Lower Income Households Win with SMART GRID

Lower Income Households Win with SMART GRID

On October 23, 2008, NEMA (National Electrical Manufacturers Association) hosted a U.S. Department of Energy E-Forum on Smart Grid. The title of the E-Forum was Smart Grid – What is the Value Proposition for Consumers? I had the opportunity to attend this excellent web-based seminar. The meeting announcement and the seminar presentations can be viewed from the Smart Grid page of NEMA’s website. I left the seminar with two primary observations:

  1. Even well informed, Smart Grid proponents continue to equate Smart Grid with Smart Metering (also known as Advanced Metering Infrastructure (AMI)).
  2. Some people involved with Smart Grid are concerned that the implementation of Smart Grid will somehow disadvantage lower income households.

These two observations are actually intertwined and both conclusions are inaccurate. Smart Metering and Advanced Metering Infrastucture (AMI) are important components of Smart Grid. In many cases, the implementation of AMI is the utility’s foundation for other Smart Grid systems. The functions and benefits of AMI are well understood by utilities, state commissions, consumers, consumer advocates and others which make it sometimes easier to implement AMI first. However, AMI represents a small portion (maybe 15 % – 25%) of the full potential of Smart Grid.

In short, Smart Grid involves adding monitoring, analysis, control and communications to the entire electricity delivery system all the way from the power plant to the residential appliance. Adding Smart Grid features to the transmission and distribution system allow the utility or regional transmission operator (RTO) to increase system efficiency, improve reliability, avoid outages, increase capacity on existing transmission assets, integrate renewable resources and other distributed generation into the generation mix and effectively manage demand response. ALL consumers on the Smart electric grid receive the benefits from these enhanced operations.

This takes us to the second observation; that some people feel that investing in Smart Grid may disadvantage lower income households. The root of this concept is that higher income households have larger air conditioners and more appliances, and can therefore respond more effectively (and save more money) to price signals sent from the utilities as part of AMI. While this may be true, it is important to note that the demand reductions made by the higher usage households actually benefits all users because those demand reductions can help the utility avoid expensive peak power and construction of new power plants. Also, all users, both large and small receive the other benefits noted above. In addition, depending on the rate design, lower income households may be natural winners with Smart Grid rates because lower income households often have flatter load profiles (i.e. better electricity use patterns) than higher usage households. Finally, AMI is typically implemented across all customer sectors (i.e. residential, commercial and industrial) and the demand response provided by the commercial and industrial customers will also benefit ALL consumers.

Unfortunately, there are a lot of pressures driving electricity rates higher including: expiration of utility rate freezes, higher construction costs for new power plants, higher fuel costs (particularly for peaking plants), higher costs for renewable generation and higher costs for CO2 abatement or capture. In addition, significant investments are needed to update the aging transmission and distribution infrastructure. From my perspective, implementing AMI and other Smart Grid systems may be the only way to keep electricity affordable for lower income households. In short, Smart Grid is good for ALL electricity users, but state commissions and other decision-makers need to make sure that all the cost-effective features of Smart Grid are implemented.

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