The Smart Grid Defined i

Not Feeling So Smart About The Smart Grid? A Primer for Sustainability Professionals & Policy Makers

Table  of  Contents   Why  The  Smart  Grid  Matters ............................................................................................................2   The  Challenge  of  Conversion:  Electrical  Energy  Generation..................................................4   The  Architecture  of  the  Smart  Grid:  Transmission,  Distribution,  and  Storage ...............9   Energy  Consumption:  Use  Management  and  Smart  Buildings ........................................... 12   Developments  in  Building  Energy  Technology........................................................................ 14   Smart  Building  Challenges.............................................................................................................. 16   U.S.  Smart  Grid  Business  Opportunities..................................................................................... 18   Government  Support ........................................................................................................................ 19   Smart  Grid  Policy  Issues .................................................................................................................. 19   Conclusion ............................................................................................................................................ 23   References............................................................................................................................................ 24   About  the  Authors.............................................................................................................................. 27  

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Not  Feeling  So  Smart  About  The  Smart  Grid?   1  

Not Feeling So Smart about the Smart Grid? A primer for sustainability professionals and policy makers By Ben Drury, Alex Horne, Mark Kammerer, Jr., Jeff Lancaster, Patrick T. Rost and Luisa Walmsley, MBA students at Bainbridge Graduate Institute ___________________________________

Why The Smart Grid Matters Experts believe that the smart grid is a critical piece of solving the climate change conundrum. The existing electrical grid is a well-established system that few people think about until it ceases to function. Much of the architecture of the grid uses principles that date back to Edison, with much of the infrastructure, generation, transmission and distribution equipment dating back to post-World War II 1940's. Although there were various improvements added during the 1950's and 60's, our existing system is at a crossroads. Due to our increasing demand for power, increased availability of local generation via renewable sources, and a need for decentralization in case of catastrophe, the current transmission system is sorely in need of an update. This is going to be a disruptive technology with Internet companies like Google and Microsoft playing as much of a role as the electric utilities. It’s no accident that Berkshire Hathaway has been buying up sleepy old utility companies. This is a new frontier of opportunity.

What is the smart grid? Think Internet + interstate highway system _______________________ The Smart Grid is shaping up to be an interconnected network of electrical generating, distribution, and consumption devices governed by economic markets and government policy. Its implementation as a working system will not come without challenges. These include but are not limited to technological, behavioral, political, and supply/demand curve factors. Why we need a Smart Grid • • •

increasing demand for power increasing distributed and renewable sources increasing concern for national security and resilience in the face of catastrophe

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The challenge is not only to solve these conflicts, but also to integrate them into a dynamic, efficient, interindustry system that is capable of reliably delivering electricity where it is most needed and the ability to heal itself in times of peak demand and disaster. The current model is a one-way startopology, with power plants generating energy that travels long distances, incurring transmission and distribution losses at each branch until it finally reaches the enduser. This model doesn't allow for easy integration of local, renewable sources such as solar, wind and geothermal. Optimally, in the smart grid, the end-user will also be a supplier. As more businesses and individuals realize they can offset or supplant their grid usage by generating their own power locally, they face a quandary as to how to implement multi-directional energy flow solutions. As the prospect of the utilities not being the sole producer of electricity grows, the

electricity market must evolve. With constant data of energy consumption, production and losses provided by this interconnected network, up to the second pricing of power becomes possible. As consumers realize the expected 5% (Litos Strategic Communication, 2009, p.11) efficiencies gained by the Smart Grid, and are able to view their own usage patterns remotely using computers, smart phones and the Internet, they will form a feedforward loop of further conservation. Many varied business stand to benefit from the adoption of the Smart Grid from manufacturers of smart meters to the communication industry. The role of local, state and federal government currently defines the adherence to the existing grid. There is little federal control of the existing grid, with states regulating the utilities within their borders. Recently, in an attempt to achieve consensus, the US Department of Energy has issued RFIs (Requests for Information) to the various Not  Feeling  So  Smart  About  The  Smart  Grid?   3  

stakeholders in the grid, received feedback and released two reports defining the Smart Grid. The tenth condition in this report identifies lowering any monopolistic or other impeding barriers to the adoption of the Smart Grid. However, the federal government has not challenged the response from the private Edison Electric Institute and other private stakeholders as to how it will recover the cost of implementation.

communication methods and media (wiring, wireless, etc.) planning energy usage with computer simulations, using software to actively manage energy demand and consumption, and integrating Plug-in hybrid electric vehicles as their market share expands. This is the area with the most development required, as standards for communication, distribution, billing, and regulation all need to be agreed upon by the disparate vendors, utilities and governmental entities before a nation-wide Smart Grid can exist.

Although one of the top engineering achievements of the twentieth century, the architecture of the current transmission, The Challenge of Conversion: distribution and storage modalities of the grid can be vastly improved. Efficient use of energy, Electrical Energy Generation demand/response, diverse fuel sources, temporal redundancy and back-up equipment form the When discussing the smart grid and building blocks of a smarter transmission sustainability one must take into account how system. The current distribution infrastructure and where energy is locations currently generated. The don’t match the USA  GHGe  Produc?on  by   energy generation locales of readily model that exists Sector   usable renewable today is the same Transpor-­‐ energy generation. one that has been in ta2on   Temporary 34%   place for the last 60 electricity storage years or so. It is solutions such as Power   based upon a Plug-in Hybrid Plants   centralized power 40%   Electric Vehicles Commercial   generation /  Industrial   promise to develop structure. That is to 20%   an innovative, say that energy is mobile and produced at a Residen2al   dynamic method of limited number of 6%   energy large-scale distribution, but USA GHGe Production by Sector (U.S. Energy Information Administration, 2010) industrial need more power plants. development to According to the U.S Energy Information become practical and affordable. Administration there are about 5,400 power Consumers comprise the "final destination" of energy in the current grid. With the advent of sensors and on-site energy generation, this end-point now becomes the middle of a bi-directional arc of electricity and data to and from the consumer and utilities. Many technological hurdles exist in terms of

plants in the U.S. today, comprised of a variety of types. These plants send electricity on a one way journey through the transmission grid to the over 138,000,000 electric meters around the country. Today renewables generate less than 10% of the energy consumed in the U.S., with Not  Feeling  So  Smart  About  The  Smart  Grid?   4  

wind and solar combined contributing approximately 5%. (General Electric, 2009) The grid infrastructure that distributes this power was built in the U.S. in the 1940’s and 1950’s. It consists essentially of large power lines leaving the power plant, traveling long distances, and splitting up into smaller and smaller lines throughout the grid, ultimately reaching the consumer. Conceptually the current energy generation and distribution model looks like a star. With the power being generated at the center and flowing out in one direction to the end-user. Today, power plants generate 40% of all CO2 emissions produced in the U.S., more than any than any other source. The 600 coal plants

in the country create 50% of this power plant CO2 output. The output of CO2 emissions in the U.S. is dramatically disproportionate to its population and plays an important role in climate change. The U.S. produces 25% of global CO2 emissions, yet it comprises only 4% of the global population. (General Electric, 2009) Research indicates that by adopting a distributed energy generation model with the inclusion of renewable energy sources in conjunction with a smart grid, CO2 emissions could be cut by 25%. This would equal the carbon reduction of planting 160,000,000 acres of forest. (McDonald, 2008)

(Visualizing The U.S. Electric Grid, 2009)

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U.S. Solar Power Generation Capacity (Visualizing The U.S. Electric Grid, 2009)

For decades, power supply and how it was generated was something the average person didn’t think much about unless the lights went out. Today with concerns over climate change, increasing demand for power, rising prices, and geopolitical conflicts associated with power generation, today’s consumer is looking for a change. They want to move beyond being a simple ratepayer, to an informed, environmentally conscious consumer with a new role in the power cycle. Adopting a new distributed power generation model provides a way for today’s consumer to participate in the process of generating electricity. A distributed energy generation model adds vast numbers of small to mid-sized renewable energy power plants in a variety of locations throughout the grid to supplement the existing large-scale commercial plants.

The distributed energy generation model of the future is beginning to take shape today. Consumers, utilities and policy makers are all beginning to recognize the benefits of a distributed model. Renewable energy sources are abundant all over the country and around the globe. In the U.S., wind, solar and water energy are abundant and have enough potential to power every home and every vehicle in the nation without any direct CO2 emissions. (Kennedy, R.F. 2008) Integrating distributed renewable energy production into the system will pave the way for the U.S. to become energy independent. Like solar power, wind energy is abundant, clean, and can be found across the country. In particular the coastal regions and the central part Not  Feeling  So  Smart  About  The  Smart  Grid?   6  

U.S. Wind Power Generation Capacity (Visualizing The U.S. Electric Grid, 2009)

of the country have great potential for capturing wind energy. According to greenbiz.com: The EIA pointed out that between 2000 and 2009, wind generation increased a whopping 11-fold, making it the second largest source of renewable energy behind hydropower. The agency estimates this helped the U.S. avoid about 39 million metric tons of emissions in 2009. (Climate Biz Satff, 2010) One of the major obstacles to the integration of renewable and clean energy sources is their proximity to the areas of high demand. One solution to this obstacle is to incorporate a vast array of hundreds of thousands of small power plants across the landscape. Cities, communities and even individual homes and businesses can supplement or meet entirely their energy needs with the installation of solar arrays, small-scale wind turbines, or other renewable energy generation systems. A Smart Grid designed with two-way flow capabilities can help to provide surplus energy to the grid at times of low

demand, and draw upon the grid for additional supply when needed. In order for a Smart Grid system to be truly effective it will need to have a wide variety of distributed energy sources to tap into. The technology of small-scale renewable energy generation is rapidly developing today. An example is a home owner in Santa Monica, CA who purchases electricity at night from the local utility at $.10/kW h and then sells electricity generated by a solar array on his roof back to the utility during the day at $.40/kW h. The 3 kW solar systems at this home provide enough electricity to power the entire home as well as the homeowner’s electric car. (IEEE Tech Activities, 2009) This is a prime example of a potential future for energy production and use in the U.S. This type of small-scale solar power generation is gaining in popularity. David Kozin of Seattle, Washington-based A&R Solar offered additional insight into the myriad issues associated with small-scale residential solar installations. A&R Solar specializes in the design and installation of solar photovoltaic and hot water systems. According Not  Feeling  So  Smart  About  The  Smart  Grid?   7  

to Mr. Kozin, a certified solar PV designer and director at A&R Solar, the residential solar energy industry faces opportunities and challenges today. Some of the benefits that Mr. Kozin identified include: •

Solar Energy is empowering: Choosing to use solar energy contributes to a cleaner environment, provides more independence from the utility, and makes a step towards becoming sustainable.

•

Solar Energy is affordable: Federal and state governments offer tax credits to business and residential installations that can cover 30% of the system cost.

•

Solar Energy is clean: Sunlight is the least polluting and cheapest fuel source available. Utilizing solar energy on buildings reduces consumption of conventional generation sources like coal and natural gas.

•

•

Solar Energy makes financial sense: Adding value to the home, providing an attractive long-term rate of return, and cost-savings on energy bills. Solar energy is long lasting: There are 25-year warranties on solar panels, and consumers can expect many more years of dependable service from a quality system.

One of the primary challenges Mr. Kozin identifies is the length of time it takes to generate a return on a PV (photovoltaic) system investment. In the Pacific Northwest most consumers purchase their electricity at some of the lowest prices in the country, thanks to copious hydroelectric power. As a result it takes longer to pay off a PV system in the Pacific Northwest compared to other regions of the country. In addition, the heavily forested landscape of the region and the limited number of bright sunny days restricts some of the potential that exists with PV systems. Despite

the limitations, demand is rapidly increasing and prices are coming down.

Available Solar Income (Scheelhaase, 2002)

In the Pacific Northwest where A&R solar operates one of the local utilities, Puget Sound Energy, reported on a growing trend in consumer energy generation. An excerpt from their Smart Grid technology report follows: PSE’s support of customer generation programs began in 1999 with the net metering program. Presently, 694 customer generation systems contribute to the grid, with 94 percent of customers generating energy from solar photovoltaic (PV) systems. The program grew slowly until July 2005. In 2005, Washington State implemented the Renewable Energy Cost Recovery Program which is an incentive-based program where customers with eligible technologies are paid for all kW h produced. The purpose of the program is to develop a market for renewable energy systems and to promote the manufacture of these systems in the State of Not  Feeling  So  Smart  About  The  Smart  Grid?   8  

Washington. Incentives are provided from July 1, 2005 through June 30, 2020. PSE administers annual payments to these customers and recovers those funds from state taxes. This program is also known as Production Metering and along with federal tax credits has helped accelerate the adoption of customer generation. The utility bills provided to customers are a net of energy generation against energy consumption of the household. The program continues to grow, and based on past growth patterns, customer generation systems are expected to reach 9,000 by the end of 2015. (Smart Grid Technology Report 2010 p. 24) In addition to the upfront costs of wind, solar, and other renewable technologies, infrastructure investments are needed to deliver the power produced by a dispersed renewable energy model. Perhaps the biggest obstacle faced in the wholesale acceptance of renewables and a dispersed generation model is the inertia of the status quo. The big oil/coal industry has a lot at stake and has invested heavily in today’s energy model. Today’s fossil fuel driven energy system is an integral part of the national economy and political landscape. Powerful lobbies exist and apply significant pressure on policy makers to preserve the current system. This, however, is starting to change. “As of 2010 30 states have adopted renewable portfolio standards, which require a pre-determined amount of a state’s energy portfolio (up to 20%) to come exclusively from renewable sources”. (The Smart Grid: An Introduction p. 25) With time and ongoing commitment a new distributed and integrated energy generation structure will become the new standard.

The Architecture of the Smart Grid: Transmission, Distribution, and Storage “Thus far, transmission and smart-grid infrastructure have not excited policymakers or the public nearly as much as the generation of alternative energy at one end of the energy pipeline and consumers’ use of energy-saving appliances and home retrofits at the other.”— Bracken Hendricks, (Center for American Progress, p. 17) The electrical grid is a hundred-year old “ecosystem” that has been defined by the National Academy of Engineering as the “most significant engineering achievement of the 20th Century” (U.S. Department of Energy [DOE], 2008, p. 9). Despite this designation, it is an invisible entity to most Americans—until it fails. When that happens, the costs can be tremendous. A one-hour power outage on the floor of the Chicago Board of Trade in 2000 delayed trades worth $20 trillion. The Department of Energy has estimated the cost of power outages and interruptions at $150 billion annually (DOE, 2008). These costs are internalized by utilities and passed on to consumers, both of whom view them as the necessary price of powering society—but why aren’t those dollars being invested in improving grid infrastructure? The origins of the modern electrical grid can be traced back to the development of alternating current technology in the 1880s by Nikola Tesla, William Stanley Jr., and George Westinghouse. AC power, which can be transmitted via high-voltage power lines and then converted into low-voltage electricity for home and industrial use, eventually replaced the original DC infrastructure that was modeled upon the inventions of Thomas Edison. The electric utility industry took off in the early 1900s after the invention of the steam turbine dramatically reduced the cost of electricity Not  Feeling  So  Smart  About  The  Smart  Grid?   9  

generation. The grid evolved organically as private holding companies consolidated control of local utilities across state boundaries. These holding companies operated absent federal or state regulations until the 1930s, when Franklin Delano Roosevelt granted the Federal Power Commission authority to oversee electric power projects. In this new regulatory environment, electricity prices dropped as transmission efficiency and grid connectivity increased (Hein, n.d.). Grid infrastructure as we know it today

research and development…is among the lowest of all industries” (DOE, 2008, pg. 10). Advocates of modernizing the electric grid would like to change that. Reliance on current infrastructure to provide stability into the future is as unsustainable as dependence on foreign fossil fuel reserves to electrify the grid. Enter the Smart Grid, where the Internet meets the interstate highway system to form an intelligent, interactive, “clean energy pipeline”. Despite the important role that the grid itself plays in ensuring the development of a

Transmission and Distribution Environment (McKinsey & Company, 2009, pg. 46)

took shape during this time period. A century after Edison invented the incandescent light bulb, 300,000 miles of transmission lines connect to a vast array of power plants, producing over 1,000,000 megawatts of power daily. The architecture of the grid has remained relatively unaltered since then, with only 668 miles of new transmission lines built during the past ten years. According to the DOE: “Since 1982, growth in peak demand for electricity…has exceeded transmission growth by almost 25% every year. Yet spending on

smarter electrical distribution system, issues surrounding transmission and distribution infrastructure receive less attention than the sexier topics of renewable energy generation and end-use monitoring technologies like smart meters. Yet a more resilient grid is the key to enabling both. A smart electrical grid increases energy efficiency and enhances reliability by integrating the entire cycle of electricity generation, transmission, distribution, storage, and consumption.

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Transmission technology, despite being underfunded and underdeveloped, has advanced rapidly in recent years. At 99.97% efficiency, the transmission side of the grid “is already pretty smart” (NETL, 2009). Integrating smart technology into the grid is more a political challenge than a technological one. The Department of Energy has identified five key technology areas, of which many components are already deployable: Integrated Communication, Sensing and Measurement, Improved Interfaces and Decision Support, Advanced Control Methods, and Advanced Components (NETL, 2009). Of these categories, the first four largely revolve around implementation of existing technology to monitor and convey real-time information about the numerous factors affecting power quality to autonomous grid control systems and decision makers alike. Two-way communication protocols enable DSM (demand side management) or DR (demand-response) strategies in which consumers interact with the “intelligent grid” to determine how best to manage their electricity usage, especially peak demand. Advanced Components [most notably FACTS (Flexible AC Transmission Systems), and HVDC (High Voltage Direct Current)] are still largely in development (NETL, 2009). Demand-side management, inclusive of both traditional energy conservation techniques and increasingly sophisticated demand-response programs, has received the most attention—and with good reason. In an interview with Robert Siegel of NPR last summer, Dan Delurey, President of the Demand Response Smart Grid Coalition, mentioned that peak electricity demand during the top 100 hours of the year accounts for between 10 and 20 percent of annual U.S. electricity cost (National Public Radio [NPR], 2010). Because it cannot store electricity, the grid must meet peak demand (the amount of electricity needed during the time of greatest use) even if it is only significantly higher at one point in the system. A 2010 McKinsey report estimates that demand-

response programs could lessen this peak load by up to 20%, while demand-side management in general has the potential to save consumers $59 billion over the next nine years (McKinsey & Company, 2010, pgs. 41, 45). Successful demand-side management programs necessitate a willingness to participate on the part of the consumer. McKinsey goes on to identify six key strategies for utilities to leverage their DSM programs: carefully structured rates, incentives such as rebates, access to real-time information, education and marketing, advanced controls allowing automated or customer-driven load management, and customer capability to monitor results (McKinsey & Company, 2010). Utility energy efficiency incentives have been around for years, but coordinating demandresponse programs presents many of the same challenges. As with energy efficiency, a large up-front investment in consumer education that includes better access to more sophisticated technology is necessary. This enables the utility to reap the cost savings that come with driving down peak demand. Incentivizing DSM, therefore, works both ways: utilities must be motivated to encourage energy-efficient behavior in consumers. It is the role of the regulatory agencies along with the utilities to build a smarter grid infrastructure that accomplishes this goal. Achieving efficient energy distribution systems that incorporate both centralized and distributed generation is also a function of political will. The current electrical grid is too fragmented to allow for interconnection of renewables; most of the nation’s renewable electricity is located in areas where grid connectivity is sparse. Transitioning to wider use of distributed renewable energy systems requires that regions of abundant renewable energy must be connected to locations where there is higher energy consumption. This, in turn, necessitates greater an expansion of the existing grid; the three separate Not  Feeling  So  Smart  About  The  Smart  Grid?   11  

“interconnections” that power the country (located east of the Rockies, west of the Rockies, and in Texas) must be integrated. The Center for American Progress recommends that comprehensive nationwide grid planning be taken on by a “multi-state, interconnection-wide planning authority charged with…enhancing the efficiency of the transmission system while better managing for system reliability” (Hendricks, 2009). Ironically, China—with only two T&D companies and a powerful central government—is discovering that its political infrastructure is better able to address this challenge than that of the United States (McKinsey & Company, 2010). Centralized planning is not a popular solution in a democracy, but it is both necessary and expedient to insure that distribution of electricity continues to function reliably and efficiently into the future. Incorporating renewables into the grid requires the ability to store electricity, which is not possible at this time. The litany of problems with current batteries includes short life spans, low efficiencies, and difficulties with disposal. Flow batteries (which operate similar to fuel cells by separating power from energy), in development at the Lawrence Berkeley National Laboratory, may provide a solution to this challenge. However, this new battery technology is also very expensive, and until the costs come down it will simply not be economically viable to put it into widespread use (Chao, 2010). Of course, the best kind of batteries have a dual purpose; charging from the grid during off-peak hours and returning energy back to the grid in times of peak demand. Many hope that PHEVs (Plug-in Hybrid Electric Vehicles) may serve in this capacity, but this opportunity presents some challenges as well. The Department of Energy assesses that “a large fleet of PHEVs could possibly replace a moderate fraction (perhaps up to 25%) of conventional low-capacity factor generation for

periods of extreme demand or system emergencies” (NETL, 2009). However, scheduling the charging cycle is crucial— electric cars could prove a tremendous asset or blow out the grid depending on the timing, which again is largely a function of the degree to which electric car owners are educated about their role within the system (Joyce, 2010). While there are certainly technological challenges to making the grid “smarter”, the greatest obstacles are political and behavioral. Many view comprehensive climate change legislation as an assist to stimulate smart grid research, development and coordination among the diverse groups of decision makers who manage the electrical infrastructure (Hendricks, 2009). This is a piece that must fall into place before we can make the transition to an infrastructure in which consumers are educated and enabled to do their part.

Energy Consumption: Use Management and Smart Buildings The final stop for power flowing through the smart energy grid will be at the point of consumption. This will also be the endpoint for the smart feedback loop as well. In order to maximize the efficiency of the overall system of power generation, distribution and consumption, it is just as important to put as much consideration into this end point of the system as it is to consider how the energy is produced and distributed. Best use of energy at the point of consumption can be looked at in three parts: making energy consuming elements as efficient as possible to lower consumption requirements, effectively managing how and when these consumers utilize energy, and finally, providing relevant feedback to the rest of the Smart Grid system. Not  Feeling  So  Smart  About  The  Smart  Grid?   12  

using common sense energy management procedures (even just as simple as turning off lights in unoccupied areas and shutting down unused equipment) can help as well.

Total US Energy Consumption and commercial building use breakdown (Enlighted, Inc).

As a whole, buildings currently account for close to 40% of all energy consumed within the United States. Over half of this consumption occurs within residences, and in 2008 accounted for 1.379 trillion kWh of energy use. Within buildings, energy is used for heating, cooling and ventilation (HVAC), powering appliances, running office equipment, powering industrial machinery and energizing entertainment and luxury items. Apart from buildings, energy is used to power traffic control networks and communications infrastructure, run public transportation such as electric railways and streetcars, and in the future, will be needed to recharge electric vehicles as these begin to enter the mainstream. Before even beginning to implement “smart” technology there are a number of ways to increase building and energy efficiency, thus reducing overall load on the power grid and lessening generation needs. Using energy efficient appliances, such as those with an “Energy Star” designation will help (Energy Star, n.d.), as will changing lighting to the newest generation of CFLs (compact fluorescent light bulbs). Typically, CFLs put out the same amount of light as an incandescent bulb while only using one fourth of the energy (McClenden, 2009). Upgrading building insulation, weatherization and windows, installing high efficiency HVAC systems and

Today, there are both standards and technology tools available to aid building designers and facilities managers in reducing impact, in both the design and operations stage. The most widely recognized set of standards for “green” building and operations are the LEED (Leadership in Environmental and Energy Design) guidelines. As stated by the USGBC (United States Green Building Council) (2010): LEED is a third-party certification program and the nationally accepted benchmark for the design, construction and operation of high-performance green buildings. LEED gives building owners and operators the tools they need to have an immediate and measurable impact on their buildings’ performance. LEED promotes a whole-building approach to sustainability by recognizing performance in five key areas of human and environmental health: sustainable site development, water savings, energy efficiency, materials selection and indoor environmental quality. The USGBS offers several levels of LEED certifications requiring a particular building to earn a certain number of “points” for its energy performance initiatives, with certifications available both for the construction of the building and for the ongoing operations and maintenance of existing building. Many of the building design and management software tools now hitting the market are incorporating features to facilitate these standards. For some time, CMMS (Computerized Maintenance Management Software) has been used to help facilities managers track and optimize their maintenance processes and control costs. However, as concerns for Not  Feeling  So  Smart  About  The  Smart  Grid?   13  

environmental efficiency and sustainability have grown, and are becoming strategic initiatives, newer software solutions are being created and implemented. An example of an innovative new software solution is O&M Track, developed by Green Building Services of Portland, Oregon. O&M Track takes facilities management software a step further by integrating with the online system provided by the USGBS for submission of pertinent data to achieve and maintain certification for building operations and maintenance. Using this software can result in significant savings in the time required to process the necessary documentation. In the future O&M Track software may not only gather data through manual data entry through its web browser interface, but may also include capability of interfacing with building monitoring and automated management systems (J. Coalson and L. Kenyon, personal communication, November 30, 2010). Another type of software solution that has emerged is known as BIMS (Building Information Modeling System) software, which aid building designers in predicting the energy performance of a building and understand the impacts of design modifications long before construction begins. As explained by J Novitski (2009) “BIM, in theory, creates a complete digital representation of a building, including physical attributes, geometric form, material descriptions, and thermal and structural behavior. By stressing multidisciplinary cooperation early in design, BIM also provides a framework for sustainable design.” Software companies such as Autodesk, a long-leading manufacturer of computer aided design software for architects and builders, are now starting to integrate BIMS into their offerings (Autodesk, 2010).

The “Smart” Building (Sinopoli, 2009).

Developments in Building Energy Technology Once building “envelope” optimization and use of more efficient appliances and devices have been addressed, the next area for potential savings can come from utilizing smart metering and building feedback systems. In fact, recent studies performed by the American Council for an Energy Efficient Economy (ACEEE) have shown that if well-designed programs involving smart metering and real-time info down to the appliance level were implemented broadly throughout the U.S., the resulting savings could be around 100 billion kW h or 12% of the annual residential sector energy use (Martinez, et al., 2010). By combining these systems with onsite power generation, energy storage and advanced management systems, the idea of a truly “smart building” begins to take shape. One of the key components in adding “smarts” to building energy usage and management is the replacement of conventional Not  Feeling  So  Smart  About  The  Smart  Grid?   14  

Building Automation System connectivity diagram (AutomatedLogic Corporation, 2010).

electrical meters with “smart” ones. A smart electric meter is one which not only tracks overall electricity usage within a building or residence, but also records detailed statistics about when and how energy is used. Features vary among smart meters, but generally they can be used to provide feedback to the utility, which allow for adjustment of power generation and distribution practices based upon “peak” and “low” usage periods. It also provides information to the customer about how much power is being used and when (“What are”, 2010). As variable rate billing systems are incorporated, this feedback will help consumers adjust their power usage for lowered costs and more efficient grid capacity management. As of March 2010, it was reported that electric utilities had already deployed over 8 million smart meters, and it was projected that 60 million would be operational by the year 2020 (Associated Press, 2010).

With smart metering systems in place, the next logical extension of the smart grid infrastructure into the building or residence involves the implementation of a Home Area Network, or HAN. HAN’s allow “Smart Grid applications to communicate intelligently with multiple appliances in a home”, facilitating “two-way communication between devices, users and the utility” (Burns & McDonnell, n.d.). With a HAN in place, smart appliances can then be incorporated into the system, allowing for better management of power usage by staggering peak use of the various components and performing energy intensive functions (such as the auto-defrosting of refrigerators) at night or at times of low grid usage. Although the concept of the smart appliance is still in its infancy, a recent Pike Research report estimates that by 2019, the smart appliance market will reach $26.1 billion Not  Feeling  So  Smart  About  The  Smart  Grid?   15  

with 118 million devices deployed; about 8% of the world’s appliances (St. John, 2010). Other potential components which may end up in a smart building are onsite power generation (i.e. rooftop solar panels), energy storage systems (such as advanced battery systems) and electric vehicle charging facilities. As these pieces are added, they will all need to be managed. For optimal efficiency they must be able to exchange information with consumer devices within the buildings network as well as providing feedback and information exchange with the power utility through the Smart Grid (Nesler C. & Laughton, T., n.d.). In the “smart building” managing and controlling all the various components and enduser devices may become the responsibility of dynamic control systems or BAS (Building Automation Software) systems. Many renditions of this idea are currently in various stages of development and testing, and will allow consumers the ability to monitor and manage their homes and facilities via computer, through web browsers, or even using mobile devices such as smart phones. An example of this is the WebCTRL Web-based building Automation system available from AutomatedLogic Corporation. These software systems will rely on data gathered by connecting to the devices using one or more of the many communication protocols in development to facilitate this connectivity. For example, WebCTRL is compatible with the BACNet protocol, a popular standard for connecting smart devices within a building (“BACNet”, 1997).

Smart Building Challenges Beginning with perhaps the most rudimentary component of the smart building, the Smart Meter, implementation challenges are plentiful. As power companies attempt to deploy and utilize Smart Meters, they are faced with myriad issues, such as the deployment and operational costs, the possible increase in customer service and engagement required, security issues, training and data management. Another important challenge will be to standardize the technologies and communication protocols between devices and management systems. With many different industry players and myriad ideas this will not be easy; even the communications platforms within buildings are in debate. For example, many proponents say that wireless communications are the way to go within buildings, as this will allow for easier retrofitting of existing structures. However, even with wireless technologies there are many options to choose from. Some of the current major players include Zigbee, EnOcean, ZWave, RFID, and Wi-Fi. Each has its pros and cons but the challenge will be to decide which ones will become the standards. In September 2009, the NIST (National Institute of Science and Technology) issued a report identifying 77 standards and specifications that could be used within the Smart Grid. Additionally they identified gaps where standards need to be developed. (Sinopoli, 2009). See the table on the next page which shows the standards and protocols identified which may impact the Smart Building’s interaction with the grid. Further defining and understanding these various standards and protocols, agreeing on interoperability between disparate components, and figuring out how to fill in the gaps remains a key challenge in the implementation of the Smart Building. Not  Feeling  So  Smart  About  The  Smart  Grid?   16  

Standards that may Impact a Building’s interaction with the Smart Grid (Sinopoli, 2009)

Not  Feeling  So  Smart  About  The  Smart  Grid?   17  

U.S. Smart Grid Business Opportunities The deployment of the U.S. Smart Grid is expected to create a booming market for industry enabling technologies. The development of the Smart Grid infrastructure would create jobs in a variety of businesses ranging from transmission equipment firms, through manufacturers of communications and metering equipment, down to companies that make advanced supplies. (Nolan, 2010) There is a plethora of information available regarding the future U.S. market forecast of how quickly the Smart Grid industry will grow.

Leader Energy & Environmental News for Business (2009)

Advanced Metering Infrastructure The U.S. Advanced Metering Infrastructure market has the potential to cut electricity use by 4% annually, saving businesses and consumers nationwide over $20 billion each year. In the U.S. the AMR (Automated Meter Reading) revenues are estimated to be more than $1 billion, with potential to double by 2016. (EBR, 2010) This new type of technology would provide customers with “time-of-use” and “criticalpeak” pricing, allowing for better management of overall utility usage. The current grid has inefficient data collection methods that continue to cost utility companies and consumers’

money. The new advanced meter technology would allow utilities to collect meter information without a visual inspection, through wireless, power line, or radio communications. As a result of the government’s “unprecedented investment” from the ARRA (American Reinvestment Recovery Act), over two million Smart Grid meters have already been installed across the country to help reduce energy costs. (EBR, 2010) Distribution Automation According to David Leeds, a Senior Manager of Smart Grid Research at Green Tech Media, the U.S. Distribution Automation technology is considered to be the fastestgrowing Smart Grid market segment. It is expected to grow from $2.2 billion in 2010 to a projected $5.6 billion in 2015. This type of technology allows for the smart grid to re-route electricity instantaneously around power failures in order to provide reliable power around the clock, in any situation. As more states move toward mandating grid efficiency, business opportunities for the distribution automation market will continue to expand. The current electric grid has been under-funded for decades and needs to be updated. With new investment in electricity distribution and technology there will be opportunity for substantial growth. From a business standpoint DA technology produces significant cost savings through measurable improvements in operational efficiency, reliability, service quality and conservation. (Leeds, 2010) Electric Vehicles The question that many prospective investors are asking about the Smart Grid is “why now?” To answer this question in most basic terms one needs to look at a few significant market trends. In the auto industry both Plug-in Hybrids and Electric Vehicles are being manufactured from almost all major Not  Feeling  So  Smart  About  The  Smart  Grid?   18  

automobile companies. The 2011 Nissan Leaf lists for $32,780, but consumers will only pay $25,280 after a federal tax rebate of $7,500. (Kannelos, 2010) One of many future zeroemission vehicles to come, Nissan’s all-electric automobile will be one of the first affordable vehicles targeted towards the mass market. The meeting of the Smart Grid and Electric Vehicles is predicted to make a great impact on our current climate challenges. Clean energy generation and the widespread use of electric vehicles could eventually reduce U.S. CO2 emissions by 70%. (Leeds D. , 2010) The sales projections of the electric vehicle industry forecast that one million zero-emission vehicles will be sold by 2017. Previously the hybrid market only accounted for 2.2%-2.5% of total U.S. auto sales. However, in September 2010, Toyota sold 12 thousand new Prius vehicles in the U.S., equivalent to the previous six months sales of all hybrids in the U.S. This dramatic increase in consumer interest brings a strong message to the auto industry that higher efficiency cars have become an emerging trend. If the electric vehicles and plug-in hybrids were to follow a similar pattern, it would take 3.5 years for one million vehicles to be sold. (Kannelos, 2010) Some key factors that would cause zero-emission vehicle sales to dramatically increase would be: a significant increase in oil prices, a battery breakthrough that would lower costs and improve performance & consumer confidence, and continued government policy to encourage consumers to buy electric vehicles. (Kannelos, 2010)

Government Support Demand for electricity is expected to increase by 30% over the next 20 years. At the same time the government has become increasingly aware of the potential security threat of our current electric grid and considers the smart grid to be a national security priority.

In mid-April of 2009 the DOE announced plans “to develop a smart, strong and secure electrical grid, which will create new jobs and help deliver reliable power more effectively with less impact on the environment to customers across the nation.” The ARRA signed by President Obama outlined the U.S. government’s plans to distribute more than $3.3 billion in smart grid technology development grants. According to the Darnell Group, a power electronics advocacy firm, a new grant being offered by the DOE is the Smart Grid Investment Grant Program will provide funds ranging from $500,000 to $20 million for smart grid technology deployments. The grant will provide further funding of $100,000 up to $5 million for the deployment of grid monitoring devices. An additional incentive that this plan provides is a matching grant of up to 50% for investments planned by electric utilities and other entities to use Smart Grid technologies. (Group, 2009) Utility companies all over the country are installing smart meters, which are widely perceived to be a critical first step for Smart Grid deployment.

Smart Grid Policy Issues Among the myriad challenges facing the effective implementation of a modern Smart Grid is the lack of centralized public policy to govern its realization. We have established certain challenges in generation, distribution, consumption, and energy markets. Government policies that provide incentives for utilities or the telecom industry to make significant investments in Smart Grid can expedite its implementation. Currently, individual states have the regulatory control over utilities that operate within their boarders. Federal policies that establish standards for implementation and provide monetary incentives to those companies that make capital investments in infrastructure are a good first step. Not  Feeling  So  Smart  About  The  Smart  Grid?   19  

The U.S. government has already introduced several funding opportunities for Smart Grid projects; these programs were limited in scope and did not provide enough funding for a nationwide reform. However, the programs proved the existence of overwhelming market demand for Smart Grid technologies. They also demonstrated the U.S. commitment to leading the way towards this emerging segment of the global economy. The U.S. has taken meaningful steps towards developing a Smart

Smart Grid. This RFI followed two previous requests in May 2010 that addressed data privacy, access and communications requirements. (Department of Energy) The DOE received a massive amount of feedback and on October 5th, 2010 released two reports: Communications Requirements of Smart Grid Technologies and Data Privacy and Access Related to Smart Grid Technologies. While there were many innovative ideas contained within, one issue the DOE stayed put on was the

(Ministry of Economy, Trade, and Industry)

Grid marketplace. Before any further implementation can take place, there needs to be consensus between the DOE and the various industry stakeholders defining the Smart Grid and an agreement on how to move forward with its creation. On September 17th, 2010 the DOE released several RFIs to stakeholders in the formation of government policies concerning

procedural definition of Smart Grid. The U.S. government continues to use a definition of “Smart Grid” that was established in the EISA (Energy Independence and Security Act of 2007). This definition states that: “It is the policy of the United States to support the modernization of the Nation's electricity transmission and distribution system to maintain a reliable Not  Feeling  So  Smart  About  The  Smart  Grid?   20  

and secure electricity infrastructure that can meet future demand growth and to achieve each of the following, which together characterize a Smart Grid” (Department of Energy) Following that statement are ten conditions the DOE deems to be the fundamentals of the Smart Grid. Most components of the definition have to do with increasing the way information flows around our national energy system. Analysis of this data shows how best to use real-time monitoring to increase energy efficiency and give customers of electric utilities more options in how they use their power. The tenth condition is, “Identification and lowering of unreasonable or unnecessary barriers to adoption of Smart Grid technologies, practices, and services.” (Robinson, 2010) This system condition is the government’s most high leverage opportunity to encourage adoption of the Smart Grid and fully modernize our electrical infrastructure. All the other conditions are potentially subject to government regulations that should both promote rapid investment while ensuring security. In order to reduce the barrier to entry into the Smart Grid market, our government has the ability to provide federal funding or adopt funds matching programs, like the ones outlined in EISA 2007 and funded by the American Reinvestment and Recovery Act. (NARUC, 2009) The DOE is not the only entity that has issued a comprehensive definition of Smart Grid. While the public sector works on their end of the Smart Grid issue, private enterprises are busy developing plans for their own massive rollouts when the technological efficiency and government policy evolve to a suitable level. In response to the RFI, EEI (Edison Electric Institute), whose member organizations generate and distribute more than 70% of the electricity in the U.S., was quick to supply their own definition. They urged the government not to misinterpret the Smart Grid as a single

structure or as independent from existing infrastructure. Instead, EEI suggests that, “For policy purposes, ‘Smart Grid’ should be understood to be an ongoing approach to achieving a ‘smarter grid’ in response to the public interest in maintaining reliability, cyber security, and achieving environmental goals at a lower cost than the traditional grid.” (EEI, 2010) It’s clear that EEI and their member organizations, like Puget Sound Energy, Portland General Electric, and Xcel Energy, are poised to make massive investments in what they see to be the future of electricity use. (EEI.org, December) Some of these possibilities have been examined in other sections of this report. Many of the potential uses of the hybrid power delivery and information technology platform have yet to be further developed. What is missing from the picture is national legislation that gets the process started with the full faith of the federal government behind it. What we currently have in place is a system that leaves the regulation and implementation of electric utilities projects up to individual states. (Robinson, 2010) There is nothing wrong with states being allowed to regulate themselves, but the Smart Grid will be a national infrastructure system and will require laws and regulations that treat it as such. In an interview with Brandon Robinson, these state-to-state issues were discussed in great detail. Mr. Robinson is an attorney at Balch & Bingham; his primary clientele is electric utilities on the East coast of the U.S. Admittedly, his opinions are in favor of the utilities’ interests. Regardless of his bias, Mr. Robinson has extensive working knowledge of the policy issues surrounding the implementation of the Smart Grid. Currently, the process for a utility recouping their capital investment is in the hands of the individual states in which they operate. If a utility wishes to invest in their power generation or delivery system and recover their costs from ratepayers, the approval Not  Feeling  So  Smart  About  The  Smart  Grid?   21  

or rejection of their plan is up to state commissions. (Robinson, 2010) The implementation of Smart Grid technologies will provide benefits to all users and as such, all its beneficiaries should share the costs. Federal standards for cost recovery will make this process more predictable. There are many methods that federal and state electric commissions can deploy to make investment in Smart Grid technologies more attractive. If governments were willing to create an incentive-based cost recovery policies they have the opportunity to rebalance risks in ways that are fairer to utilities. EEI has suggested the implementation of up-front approval processes that make it easier for utilities to get the goahead to start building. These could be coupled with a construction cost tracking system that strongly encourages utilities to stay within their stated budgets. (EEI, 2010) In return for more encouraging project approval rates, any cost overruns on new Smart Grid developments would not be passed along to ratepayers. In a system like this, projects are more likely to gain approval and stay within their stated budgets. (Robinson, 2010) Another policy method to encourage new investment would be the approval of different cost accounting methods, specifically how depreciation is measured. If companies were allowed to depreciate new Smart Grid equipment over a 5-7 year timeframe instead of 20 years, it would encourage constant investment in newer technologies. This makes sense considering that most components of the Smart Grid are data processing and communication equipment and will not be in service as long as traditional utility assets. (EEI.org, December) Policies that enable investors to deploy newer technologies without concerns over cost overruns will be most conducive to successful implementation. After a Smart Grid has been made available to consumers, then the real challenge begins. The question of how to encourage

consumer adoption of Smart Grid-friendly behaviors is of primary concern for industry and government alike. Industry proponents would like to see as much compulsory implementation as possible. The more fully engaged a customer is in the Smart Grid, the quicker businesses can expect to recoup their investment costs. The most likely scenario is that ratepayers will not be able to opt-out of supply-side investments by their electrical provider. Under this model, PSE (Puget Sound Energy) invests in large infrastructure Smart Grid programs that will both partially recover costs from and ultimately benefit their ratepayers. (NARUC, 2009) On the other hand, customers would most likely be able to opt-out of demand-side behavioral changes. After PSE customers have access to the data the Smart Grid will provide, there is no requirement for them to adjust their behavior in order to take advantage of the new technology. (Robinson, 2010) This is well within the rights of the consumer, however industry champions anticipate most customers taking advantage of the Smart Grid to save money. According to a recent poll, almost 85% of respondents believe it is necessary we start investing in the Smart Grid technology. More accurate data provided by the Smart Grid will allow electric companies to be more aggressive in charging peak-hour users a premium while rewarding customers who consume more when demand is low. These “time-of-use” rates are absolutely necessary for the Smart Grid to be effective; the whole point of having real-time consumption data is to be able to manage consumption more efficiently. Without providing the customer an incentive to put less stress on the system, the Smart Grid is useless. There are many challenges along the road towards drafting effective Smart Grid policies. Clearly defining the vision and the end result of Smart Grid projects with so many stakeholders is possible if governments and businesses come together as one. Drafting legislation that does Not  Feeling  So  Smart  About  The  Smart  Grid?   22  

(Green Energy Reporter, 1)

the most to promote nationwide investment in the future of the economy in grave danger. As Smart Grid technologies is possible; indeed it is population continues to grow, it will put even already being accomplished at the state level. more stress on the antiquated grid and without Foreign governments have taken on the Smart the necessary upgrades, inefficiencies in Grid challenge too and have begun investing distribution and consumption will have serious heavily. If the U.S. is to maintain its competitive economic consequences. The U.S. should not let edge we ought political infighting to out-invest get in the way of our passing sweeping competition. electrical policy China is the reform. The United only country States must move that spent more towards a future that than the U.S. in encourages 2010 on Smart investment in Grid projects. innovative (Green Energy technologies like the Reporter, 1) In Smart Grid. response to the 2008 recession, Conclusion Congress passed the A number of ARRA surmountable (American Federal Stimulus Investments by Country (Green Energy Reporter, 1) challenges in the Reinvestment areas of and Recovery Act). The ARRA appropriated equipment, policy and implementation exist. $4.5 billion for Smart Grid projects and The primary challenges are: according to NARUC (National Association of • The inertia of "big oil", Regulatory Utility Commissioners), “the bulk of • Unregulated markets, the funding will go toward matching grants for • Lack of federal regulation or the implementation of digital upgrades to the leadership, electric grid. Electric utilities, distributors and • Distribution, marketers, distributed power generators, grid • Lack of standards and operators, and others are eligible for smart grid • Cost-effectiveness. matching funds of up to 50% of qualifying investments.” (NARUC, 2009) Without the federal government regulating the energy industry and markets and The time to begin investing more seriously large corporate interests spurring innovation, the in a national Smart Grid is now. Paradoxically, smart grid remains gridlocked. If the U.S. the U.S. could be at a competitive disadvantage government had clear leadership across state since our electrical grid is already well lines and private industries, and passed laws established. China is just building many of these regarding regulation of the developing Smart systems for the first time; consequently they Grid, it would be up and running today. have the opportunity to get it right from the Unfortunately, this is not yet the case. beginning. If the U.S. does not rise to the occasion and pass federal legislation that requires an upgrade to our electrical grid, it puts Not  Feeling  So  Smart  About  The  Smart  Grid?   23  

Some wonder, "The smart grid is a really expensive project; can we afford it? Can we afford not to?" (Divan, 2008). Secure, reliable, affordable, perpetual electricity generation, distribution and consumption should make this answer a foregone conclusion.

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About the Authors This report was written by MBA students at Bainbridge Graduate Institute under the direction of Darcy Hitchcock and Marsha Willard, faculty. Ben Drury is a full time student in the MBA program in sustainable business at the Bainbridge Graduate Institute. In addition to being a full time student he is a husband and father of two school aged kids. Ben was a small business owner for 16 years as part of an over twenty year career in the outdoor industry. Ben and his family traveled for a year in Australasia prior to his enrollment at BGI, a year the family calls “The Year of Homeschool in a Global Classroom”. As a member of cohort 9 at BGI Ben plans to build upon his work experience, love of nature and adventure, and return to the work force as an agent of change, bringing the triple bottom line to life in a changing economy. Alexander E. Horne is currently employed with RANDSTAD Work Solutions and is an MBA Candidate of Cohort 9 at Bainbridge Graduate Institute, WA. He has achieved his bachelor of science in Regional Development and earned his California Commercial Real Estate License. His background in regional development and experience in commercial real estate has provided him the necessary tools to be proficient in regional planning analysis, interpersonal client development, creative marketing strategy, and a firm foundation in commercial real estate market trends. Highly motivated, Alex has a keen interest to give back to the community and the environment by providing green technologies to both the commercial and residential sectors of the community.

Not  Feeling  So  Smart  About  The  Smart  Grid?   27  

Mark Kammerer is an MBA candidate at the Bainbridge Graduate Institute. As a member of Cohort 9, he expects to graduate in June 2013. He is currently the Operations Manager for EverGreen Escapes, a Seattle-based adventure travel company with an emphasis on sustainable tourism. He is a graduate of the University of Denver’s Daniels College of Business where he studied Business Management. He brings his passion for sustainability and systemic problem solving with him to BGI in order to enhance his ability to work effectively in a rapidly changing workplace. Jeff Lancaster currently works as a Senior Software Engineer with Arris in Beaverton, Oregon. Jeff has over 20 years experience in software programming, data systems analysis, systems design and integration, and business information systems consulting. As an MBA Candidate at Bainbridge Graduate Institute (cohort 9), Jeff hopes to bring this technical background into the world of sustainable business. His aim is to introduce new technologies, concepts and ideas that allow things to be designed, built and operated in a “smarter”, more efficient, and more environmentally friendly manner.

as the driver for the other 3Es of economy, environment, and equity. Luisa Walmsley has a degree in Environmental Studies from Prescott College and a background in energy management and sustainability planning. She lives in Tucson, Arizona, where she works as an energy manager for Raytheon Missile Systems, and is currently pursuing an MBA in Sustainable Business from Bainbridge Graduate Institute.

Bainbridge Graduate Institute (BGI) offers both an MBA in Sustainable Business and Certificate programs. In these programs, students work with distinguished faculty from top business schools to master proven sustainability practices. BGI is routinely in the top 5 ‘green’ business schools rated by NetImpact. www.bgi.edu

Patrick T. Rost is currently a Service Technician at Ingersoll Rand Security Technologies and an MBA Candidate of Cohort 9 at Bainbridge Graduate Institute, WA. With superior computer, mechanical and technological skills, he brings over fourteen years of expertise in analysis, creativity, design, engineering & troubleshooting. A self-starter, Patrick has the utmost respect for the environment and is researching the ramifications of our noisy world: noise pollution, its negative effects on human health and its abatement. Chief among his business strategies is the notion of ‘enthusiastic purpose’ Not  Feeling  So  Smart  About  The  Smart  Grid?   28