Bringing the smart grid into the home

By John McDonald, David Malkin & Elizabeth McCoy

With all the talk about “killer apps” and “game changers,” the casual observer could easily be led to believe that the smart grid is just one technological breakthrough away from becoming an overnight reality. But the more likely scenario is one in which the smart grid evolves over time, with early deployments informing both utilities’ business cases and state regulators’ prudence reviews.

Nowhere will the smart grid evolution be more measured than with the consumer. Just over a year ago, Frederick Butler – a former commissioner on the New Jersey Board of Public Utilities and Chairman of the National Association of Regulatory Utility Commissioners – warned audiences “not [to] put the cart before the horse.” He was referring to the need to get consumers on board with the smart grid vision before aggressively deploying customer-facing technologies. His caution is understandable: Residential consumers in the U.S. have long been accustomed to electricity that is always available, at the same low price, regardless of the variable costs involved in generating and delivering that power at different times of the day. Demand response – a change in electricity usage in response to a price signal or other type of signal from the utility – represents a significant departure from business-as-usual for both utilities and their customers. But it also serves as an important vehicle for bringing the smart grid into the home.

To be sure, demand response has already proven its value to utilities as a tool for maintaining reliability and lowering system costs. At the height of this summer’s heat wave, Consolidated Edison used a basic demand response technology – programmable controllable thermostats (PCT) – to prevent rolling blackouts in New York City. The PCTs allowed Con Ed to remotely cycle on and off the air conditioners of 20,000 participating customers, who received a one-time payment for enrolling in this program.

Yet despite the benefits to both utilities and consumers, demand response remains a vastly underutilized resource. According to the Federal Energy Regulatory Commission, only 25% of available demand response is utilized. As utilities and regulators explore how best to get customers engaged in better managing their electricity usage, technology and policy will emerge as the critical enablers of this transition.

Early results are encouraging

While utilities have a long history of calling on consumers to reduce demand at critical times, the vast majority of this experience is with large commercial and industrial customers. The smart grid offers the promise of bringing residential consumers into the fold by providing them with access to energy usage data and variable rate structures.

Early results suggest that residential consumers will change their consumption patterns in response to real-time feedback on electricity usage. Real-time, or “direct,” feedback is typically provided by an in-home display that communicates with a consumer’s smart meter as part of a larger advanced metering infrastructure (AMI). In a 2009 survey of North American pilot projects, Ahmad Faruqui of the Brattle Group found that consumers reduced their usage from 3% to 18% in response to direct feedback from an in-home display. Another recent report by the American Council for an Energy-Efficient Economy found that real-time usage feedback resulted in average energy savings of 9% across surveyed programs. As utilities proceed with scheduled AMI deployments, additional consumers will have the opportunity to participate in demand response programs through the use of in-home displays.

Variable rates can serve as another tool for encouraging residential consumers to participate in demand response programs. Whether through critical peak pricing or time-of-use rates, the basic objective is the same: to encourage consumers to shift or curtail usage via a price signal. In a separate 2009 study of residential dynamic pricing programs, Faraqui and Sanem Sergici found that critical peak pricing led to a drop in peak demand of 13% to 20%. Shifting usage to less expensive off-peak hours can yield substantial savings for residential consumers. According to Navigant Consulting, participants in Ameren Illinois Utilities’ Power Smart Pricing saved an average of $305 per year (annualized) by signing up for dynamic rates.

While these early results provide the smart grid community with reason for optimism, perhaps an even more encouraging development can be found in the results of several recent consumer surveys. In a March 2010 survey of 1000 customers, GE found that 66% of consumers who are familiar with the term “smart grid” would be willing to buy in-home displays and other technologies that would enable their participation in smart grid programs such as demand response. Meanwhile, a separate survey by market research firm Frost & Sullivan found that 60% of respondents would change their electricity usage to save money.

As these results suggest, broad consumer participation in demand response is possible – perhaps even probable – but first, we must do better at publicizing the benefits to consumers, and second, we must get the right technologies and policies in place, including those to ensure the protection of consumers’ privacy.

Consumer technology is rapidly evolving

Consumer-facing devices have rapidly evolved to take advantage of the new functionalities inherent in today’s smart grid technologies. While early digital meters were designed to simply automate the routine collection of billing data, current state-of-the-art smart meters provide a wide range of capabilities, including near-real time data feeds, dynamic price signals, remote connect/disconnect, outage notifications and power quality monitoring. And so it goes with consumer-facing technologies.

Early energy monitoring devices – including those used in many of the studies referenced above – often consisted of nothing more than a device that attaches to the home’s meter or circuit breaker and transmits usage information to a display inside the customer’s home. Even more basic technologies include a multi-colored orb device that plugs into a consumer’s outlet and receives wireless commands to change colors when a utility calls a critical or peak event.

Recent advances in consumer-facing devices are designed to take full advantage of current AMI and smart meter functionalities. For example, the GE Nucleus* home energy manager is designed to receive and store real-time data feeds from the smart meter, gather information from digital thermostats and smart appliances, and display that data in an easy-to-read, easy-to-manage format on the consumer’s PC. And for those consumers on variable rate programs, GE Nucleus can track changes in electricity prices to enable users to shift consumption to less expensive times.

As GE and other market entrants look for new energy management technologies with broad consumer appeal, we should heed the advice of Energy Secretary Steven Chu: “[the use of these devices] needs to be as easy and automatic as possible.”

Policy will play a critical role

While technology will make broad consumer participation in the smart grid possible, policy is needed to turn this vision into a reality. Specifically, policy can address the critical issues of data availability, electricity pricing, consumer education and data privacy.

Policymakers and regulators can take the lead in ensuring that consumers have access to timely and useful energy information, a necessary condition for participation in the smart grid. Although modern smart meters have the capability to collect and transmit detailed usage data, these features are not always activated and utilities do not always make this information available to consumers. In recent months, several states have taken steps to address these gaps in data availability. For example, California state regulators issued a December 2009 order requiring the state’s investor-owned utilities to provide those consumers served by a smart meter with access to usage data on a real-time or near-real-time basis by the end of 2011.

While California has emerged as a leader among the states, the federal government is also taking steps to ensure consumers’ access to timely and useful data. Earlier this year, companion bills were introduced in the House and Senate to establish national standards for consumers’ access to usage data collected by the utility, as well as the near-real-time usage data that comes directly from the meter. Termed the “Electric Consumer Right to Know Act,” these bills serve as an important example of how federal lawmakers and state regulators can work together to support consumers’ adoption of smart grid technologies.

On the issue of pricing, the smart grid holds great promise in allowing utilities to offer residential dynamic pricing as a means to incent consumers to shift demand to less expensive off-peak periods. Outside of utility pilot programs, however, currently less than 50,000 residential customers participate in variable rate programs. Low participation numbers are explained, in part, by the absence of AMI in many areas. But an equally important reason is that many state regulators and legislators worry about a backlash among consumers who believe that variable rates will result in higher electric bills.

Given the evidence presented above, however, consumers with in-home displays should welcome variable rates as a means to potentially save money on their electric bills. As such, state regulators and legislators should remove restrictions on variable rates and mandate that utilities offer such tariffs on an “opt-in” basis for customers.

Policymakers and regulators can also play a key role in educating consumers on the potential benefits from participating in demand response programs. At the national level, FERC recently released its National Action Plan on Demand Response. One of the stated goals of this plan is to “provide broad-based customer education and support through coordinated national and local action.” Meanwhile, organizations such as the Smart Grid Consumer Collaborative – of which GE is a founding member – are gathering data to support regulators and other important stakeholders in their efforts to educate consumers on the benefits of the smart grid and demand response.

Lastly, policymakers have an obligation to address privacy concerns associated with consumers’ participation in the smart grid. Whereas AMI and in-home displays can collect vast amount of data to support consumers’ decisions around energy usage, there are concerns that this data can also potentially pose a threat to the privacy of those consumers. Policymakers at both the federal and state levels are already taking steps to address these concerns. For example, in the House version of the “Consumer Right to Know Act,” legislators explicitly prohibit utilities from disclosing customer data to third parties unless a utility first receives written consent from the customer. Similar efforts are underway at the state level; during NARUC’s 2010 summer committee meeting, regulators approved a resolution “recognize[ing] the need to provide consumers with protections that ensure the privacy of customer information.” Taken together, these efforts can ease consumers’ privacy concerns and increase their willingness to participate in smart grid programs.

Toward a cleaner future

The smart grid offers utilities a wide range of tools to improve grid performance and mitigate the environmental impacts from power generation. But if utilities are to fully realize these benefits, then a concerted effort must be made to bring the smart grid into the home. Demand response can serve as the vehicle for doing so, and results from early deployments suggest that consumers stand to benefit just as much as utilities do. And with the right technologies and policies in place, consumers can play a key role in meeting our country’s future energy needs.

John D. McDonald, P.E., is an IEEE Fellow and is the General Manager of Marketing for GE Energy T&D. He is also a member of IEC Technical Committee (TC) 57 and Working Groups (WGs) 3 and 10, the VP of Technical Activities for the US National Committee (USNC) of CIGRE, and the past chair of the IEEE PES Substations Committee. David Malkin and Elizabeth McCoy are colleagues of Mr. McDonald at GE Energy T&D.

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*Nucleus is a trademark of General Electric Co.; the application to register Nucleus with the United States Office of Patents and Trademarks was filed July 2010 and is pending registration.