluating smart grid from a smart grid value chain perspective it becomes clear quite quickly that the various parts of the value chain: generation, transmission, distribution, end use, or distributed generation, have different problems to solve and different forms of value to unlock.


Figure 2 – The smart grid energy value chain

Examples of how the smart grid energy value chain model helps in clarifying smart grid challenges are manifest through leading pilots today. Boulder SmartGridCity™ in its earliest configuration was a distribution smart grid project focusing on infrastructure assets and next generation technologies for optimised power delivery. It is predominately in phase two where meters and rates and behaviour-shaping portals are being deployed. Other demonstration projects such as PowerCents DC focused on end users to evaluate time of use rates and consumer behaviour in response to power pricing signals. While this pilot used real technology operating in the PEPCO grid, the project was, in a sense, technology blind – the focus was on consumer behaviour. The DOE Olympic Peninsula project, which was in many ways the seminal “smart grid” demonstration, tested the price elasticity of electricity demand. While the technologies used in this study were not integrated with the grid, the study tested technologies such as “smart appliance” chips and pricing software to send signals to consumers to evaluate if their behaviour would change in response to signals, and if so, how much.

The smart grid energy value chain (SGEVC) model turns “smart grid” from a general concept into a working framework: first mile (G), middle mile (T&D), last mile (EU, and DG) that can also be used to frame the recent stimulus projects (Figure 2 and Table 1). I would hope this framework could also help foster an exchange of information between the projects and remove barriers through empirical evidence shared around the country – and beyond.


Table 1 – Smart grid energy value chain

The US government, through the ARRA, has allocated $4.5 billion to jumpstart the smart grid in an effort to bring jobs to American citizens and to expediently revitalise America’s power grid. Table 2 details the allocation of the monies by the DOE Office of Electricity Delivery and Energy Reliability.


Table 2 – Allocation of ARRA smart grid funding

The ARRA Smart Grid Investment Grants were funded to transform electric delivery. Table 3 shows the types of systems and equipment that will be installed, and the numbers of units; highlights the benefits that will be derived and the associated impacts from these investments.


Table 3 – Smart Grid Investment Grant profile (Data provided by DOE Deputy Assistant Secretary – R&D Hank Kenchington at IEEE Conference, NIST January, 19, 2010)

The ARRA demonstration grants were funded to support regional demonstration programmes in support of smart grid pilot projects and energy storage (Table 4).

I opened this article highlighting the enormity of the transformation which we are requiring of the utility industry. The stimulus funding above is one great step forward in that direction. But it is only a first step and one, I would hope, that does not purport to define the final shape of the evolving smart grid. From the view of allocations and “buckets” and “binning”, it is clear that this first phase of evaluation and investment is very “technology focused” with great emphasis on the smart meters and customer gadgets for wise energy management. But that, as we’ve seen above, is only part of the smart grid value chain.


Table 4 – Demonstration grant profile (Data provided by DOE Deputy Assistant Secretary – R&D Hank Kenchington at IEEE Conference, NIST January, 19, 2010)

Going forward, we must all strive to bring greater diversity and collaboration to the full spectrum of potential smart grid contributions and configurations. The portfolio of projects receiving ARRA funding are a mix of what the energy utilities were already thinking of (what was shovel ready) and, therefore, likely to be extensions of – or at least not large deviations from – the existing business model., Fortunately, policy makers and a large and varied stakeholder set are providing welcome enthusiasm in support of this smart grid revolution. And, with such momentum, I encourage us all to engage. We must be careful to apply our best thinking surrounding ARRA public and private investments, emphasising the areas of smart grid that will most likely yield significant benefits (high societal, customer or policy impact). The ARRA is an approach to date that will, nonetheless, yield valuable data, but it does not represent a holistic, cross disciplinary view of the smart grid that will evolve over time to serve the government and the public’s best interests. We must remain open to the likelihood that some of these investments will prove valuable because they reveal what not to do, while others will validate how best to move forward.

Regardless of how the stimulus play came together, we have an unprecedented opportunity funded jointly by the industry and our government to take a giant step toward the energy business and value model of the future. As we create an energy model that is secure, reliable, safe and sustainable – one that ameliorates or even avoids the collision between the environment and energy in a way that respects and sustains generations to come – we must capture all of the value of our investment. We must be alert, not just to the technologies we are deploying, but to impacts of these investments on people and processes, on models for managing and collaborating, and on energy markets and energy regulation.

Above all, we need to remember that this is a long term play for the industry that touches not simply technology but, most importantly, the utility business model. And while it is easy to point out conceptually how the smart grid will benefit each of the four cornerstones of the standard integrated utility model – regulator, customer, investor, employee – it will be anything but easy to find the appropriate new business models. 100 years of making a living by selling more electrons will not morph easily into a new paradigm that has to sell less to make more money. Decade upon decade of regulating prudent investment and penalising disruption does not seem to be fertile ground for disruptive technology to evolve on. Employees who originally migrated to the utility industry to avoid risk taking are probably not going to be the future leaders of the new industry model. And consumers, educated by the industry over decades to take energy for granted, will need to move into the new interactive models behind the smart grid.