The Risks And Benefits Of Smart Grid

Published Date: 02 Nov 2017

Since 1882, when Thomas Edison switched on his first commercial generator in New York City, it has been a one-way path to generation to consumer. The current U.S. electrical power grid is antiquated in its infrastructure, and unfortunately suffering from years of under-investment. The electrical grid in the Americas need to be updated and will add much new functionality to meet customers' power usage and demand. Updating such an outdated system as complex as the electrical power grid has the potential of introducing new vulnerabilities into the system. This document will review the benefits and risks to both the consumer and the utility company, and a glimpse into the future of the smart grid.

The benefits to a consumer may include: control to manage energy usage and reduce costs. A risk to the consumer is the lack or loss of privacy that may result in hacking, making the consumer feel vulnerable. Utility companies will benefit by being able to meet instant demand that periodic consumption requires and will be able to reduce outages. Risks to the utility company may include: time, training, and funding needed to adapt to the new system. A conceivable conclusion could be that these devices will provide short-term and long-term benefits to utilities and consumers. The smart grid will enable utilities to closely monitor electricity consumption in real-time, while also allowing households to adjust electricity consumption in response to real-time price adjustments.

In the next 25 years the US Department of Energy estimates that there will be $1.5 trillion spent on upgrading our electrical grid infrastructure. (US Department of Energy, 2012) The question is if we should replace the old system or invest in the smart grid that will enable us to progress with the changing technology. It is forecasted that in the future the smart grid will: reduce costs for consumer and utility company, conserve energy, and produce energy and reduce C02 emissions.

Introduction

The Smart Grid is the map or plan for upgrading the infrastructure of delivering utilities in a community or country. Utilities that may profit from using the smart grid technology include: sewer, water, gas, and electricity. There are many industries that can benefit from the smart grid; however, typically the focus is on energy production and consumption. The smart grid will greatly benefit the electricity industry.

By using technology, the smart grid will provide the automation necessary to manage utility production by knowing real time what the demand on the grid is and what the utility company needs to do to seek an equilibrium. In order to start on improving the old analog system we will need to replace the hardware of the current system and upgrade to digital technology. (OECD, 2011) Smart meters track how much energy was used in a given time and provide a way to have the system relay data back to both the consumer and to the utility company. The meters utilize IP communication so that a consumer can be informed of energy usage. (OECD, 2011)

The use of IP technology is becoming a very common foundation for more efficient communication. The electricity utility will be using this IP technology for common management through the use of smart meters. This research analyzes the possible impacts to the industry and the consumer. What are the benefits? What are the associated risks?

Energy pricing today cannot be detailed in pricing models. Instead utility companies use sound indicators that become estimates based on historical data from the previous year or other price models. The current power is completely antiquated and cannot reflect or define an instant cost of demand at any given time. (OECD, 2011) If we had the ability to use the smart grid utility, producers and vendors will be able to more accurately predict energy needs and examine real-time usage.

Leaving the grid as it is could become a monumental problem. An estimate by the US department of Energy estimated economic cost power interruptions $15 to 24 billion annually. (US Department of Energy, 2012) Several improvements have been made on the grid which in turn will have a significant impact on the cost to operate. (OECD, 2011)

The Smart Meter

The way that any structure receives the utility service on a smart grid is through a smart meter. A smart meter helps manage the increasing demand on the grid in a real time fashion and should increase service and reliability to its customers. A smart meter system collects electrical data about usage. (Jun Wang, 2009) Data is periodically transmitted to the utility company via a secure wireless IP communication network. It is possible that the use of the smart meter will accelerate home automation market growth on the backs of a next generation of how any community measure’s energy. (PR Newswire, 2010)

Smart meters have microprocessors with RF wireless connectivity. The figure below describes how a typical smart grid could work.

http://perisoftware.files.wordpress.com/2011/01/smartgrid.jpg?w=534&h=392

Figure Smart Grid Infrastructure smart grid tech © DistribuTECH 2011

From the utility company, energy movement and consumption can be observed on a more singular house or structure basis. These meters will also allow the utility company to decrease the power as needed during crisis peak periods to avoid congested grids and uncontrolled power blackouts. (Talbot, 2012) Data will upload to the utility company through the IP communication. The customer would be able be to view their usage live and as it happens as long as the data is kept current. With this information a customer and vender can easily find out exactly the amount of energy they are using over any period of time. This becomes valuable information for anyone to make smart choices about energy consumption. (Elsevier, 2010)

This literature review notates some of the benefits and risks to the consumer, utility company, and society in general for a smart grid. There is research still being accumulated as this is a newer topic to discuss and research. Some of the costs and benefits are estimated and projected because the data is still being analyzed. (Soma, 2013) There are many services that can benefit from the smart grid. The future seems to be wide open in the applications of the smart grid and may greatly benefit the natural progression of the ever-changing technology.

Research Problem Statement

This research is a literature review of the benefits and risks associated with the smart grid affecting the consumer, utility company, and society in general. There will also be projected estimates of how the smart grid will affect our future. The three major areas that belong to the discussion are "the consumer"; "the company" and "the future of the smart grid".

The Consumer

Positives to the Consumer

Smart Meters will benefit the consumer by being able to control their energy consumption and decreasing their own energy costs. Consumers will be empowered once they see how much energy they are using at any given time. Energy costs can be monitored daily instead of waiting until the end of the month to see what the costs will be. Consumers can make lifestyle changes as they see their usage and habits. For instance, a customer can see instantly if a device is costing them money at peak times. The more information that is given to the consumer, the more opportunity they will have to reduce their own consumption. The smart grid will bring balance and efficiency to the way that energy is produced.

In economics, one can state that price can govern the market. If the customer knows it is costing more money to run a certain device at any given time the customer will more than likely reduce the consumption based on the knowledge of the price. For example, in the figure below there is a graph on cost of energy either peak time or real time. If a customer was able to use the energy with real time information then their costs for the energy would more than likely be lower. In order for the customer to be informed they have to be using the smart meter on the smart grid system. 1752-153X-6-S1-S5-4

Figure Effect of real-time pricing on hourly energy consumption (Cook et al. Chemistry Central Journal 2012 6(Suppl 1):S5   doi:10.1186/1752-153X-6-S1-S5) (Brendan, 2012)

There might be a decrease in electricity consumption within the first year of installation of a smart grid. Consumers will shift consumption from peak hours to off peak hours and will become more aware of which appliances use more electricity. (Brendan, 2012)

According to the 2010 Smart Grid System Report that was offered to congress in February 2012 Billy C. Martin III, President and CEO of Woodruff Electric Cooperative states that: "As member-owned not-for-profit cooperative, keeping electricity reliable, safe, and affordable is job number one. We are eager to pass operational savings from these smart grid investments to our members." (US Department of Energy, 2011b) Due to the improved technology, comparing March and July of 2011, the study stated that 3,000 service truck calls were avoided, saving $600,000 from the operating budget. In addition to service calls, the reconnect costs for a customer were decreased from $115 to $50 for initial customers or those who may have lost service due to the inability to pay their bills. (US Department of Energy, 2011b) The Arkansas Public Service Commission reported that by law the utility company can take up to three days to make a new connection. Having the upgraded system a connection can be made in as quickly as 15 minutes. (US Department of Energy, 2012)

In a case study by the US department of energy it stated that:

The Tri-State project also has helped customers detect and troubleshoot faulty appliances and equipment. For example, one customer’s daily usage report indicated an unexplained and dramatic increase in electricity usage. The customer called Tri-State, who suggested the well pump might be malfunctioning. An inspection revealed a crack in the water line was spilling water back down the well, causing the pump to operate. The water line was replaced, and the customer’s electricity use immediately returned to previous levels. Without the daily report, the customer would only have become aware of the increase in electricity consumption upon receiving her monthly electric bill. (US Department of Energy, 2011)

A smart grid can benefit the customer by being able to have access to the information to reduce their costs and be more efficient.

Risks to the Consumer

The benefits will far outweigh the risks but there are some risks that may be involved with the smart meter. Most smart meters are equipped with "automatic meter reading" or AMR technology, which wirelessly send utility information about the customer’s electric consumption. This will save time for the utility workers. The worker can drive by the structure and get the data rapidly, rather than having to stroll all over the neighborhood to capture meter readings one at a time. A research project out of the University of South Carolina discovered that they "could read meter signals at a 400-unit housing complex in such detail they could determine that 27 units were unoccupied." (Talbot, 2012) Smart meters can transmit data every 30 seconds. (Talbot, 2012) That being said the same study concluded and noticed that some residents’ had habits in their daily life by spotting sudden increases in electricity usage. The researchers also inferred that in one unit of the complex, "the owners got up at 7am., left for work at 9 am., and returned home around 6 pm. on Friday." (Talbot, 2012)

The whole goal of smart metering is to engage utility companies and consumers to interact openly. Smart meters and the smart grid will allow the utility company and the consumer to monitor HVAC and refrigerators remotely. There are critics out there that say that this information on usage is easily gathered and it makes the end consumer an easy target with certain vulnerability for a burglar to exploit. (Baumeister, 2011) Questionable people could potentially be spying or snooping on specific individuals. In order for a dubious intruder to effectively carry out this plot it would require looking at actual meter at least once to write down an ID number and correlate the wireless data. (Talbot, 2012)

The next-generation meters will be more powerful in prevention of hacking them. If the meter is hacked it could damage the meter’s programming and be illegal due to privacy violations. Smart-meter data will be encrypted, while data from an analog system is not. Security holes or glitches in smart meters can be fixed remotely with a software patch. (Talbot, 2012) In order for the old analog systems to become more secure it would require an actual hardware replacement. Sidhant Gupta, who is a researcher at the University of Washington and studies privacy and security issues surrounding the utility meters, said: "If an AMR meter is relaying data every 30 seconds, then it is a very real threat." (Talbot, 2012) The researchers who gained the data through expensive hardware managed to see the data in real time, but Gupta states that equipment purchased for $50 could do the job. (Talbot, 2012)

The Company

Positives to the Company

A utility company will have the benefit of having pertinent data in real time to manage their region. Congestion rent is the quantity of electricity demanded at any given time; this demand is more than the system can hold. This cost is at its highest when the lines are extremely loaded. It becomes more expensive to push more on to a system when it is already at its maximum. Thus more loaded lines the more expensive it is to have the power on the grid. In a study done by the National Electric Congestion Study estimated that congested rent is estimated at $8.36 billion in annual losses. By having a smart grid they will be able to easily reroute, rework, and study the demands of congestion at real time. (Brendan, 2012)

The electricity demand currently on the analog system is challenging to match demand. Customers will always need electricity and there will be an increase demand to the grid. Utility companies always need to have excess power for the inconsistencies of the demand. It is hard to calculate the demand so there is greater potential to have overproduction of electricity on the grid. It is estimated that 68.5% of electricity is wasted in total. (Brendan, 2012) Due to transmission 10% of the power produced is lost. (Brendan, 2012) Electricity that is overproduced accounts for $149.6 billion. (Brendan, 2012) A smart grid will enable the company to find a better equilibrium to meet the demand. (Brendan, 2012)

In 2003, there was an outage that was sparked in Ohio that caused a majority of the northeast of America and some parts of Canada power grid to fail. Transmission pathways can result in power disturbances and blackouts. The length of time that power is out varies from geographic area to another. The Galvin Electricity Initiative estimates that the cost of blackouts is $150 billion annually. (Brendan, 2012) The losses are estimated from emergency services such as secondary power supplies, loss of production in business, and the personnel to remedy the situation. By having a smart grid a utility company will be able to reroute and repair lines that may be down or remedy the outage situation in a timely manner. In return the utility company will benefit by having less expenditure for emergency services and will be able to decrease the amount of outages. The biggest benefit for the utility system is that it will have a good communication network of the status of the grid measuring demand, potential problems, and decreasing costs of maintenance.

Risks to the Company

In an article that is found in the Chemistry Central Journal, data was used from 1995 to 2008 and it was calculated that for every 1% rise in price there was a decrease of 0.87% of demand for electricity. (Brendan, 2012) The same article mentioned that the demand for electricity is somewhat inelastic and hard to calculate because of the major differences in incomes. For instance, a college student household will always need the basics and therefore electricity becomes inelastic. An upper class household will have an elastic demand that the demand will fluctuate according to price. The lack of data that exists from comparing types of households would be challenging to calculate because the price of the elastic demand for energy consumption. (Brendan, 2012) This becomes a risk to the company because if they want to adjust cost structure for high peak times vs. low peak times they must take into account the economics of rising or playing with prices before the community becomes restless about costs.

As a utility company that has an analog system, the costs associated of upgrading to a smart grid are monumental. Eventually this transition will have to be made and the funding will have to come from somewhere, whether it be grants, government, or private investments. The initial purpose of this new technology is debatable to most communities. The monumental costs of upgrading the systems may be controversial to some communities.

Another risk is terrorist activity which can be foreign influence from questionable groups around the globe. Because the grid becomes a vast well connected system it could be possible for terrorist activity to access important data and in turn to use the system to their benefit. (US Department of Energy, 2012) Security of the system would come as an additional cost to the utility company. Among the security threats, since the gird is on IP platform, it is possible for questionable people to target individuals or families. These threats are typically addressed by the government. In the most serious case radio subversion or rather a network barge by strangers can introduce a malicious code and cause a glitch. This glitch will try to prevent existing users from accessing the network and eventually making the network unresponsive. (US Department of Energy, 2012)

The cyber threats on the grid can be consolidated to three different levels of threats which should be handled by the utility companies. (US Department of Energy, 2012) There is system level threat, service level threat, and breach to privacy and confidentiality threat. (US Department of Energy, 2012) System level is to take out the grid completely and introduce malware into the computer system. This threat will create a glitch and limit access. (US Department of Energy, 2012) Service level threat is where communication from the grid is not being transmitted to the utility company. This means that an intruder or a customer can disconnect a communication module and as a result can show a zero power usage for any time period. There is a potential threat of a breach to privacy as one may try to gather data about one’s energy consumption to case a house for robbery. (US Department of Energy, 2012) A potential robber can tell a family’s actions by collecting data of a family’s typical day of leaving or arriving home. (Talbot, 2012) In this country the general public likes to be private about their life and want to know that they are safe in their own home. (US Department of Energy, 2012)

The Future of the Smart Grid

Standardization and research groups

It is estimated that some 47 million analog systems are currently being used in the United States. (Brendan, 2012) Industry standards have not been established to have them work all the same way. There is definite room for standardization in the industry for example; a smart meter may transmit an ID number different from the one on the meter. Without some standardization, Smart Grid would never work without a good foundation. The more the information and standardization there is the more opportunity there is for greater improvement of technology. (Jun Wang, 2009)

There are groups and companies that are trying to create standards for a smart grid some of these groups include:

The IEEE (The Institute of Electrical and Electronics Engineers) has created standards to support phasors or rather PMU’s.

UCA International User Group, This particular user group debates and maintains real world experience of polices and procedures used in smart grids.

LonMark International has a Utility Task Group which deals with smart grid related issues.

The NASPI organization (North American Synchrophasor Initiative) is designing wide-area measurement systems. Such systems aim to use GPS-clock-synchronized fine-grained power grid measurements

European Wind Energy Association (EWEA) focusing on wind energy standards.

Pilot Programs

A goal of the Green Communities Act is to reduce greenhouse gas emissions by 45% by 2020, and 80% by 2050 and the National Grid wants to take the act to its new horizons. (Lutterell, 2009) National Grid, an international electricity and gas company with millions of customers across the northeastern U.S. and Great Britain, is having a pilot program in Massachusetts. (Lutterell, 2009) The smart grid technology that is slated for testing will make it easier to integrate renewable energy from solar panels and wind turbines into the grid, cutting back the need for fossil fuels. Marcy Reed, senior vice president of public affairs for National Grid said: "Not only will this save energy; it will turn the energy industry on its head. It will make it a two-way street, and make customers intelligent about energy use."(Lutterell, 2009) The company wants to incentivize customers for using off peak energy but the company does not have real-time pricing for electricity. The coming of the smart grid will enable the company to give that level of service. This particular pilot will cost approximately $57 million. The company will add a small charge to the customers' bills. The best estimates are to charge the customer 50 cents per month on a typical residential bill but only during the first months of the project. (Lutterell, 2009) The problem with this is once the company starts this practice of adding charges to the customer’s bill, it could potentially be hard to decrease that number because of revenue purposes.

Customers can receive information on their electric use by several means, including the Internet, text messages on cell phones and a screen set up in homes. Another purpose of these pilot programs is to see how the grid incorporates power produced by green technologies such as wind, solar, and a natural gas generation plant. There will be an integrated transmission and control systems within the grid itself. The utility company back-office software would have to be addressed and changed over to receive the massive amount of data that would be flowing from the grid. It should be able to address important distribution challenges, reliability, power quality, and voltage regulation. (PR Newswire, 2010) In turn there will be a more intelligent system and will be better to gather information. The system will give in sight to the company so they can respond to the data that is collected.

The Benefit to Society

As smart meters monitor power consumption hour by hour, the utility company will gain more flexibility to create different pricing arrangements or structures. The company can and probably will in turn charge more for power that is consumed to run air conditioning or high consumption appliances in peak times. (Daley, 2009) This in turn will enable the customer to run certain appliances during off peak cheaper pricing vs. high peak periods.

In a residential home, many new types of smart energy products will come to the market, from home-networked energy usage displays and smart thermostats to everyday household appliances. (Daley, 2009) Most products are developed around the idea of giving the customers a glimpse, to measure and control their usage. The smart grid extends beyond the consumer and the smart home. The smart meter is just one of the various interactive sensors and smart energy technologies in a multilayered smart grid infrastructure and network. (Daley, 2009) The needs of the present day are ever changing for the electric power grid. There are new integration problems to solve, but also new opportunities that utilities will need to cover.

The smart grid provides a foundation for consumer and the utility company to become totally engaged in load management. A smart grid will support the best and secure electrical services obtainable in the world and connect everyone to an abundance of environmentally green and dependable energy. Requirements for achieving this goal is that there will need to be high speed, secure broadband two-way communication through smart meters. There will also need to be worker safety, education, and training. A conservative estimate of potential savings resulting from grid modernization is 20% a year which could be upwards of $40 billion/year. (OECD, 2011)

The estimated net investment needed for the future is "between $338 and $476 billion over the next 20 years and the net benefit will be $1,294 to $2,028 billion." (Gellings, 2011) In any new product or service there is an element of change. Change in itself is inevitable. New technology and new services come with this dilemma. It might take a while for the smart grids to come main stream. The customers will need to learn when and how to manage their usage of energy and how to interpret the interface on the power grid. Utility companies will have to change their policies and procedures. There will be a learning curve for the companies and the length of time it may take to gain mastery may vary from region to region. Obtaining the actual networks will take time, energy, and investments. Once the system is up and running it should maintain small improvements over time but the positive changes will be monumental. (Zheng, 2007)

A smart grid will allow customers to analyze their usage. How will a consumer be able to monitor their usage? The smart phone, tablet computer, and the internet will all play a part in managing energy consumption. For instance, if someone forgot to turn off their water heater or air conditioning they can get on their smart phone or log on to the computer and turn the device off. The smart grid will allow more producers of energy to enter the market on a freer basis and become more competitive amongst producers. The smart meter will help the green energy movement become more prominent in daily activities. A home owner that has solar power on the roof can sell surplus energy back to the grid at a premium price. Smart grids will have great impact on our future and our changing technology. (EDF, 2012)

Conclusion

The net benefit of a nationwide smart grid infrastructure and the investment will require support from utility companies, private investment, and government subsidies. Managing the costs of the smart grid will be less than managing the costs with the current grid. Energy prices and demand will continue to vary. It is up to the system to be nimble enough to respond to those changing demands and prices. The consumer will respond if the price goes up and the utility companies can respond if the demand fluctuates. The more information that is given to both parties, the more it will benefit them in the long run.

Customers may see benefits to transferring to the smart meter but there are also some risks that may be involved that may concern the customer. The consumer will benefit from the smart grid by being well informed about price and consumption. Consumers will be able to see their energy usage in real time and will be able to make changes accordingly. The smart meter can also be a risk in that there may be more opportunity for hacking into the customer’s system. It is so important to feel safe in your own home and this may be a deterrent to those wanting to make this change to the smart grid. At this time, it appears that the benefits will far outweigh the risks, but there will continue to be ongoing research on the costs versus benefits.

The utility companies will see profit in the smart grid but there may also be some risks associated with making the changes to the system. The benefits are that companies can more accurately define price based on demand and communicate problems back to the consumer. Utility companies will be able to minimize overproduction of energy and more closely meet the demands at any given time. They will respond to problems that will reduce the number of outages. Downsides for the utility companies are the amount of work and investments that will be needed in changing over to the smart grid. Cyber security will have to increase and privacy will have to be monitored.

The progression of the smart grid is wide open. Consumers will be able to manage consumption through IP technology to keep up with the changing technology. The more information that is given to consumers and utility companies, the more mindful they are of energy conservation. It is forecasted the smart grid will save money to both the consumer and the utility companies. (Daley, 2009) Implementation of the smart grid may take some time, but once instated it will be beneficial to both the consumer and the utility companies.