Reflections on Smart Grid and the Role of Energy Efficiency

I recently returned from the first-ever National Summit on Integrating Energy Efficiency and Smart Grid, where I experienced a series of Aha! moments. I’m still chewing on what I learned about how energy efficiency (EE), clean distributed generation (DG) and demand response (DR) can work together, and how this “smart grid” stuff is going to help enable it. At NEEP, we view energy efficiency as the smartest, most cost-effective way to help us solve a number of society’s challenges: wringing out waste, putting money back in people’s pockets and building the regional economy, controlling cost, increasing reliability, reducing the need for transmission and generation upgrades, and of course the biggest — mitigating climate change. To borrow RAP’s informal motto: “Energy efficiency is the answer. What’s the question?”   An Evolving Understanding of Smart Grid and Demand Response Until pretty recently, it’s safe to say that many of us at NEEP viewed the so called “smart grid” with a healthy dose of skepticism. We wondered, doesn’t it make more sense to first do things like insulate, install efficient and well-sized equipment, and teach people how to run it properly?  With so much cost-effective efficiency left on the table, was this just a flashy distraction, something that wouldn’t help the masses? My simplified impression of smart grid and smart appliances was that maybe investing in fancy meters and refrigerators with their own IP address could help utilities manage electricity on critical peak days and to understand where outages happen. But could all of this stuff really save energy, or just shift load? As for demand response, here was my prior understanding about how things like advanced metering and time of use rates could work: On the really hot dozen or so “peak power” days each year, being able to ask or incentivize customers to dial back things like air conditioning can help avoid strain on the grid and reduce the need to bring the dirtier, more expensive peak power plants online. So peak shaving is good from an emissions, health and cost perspective. But still, I wondered, is most of this demand just shifted to another time, or can demand response really save energy use? And how could efficiency advocates like me push for all of this equipment, data, and behavioral opportunities to help us energy more efficiently all the time? I still hadn’t clarified in my mind the nexus of all sorts of emerging technology, demand response and smart grid with what I thought of as the most commonsense, cost-effective first line of defense that energy efficiency offers. Struggling to Incorporate EE with Smart Grid Over the past year, I participated in a Grid Modernization Working Group convened by the Massachusetts Department of Public Utilities (DPU). While I learned a lot in the process, I came away feeling like efficiency and clean energy issues kind of got lost in the shuffle — trumped by discussions about meters and rates, impacts on customers, and who should bear the cost of upgrades to the system. When I asked utility folks if their smart grid pilots helped steer customers to efficiency programs once opening their eyes to energy usage, I was met with quizzical looks. That’s a different department. We have to be able to parse out where savings came from, they told me. Was it utility silos? An out-moded regulatory construct? Maybe a bit of both. In the end, our group hammered out a roadmap for the DPU, although it was challenging to write a cohesive paper with stakeholders who have very different viewpoints and priorities. With the roadmap as a starting place, soon the DPU is set to issue a straw proposal on how the state will move forward in modernizing the grid, and NEEP looks forward to staying engaged in the process. I’m confident that since attending the Efficiency and Smart Grid Summit last week, I have a deeper understanding that will help me to be a more effective advocate in the process. Trends and Key Take-Aways Back to the National Summit on EE and Smart Grid. Suffice it to say, my eyes have been opened from what I learned there. I heard from many experts like Jon Wellinghoff, Commissioner of the Federal Energy Regulatory Commission, who recounted Hurricane Sandy’s impact on peoples’ psyches and their relationship with energy. Consumers want more control of their energy use and data, he explained. “We need to ask, ‘how can we take more advantage of the fact that people are more interested in energy?’” said Wellinghoff. “We need to recognize the value of new technologies and change policies in a way that allows that value to be revealed and enabled.” I began to better appreciate the interaction of advanced meters, different rate structures, the ability of the grid to absorb or shed load, and the role that efficiency can play in first permanently reducing demand. Here are some of the trends and key take-aways, as compiled from various speakers:

• Clean Air Act Regulations - The new Environmental Protection Agency’s rules on CO₂ emissions from power plants (known as Chapter 111-D) are about to engulf regulation. If the rule is successfully implemented, it could have major implications for both EE and DR, according to former Colorado Public Utilities Commissioner Ron Binz, and others.
• We are entering a third wave of energy efficiency. As Rick Counihan of EnerNOC explained it, the first wave was conservation, the second was about upgrading lighting and equipment. The third wave is about the ability to assimilate lots of information and use it to optimize building performance.  Data, controls, continuous commissioning and behavior are enabling this evolution.
• Data, Big Data! It’s about getting lots of data on energy usage, and using it. This is easier because sensors, communications and computing are getting cheaper and better integrated. Smartness and monitoring can allow for real-time evaluation, measurement and verification of savings. Access to data by trusted partners is crucial to success.
• Demand Response as an Energy Resource – Increasingly we’ll see DR used as an energy efficiency resource, not just an emergency resource. And each can enable the other. “We should just be talking about all of this as demand resources!” said CSG's Chairman and CEO Steve Cowell.
• We need to allow demand to respond to price signals. “Until we install smart meters, we can’t really take advantage of time of use rates,” said Wellinghoff.
• In a decarbonized energy system, supply curves are different every day. We are already seeing lots more solar, wind, and electric vehicles. New rates and advanced meters will allow the grid to adapt to fluctuations inherent in renewable energy sources, and signal customers when to use less, and when to use more energy.

What can Policymakers do? Dan DeLurey, Executive Director of the Association for Demand Response and Smart Grid, did a fantastic job moderating sessions. He asked one panel, “What do we need from policymakers to facilitate the integration of energy efficiency and demand response?” Kara Saul Rinaldi, Executive Director of the National Home Performance Council, ticked off these items:

• Help clear the way for third-party providers to access utility data;
• Recognize the market value of efficiency through more accurate building appraisals; and,
• Ensure incentives and sustained programs to keep moving the market forward.

The role of regulators and the need to evolve regulation to help support better integration and maximization of EE and DR in the smart grid was a major theme of the conference. Some gleanings:

• “It’s very clear that U.S. regulation needs an overhaul in a fundamental way,” said Ron Binz.
• Regulators need to look for solutions rather than just black and white laws. Maybe industry can help with this process, according to Binz.
• “You don’t get a gold star for taking risks as a commissioner, you only get in trouble,” said former Ohio Public Utility Commissioner Cheryl Roberto.
• “Dynamic pricing, so consumers can respond to prices on the grid, depends on advanced metering. The only way that dynamic pricing will work is retail competition,” Wellinghoff stated.
• “Voluntary Time of Use Rates won’t work. That’s what’s holding back Smart Grid,” Binz commented.
• “We need to rethink how we do ratemaking for utilities, and be more forward looking,” stated Henry Yoshimura, Director of Demand Response Strategy at ISO-New England. Yoshimura explained that because historically ratemaking has been a backward-looking process and utilities are risk-averse, they have not been incentivized to make investments in grid upgrades that will enable things like more and more integrated EE and DR, because they might not be able to recover the costs.

The Smart Grid Will Make It Possible While I started to comprehend it through the Massachusetts “Grid Mod” Working Group, now I’m convinced that we cannot have the kind of energy future we want without investing in a modern grid infrastructure — including advanced meters, better customer information and behavioral signals, and new ratemaking approaches. Rate-payer funded energy efficiency programs — together with complementary policies like building energy codes and labeling, appliance efficiency standards, financing programs and demand response programs — are among the demand-side resources that will enable us to evolve to a cleaner, more efficient and more resilient power system. In the end, the lines between DR and EE will continue to blur, and the successful utilities and program administrators will deliver them concurrently — if regulation allows and enables it. Ultimately, we need to remember the big picture themes: reducing climate change, allowing communities and economies to thrive, and using natural resources wisely. As I learned in the Massachusetts Grid Mod process, there will continue to be a lot of contention around who will pay for these upgrades, who will benefit, as well as concerns about equity, privacy, health and safety. So we need federal and state leadership, forward-thinking utilities, and stakeholders that can take a holistic approach to all of these inter-related issues — for the good of us all.