The legacy power grid of the United States was developed in order to provide almost-universal electric service to customers around the country. It is based on a system of decentralized generators that provide electricity to the transmission (high-voltage) and distribution (low-voltage) systems in a one-way flow from generator to consumer. Given the natural monopoly characteristics of the distribution system, electricity at the retail level is typically regulated, with consumers not facing real-time pricing (RTP) that reflects the true marginal cost of delivery. Because electricity cannot be stored and demand is volatile over time, the result is economic inefficiency. In addition,...

According to GAO, full deployment of the smart grid would have some potential benefits (GAO, 2011). These are generally independent dimensions and include the following:

lower electricity rates due to the ability to improve the overall efficiency of the system operation, in particular by shifting peak demand

improved reliability: fewer and shorter outages

improved ability to detect and respond to attacks and outages related to the grid

improved ability to incorporate intermittent alternative energy sources, such as wind and solar

improved information to consumers, allowing them to make more-informed choices about electricity consumption.

In the sections that follow, we document...

The smart grid will generate a wealth of new information on electricity consumption at a detailed level that could be leveraged to create economic value while influencing the benefits derived from grid improvement. Currently, the utility industry is not fully equipped with the analytical capabilities to capitalize on the new information.

In this chapter, we discuss some potential opportunities associated with use of this information that can create additional benefits not always considered in the current literature. We first describe how the characteristics of electricity data will be changing in the next decade, what it means to disaggregate smart-meter data,...

The preceding chapters documented the categories of expected benefits and opportunities of potential smart-grid development, based on particular assumptions about what the technologies might be able to deliver. In practice, the adoption of smart-grid technologies began in earnest only following the passage of the ARRA. The legislation authorized federal investments totaling $4.5 billion to utilities nationwide to further their smart-grid projects as part of the SGIG program, with $5.5 billion in matching funds from utilities and customers (Joskow, 2012).¹ Ninety-nine SGIG projects involving more than 200 utilities and other organizations were funded, with implementation focusing in large part on AMI...

As documented in previous chapters, use of smart-grid technologies have the potential to increase efficiency and reliability of the electricity market through the enabling of peak-load shifting and making it easier for utilities to respond to outages and threats. The information layer of the smart grid would likely enhance the economic efficiency of the electric system, lowering overall operational costs and providing the possibility of additional entrepreneurial activities. Nevertheless, adoption of smart-grid technologies has been relatively slow when utilities (and, ultimately, consumers) bear the costs, and the full potential of the IT layer has not been realized.¹ Utilities are also...

This chapter discusses a few policy levers that can be used to incentivize smart-grid technology adoption. We do not necessarily advocate that these policies be used in all circumstances. Rather, we note simply that these policy levelscouldbe used to incentivize investment and help overcome the barriers discussed in Chapter Five. After all, innovation cannot happen without adoption (Garber et al., 2011). We also discuss several broad principles, which could be adopted to avoid mistakes in smart-grid development.

Traditional cost-plus rate structures pass on operational savings to consumers and thus do not offer the possibility of increasing long-run profits...

This research report analyzes the state of smart-grid development and identifies the potential barriers of smart-grid technology adoption, as well as identifying policy levers, recommendations, and entrepreneurial opportunities related to grid modernization. Potential benefits of a fully functional smart grid come from increased reliability, the ability to more readily incorporate renewable energy sources into the electric grid, lower long-run prices due to shifts in peak demand, and increased information to consumers enabling more-informed choices related to electricity consumption. In the case of the latter two categories, benefits (in terms of the flattening of peak loads) accrue because of changes in...