Satellite image of the United States at night

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April 27, 2015

Power to the People: How Smart Grids Can Change the Way We Live

Photo by NASA Earth Observatory/NOAA NGDC

Chattanooga, Tennessee, July 2012: A powerful storm thundered toward the city, darkening the summer-blue skies and then snapping branches, rattling power lines, and bending old willow trees toward the ground.

Warning alarms chimed inside the control room of the regional power company as the storm hit. Soon, the clamor of beeping alerts was constant as system maps flickered red and green with downed wires, blown circuits, and lights going out all across the city.

Utility company workers fixing power lines

Just three months before the big storm hit in Chattanooga, Tennessee, EPB technicians connected high-voltage electric wires to a smart switch that would help EPB reduce power outage durations by 40 percent.

Photo by Christopher Berkey/AP Images for S&C Electric Company

And then the system began to restore itself, sensing where the breaks were and automatically flipping switches to isolate them and reroute power back into homes. Nearly 80,000 customers lost power that evening; the power company, EPB, estimates that half of them got it back within a second or two.

That's the promise of a modernized, “smart” grid: An electric future where circuits talk to each other, transmission lines monitor their own loads, and new meters provide an unprecedented look at the energy use of every home. In the coming years, it could change how much you pay for electricity, where it comes from, and how likely you are to lose it in a summer storm.

Winners and Losers

But the reality of the smart grid has not kept pace with the promise, Christopher Guo, an economist at RAND, found in a recent study. Industry analysts place the potential value of smart-grid improvements in the billions of dollars; and yet the process of modernizing the nation's antiquated grid has often been slow and piecemeal, held back by regulatory hurdles and the hobble of unmet expectations.

“The modernization effort will be worthwhile,” Guo concluded. But, he added, it also will “create winners and losers across households and other consumers.”

The electric grid that powers today's iPads and electric cars is a holdover from an era when high tech meant box televisions. The U.S. Department of Energy likes to say that the grid has undergone so little structural change that Thomas Edison would still recognize its fundamentals.

It's a one-way pipeline, delivering electricity from huge power plants, across hundreds of miles of transmission lines, down neighborhood power lines, and into your home. It's proven to be so reliable that you don't even think about it when you flip a light switch. But it's inefficient, with extra generators running just to cover any spikes in demand, and vulnerable to brownouts and blackouts.

A smart grid works more like a two-way street, relaying not just energy, but also information from countless sensors and smart home meters. That allows power companies to measure and respond to demand in real time, to incorporate less-predictable sources of energy like solar and wind, and to respond faster to any outages.

But Guo's research identified some critical roadblocks on the way to that smart future.

“Overstating the Benefits”

The grid has been called the largest machine ever built, and bringing it into the 21st century will not be cheap. Power companies will try to pass the costs on to consumers, Guo found, but there's no guarantee they'll always be able to recoup their investments. That's because their rates are often set by regulators trying to minimize costs to consumers rather than maximize system-wide benefits.

At the same time, there are no national smart-grid technology standards, so utilities can't be certain that the equipment they install today won't be obsolete by tomorrow.

And then there are the smart meters.

For most customers, that's where the smart grid begins and ends, in a little box bolted to the side of their house. By the end of this year, an estimated 65 million of the new meters will be installed in the U.S., accounting for more than a third of all electricity customers. Smart meters can measure a home's energy use at least every hour, rather than the once-a-month meter reads of old.

But Guo found that one of the major selling points of the new meters—lower electric bills—has too often failed to materialize.

Utilities have promoted the meters as a first step toward “real-time pricing,” with rates that rise and fall by the hour to better track demand. In theory, consumers could use the readouts from their smart meters to better monitor their daily energy use and shift some of their activities—washing dishes, drying clothes—to lower-demand, lower-cost hours.

But it doesn't always work that way, Guo found. Some customers have seen their bills increase when they wouldn't or couldn't change their household habits to take advantage of the lower rates.

Consumer complaints and concerns about the new meters have prompted lawsuits, fed headlines, and opened a credibility gap that has slowed the rollout of the smart grid, Guo found.

“It's a big inconvenience for these people,” Guo said. “People are very different. Some are sensitive to prices, some are not. People complain, ‘How come I'm not getting passed down the savings?' And the answer is (for some), we are overstating the benefits of the smart grid.”

$1 Trillion in Savings

Billions of federal Recovery Act dollars have paid for many of those smart meters and helped prod the transition from the legacy grid toward a smart grid in recent years. But that money has now been spent. Without other incentives, such as regulatory changes to assure power companies a greater ability to pass through their costs to consumers, the pace of that transition will no doubt slow, Guo said—but it won't stop.

The potential benefits of a more-efficient, more-resilient, smarter grid are too large, both for the electricity industry and for society as a whole, he noted. The Electric Power Research Institute, an industry group, estimates that a fully deployed smart grid would yield more than $1 trillion in savings, efficiencies, and other benefits over 20 years.

Just ask the people of Chattanooga. Their power company saved an estimated $1.4 million that night a storm tore through the city, and the lights came back on by themselves.

Elements of a smart grid system

Illustration by Textbook Example

Elements of a smart grid system

Elements of a Smart Grid System

  1. Solar panels
  2. Wind turbines
  3. Locally generated power
  4. Energy storage
  5. Smart appliances with remote control
  6. Plug-in cars
  7. Wireless communication between users and utility company
  8. Ability to remotely monitor usage

— Doug Irving