Global Economics

Smart Grid: A Must for Energy Efficiency


As world leaders debate climate change and carbon emissions in Copenhagen, an opportunity to boost energy efficiency is already at hand

In the run-up to Christmas, President Obama recently joked that Energy Secretary Steve Chu had asked him for a few million energy-efficient light bulbs as a holiday present. In Copenhagen this week, world leaders are debating greenhouse gases and a number of other initiatives, including energy efficiency. Every schoolchild knows that Thomas Edison invented the light bulb. Less attention is paid to his invention of the electrical grid??he complex system of generating stations, transmission lines, and transformers that distributes power to homes and businesses around the world. To demonstrate the practicality of the technology he developed, in 1878 Edison sold a stake in his lighting company to banking partners J.P. Morgan and Anthony Drexel. He used the proceeds to build the world's first commercial power station at 255 Pearl St. in New York's financial district, a few blocks from Drexel, Morgan & Co.'s Wall Street offices. To light up the banking halls of lower Manhattan, Edison first had to develop a steam-driven generator and an array of fuses, switches, and underground power lines. He also created the first commercial electric meter, so that his company would know how much to charge its customers for their usage. Shortage of Data

Since the Pearl Street station's opening in 1882, the electrical grid has evolved dramatically. Alternating current supplanted the use of direct current roughly a decade later, and the grid continued to become safer, more efficient, and much, much bigger. But one thing it did not become was smarter. As in 1882, today's system requires utilities to generate as much electricity as their customers collectively happen to be drawing at any given moment, and each customer's usage is recorded from a meter once a month. There is no way to judge when during the month any given customer used the power they drew from the system??r even whether they intended to do so. A short circuit in someone's home system can, and occasionally does, draw large quantities of power, and a residential customer may have no idea of the problem before receiving a dramatically large bill in the mail at the end of the month. Utilities worldwide suffer not only from a shortage of usage data that could help them plan, but from inadequate control over their own systems. Meanwhile customers commonly lack both awareness and incentives that could cause them to modify their usage patterns for the greater good. This week at the U.N. Climate Summit in Copenhagen, world leaders will discuss an array of strategies for the reduction of greenhouse gas emissions. One of the strategies that's now ready for immediate and effective implementation is the widespread use of smart grid technology. Smart Meter

The smart grid will look a whole lot like our existing power grid, except that it will include real-time data collection, enabled by innovative software. At the heart of the smart grid is the smart meter?? digital electronic meter that will tell the utility how much power each of its customers is drawing at any time. This will accomplish multiple ends. It will allow utilities to employ differential pricing, providing discounts to customers who use electricity at non-peak hours. As is already true of telephone usage and airline travel, for instance, this means increased efficiency, as users are billed more for a resource that costs more to produce at times of high demand and less for that same resource at other times. Smart meters will also let utilities pinpoint power outages immediately and automatically, without waiting to be alerted by their customers. Load-induced outages can even be avoided entirely, as system software analyze real-time consumption across multiple networks and make it possible to distribute more power to the places where it's most needed. At the same time, the smart grid will give consumers the ability to monitor their electrical usage online, assess their needs more accurately, and even make remote use of their electrical accounts??or such potential purposes as recharging an electric car away from home. Just as important for purposes of emissions reduction, the smart grid will make it simpler for utilities to buy energy from other producers on the open market and integrate these sources into their supply without extended planning or long-term contracts. Thus, a homeowner with a wind turbine in the backyard or a solar array on the roof could sell excess power back to the grid as easily as he or she could buy extra power to supplement a shortfall. And utilities can more easily buy excess power from other producers to make up for temporary shortfalls in local production capacity. Reliable Power Supply

The smart grid, driven by innovative software, represents a major leap forward in converting what has previously been a necessarily regulated natural monopoly into an increasingly efficient free market. The potential benefits are immense. Not only will the smart grid result in a more reliable power supply, even in the face of rising demand, but it also should save at least $46 billion over 20 years in reduced investment in power plants and transmission networks. The costs associated with transmission congestion could be slashed by nearly $5 billion annually. And the smart grid would enable renewable energy projects that could cut U.S. carbon emissions by 700 million tons annually from current levels. In October, the Obama Administration committed $3.4 billion of stimulus funds to updating the U.S. power grid. This represents an important, if somewhat symbolic, boost to an ongoing transformation. Many private enterprises, including ours, have long been working on the technology that soon will make the smart grid a reality. But the government's investment is welcome in this transition period, as a significant threshold of capital investment must be crossed before substantial benefits begin to accrue. Thomas Edison's first power station was a money loser for its first two years. Being the first of its kind was not an immediate guarantee of success. Like Edison and the men who backed him, we need to remember that we are building something of lasting value, an asset with public as well as private dimensions that will contribute to economic growth while improving our environment and our efficient use of precious natural resources. The Pearl Street station was decommissioned in 1895, only 13 years after it was built. It had become obsolete. But it represented the first major investment in a technology that grew into one of the world's greatest and most life-changing industries. The smart grid represents the next vital step in that evolution, and continued investment will be necessary to ensure that we reap its many long-term benefits.


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