∫ What is the Smart Grid?

The term Smart Grid is thrown around a lot these days, but most people cannot define what the term actually means.  In order to do so, it is important to understand how the current “less-savvy-than-your-grandma” grid works.  The electric system consists of power plants, which produce electricity from an energy source (e.g. coal, natural gas, uranium, water, wind etc.); transmission lines, which transport that electricity at high voltage over long distances; the distribution system, which transports lower voltage power from local transformer stations to end users (like you or me), and end users themselves [1].  It is important to note that in the current grid system, electricity being used (“demand”) must equal electricity being generated (“supply”) at all times because there is virtually no capability to store energy anywhere in the system. Also, we do not measure or know the actual demand on the system: we figure it out by waiting for things to go wrong, (like the voltage to drop a tiny bit or the frequency to rise a little bit) then measuring how much generation is being supplied. As long as frequency and voltage are constant, supply and demand match each other.

In the majority of electric markets in the country right now (and since the beginning of the electric industry), the only part of the supply-transmission/distribution-demand system that is viewed as instantaneously controllable is the amount of generation, or supply.  Demand varies greatly over the day and the seasons, but because demand is taken as uncontrollable it is considered the responsibility of supply to provide adequate generation to meet demand in all conditions.  In order to fulfill this obligation, the maximum peak demand is forecast each year and used to determine the amount of generation that needs to be available to meet demand – called “installed capacity [2].”  In real time, voltage and frequency conditions are measured and generation is increased or decreased as needed to match demand.

Reliability of the grid is one of the highest priorities of system operators, yet operators have very little information about how the system is actually functioning in real time.  For example, the first sign a utility company usually has of a local power outage is a call from the customer.  This means that utilities are typically very conservative in how they operate their equipment, often resulting in inefficiencies both in the physical system and the economic markets.

All of this sets the stage for what we mean by smart grid.  While there still is not a single, comprehensive definition, we can define what we would like a smart grid to do [3]:

  • Increase reliability and reduce maintenance costs
  • Flatten peak demand
  • Use existing infrastructure more efficiently and reduce the need for new infrastructure
  • Increase the amount of variable generation (e.g. wind, solar) that the grid can support
  • Increase user participation and reduce electric expenditures by end users
  • Reduce start-up losses and emissions from peaking units
  • Enable demand (end-users) to participate in electric markets and grid support

The corner stones of the smart grid are two-way communication and interoperability (a.k.a. plug and play).  In our current grid the supply side responds to demand, but with two-way communication the demand side of the energy transfer equation is enabled to adapt dynamically in real time to price signals and reliability needs.  It also means that the system operator can view the performance of utility equipment and power lines throughout the grid allowing them to optimize how power is routed and automatically detect faults.  Advanced Metering Infrastructure (AMI) is frequently used interchangeably with the term smart grid, but is really just one method of providing two-way communication [4].

The communications platform does not, in and of itself, guarantee a smart grid.  A typical American building that receives a signal indicating that the price of electricity just spiked will continue to do exactly what it was doing before because it has no way to turn that signal into action.  To fully achieve the potential of the smart grid, end users need to have the capability to react to signals almost instantaneously.  For example, an end user could chose to have their air conditioner automatically respond to price signals by raising the set point 3 degrees at a certain price threshold.  This can be thought of as an “app” for price responsive demand [5].  A different scenario could be that an electric car is set to charge at night automatically when energy from wind generation reaches a certain output, which could be considered an app for environmentally responsive demand.

There are thousands of ways to design how an end user responds to economic, reliability and environmental signals, just like there are many apps that can use the iPhone platform to do a wide variety of activities.  To ensure a diverse group of solutions there need to be standardized signals and an open marketplace for innovations.  Plug and play means that the communication protocols will be standardized across the system so that new products and solutions can be designed that will work straight out of the box [6].

In addition to the technical aspects of the smart grid, there are many policy and market changes that need to be addressed before a completely smart grid can be achieved.  Physical two-way communication in the grid needs to be paired with an economic market structure that allows price, reliability and environmental signals to be transparent to all market players from supply through demand. For example, this discussion has referenced price signals several times yet very few markets currently have real time pricing, without which price signals cannot exist.  The market will also need to equitably compensate action on the supply side and demand side, such as extending installed capacity payments to demand side resources. While a full discussion of this topic is beyond the scope of this post, it is important to think about how the market system will be set up to incentivize optimum behavior.

The smart grid is not a single thing, but rather a collection of technologies, communications protocols, and economic policies that allow for a more robust, environmentally sound, and efficient electric system.  Many elements of a smarter grid are already in use in some parts of the country, such as commercial demand response programs and time of use electric rates, however the grid and electricity markets of the future will look vastly different from what we have today.  No one can predict exactly how the system will develop, but careful attention to interoperability and market design will open the way for innovation and help ensure that investments made in the grid today are helping us get to the grid we want in the future.

[1] While some electricity is generated by end users, called distributed generation, it is relatively small compared to the volume of commercial generation.  Some networks also have local distribution lines.

[2] In deregulated markets, installed capacity markets are used to pay generators to be on stand-by to meet the upcoming year’s capacity requirements.

[3] For a more complete discussion, please see the DOE Publication, The Smart Grid: An Introduction

[4] Please see EEI’s AMI description for a more complete discussion: http://www.eei.org/ourissues/electricitydistribution/Pages/AdvancedMetering.aspx

[5] The NY Times article To Cut Demand for Electricity, Some Customers Agree to Unplug, 8/12/10, is an excellent discussion of demand response as it works today. For a more technical discussion, please see The National Assessment of Demand Response Potential published by FERC, 2009, and the FERC National Action Plan on Demand Response

[6] For a more complete discussion, please see the NIST Smart Grid Interoperability Standards Project.

Graphs related to the comment below:

17 Responses to ∫ What is the Smart Grid?

  1. Lee Smith says:

    Nice piece. It synthesizes a complex subject down to basics and easily understood. I liked clear explanation of the “Smart” part of the concept. I believe that there are other topics discussed in the paper that would also be useful to expand upon and discuss in a similar fashion that was done for Smart Grid, such as real time pricing, AMI, transmission versus distribution, grid operators (ISOs) and other topics as well. Could be a monthly, quarterly post with old topics in an archive link. Again, job well done.

    • Hi Lee, thanks for your feedback. We will definitely be writing future posts on many of those questions. Stay tuned!

  2. Susan Bassein says:

    Very interesting and informative piece, thanks. I have a couple of questions:

    1. How fast does demand change (say, %) minute by minute? I imagine that it’s not that fast, considering the number of users that get averaged.

    2. How does the supply adjust to changes in demand? Can generators be “accelerated”, like a car? Or is one generator such a small part of the total that just turning on and off generators gives a “smooth enough” response?

    • Hi Susan, Thanks for your questions.

      1. How quickly the demand changes depends somewhat on the network, but to use a concrete example let’s look at NYC. I pulled the load data from last Wednesday (8/18/10) from the system operator webpage, which is available in 10 minute intervals. I have added the graphs to the bottom of the post (couldn’t figure out how to get them here!). I included both the full 24 hours and a close up of a 2 hour time period to give you a sense of the magnitude of the change.

      For this day, the maximum change between consecutive 10 minute intervals was 1.9%, which corresponded to a change of 114 MW (the equivalent of a small power plant) in ten minutes. The New York electricity supply and demand are matched up every 6 seconds, but I don’t have that data. So the answer is that load changes pretty quickly, even when averaged over millions of customers.

      2. Some generation (usually called base load) is typically run either on or off (e.g. nuclear, coal), while other types of generation (e.g. gas turbines) are called load following and can rapidly change their level of output in response to signals from the system operator. Oil units can be load following, but they have to be kept warm to be able to ramp up quickly. Individual plants can have several generation units of different fuel types that can be phased on independently. Solar and wind are different because, while they can change rapidly, how they change is generally not controllable. In this sense, these renewable technologies behave similarly to demand and require the system to work differently than it has in the past.

  3. This is an intriguing topic. I’m always looking for smart resources to show clients and the construction community, and your post is definitely worth sharing!

  4. Hello, I do not normally post feedback on websites, as I prefer to read only. However I find the web site that you have created earlier has very insightful information, and I discover it very informational. Thank you. ~ Sarita Canclini

  5. Ramonita Bernhagen says:

    I’m a homeowner and our average monthly bill is around $125 give or take $25. I’d love to install a wind turbine if it would work efficiently and cut our costs. I have no clue and would like to avoid days of research and defer to a professional if it is viable cost wise to try this project. I know there may be green grants or special financing available but again have no clue about total costs, pay back venues such as years to return investment and options for even more then one turbine. We are in a bit of a forced wind tunnel because of wall and home placement so we have abundant resources. Any heads up information would be very helpful.

    • Hi Ramonita, residential wind turbines can be a little tricky: they can be great economic wins in some places, and disasters in others, so you really need to look into the specifics of your house. Unfortunately, there’s no easy answer.

      I would start off with some general research at the American Wind Energy Association website, and then call a few of the companies they list to get some quotes. Good luck!

  6. Hey, thanks for the great article. I appreciate that you put excellent content out that is clear and well-written. Good luck and thank you for the great tips.


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