Are “Smart Meters” a Costly Diversion From the “Smart Grid” We Really Need?


May 20th, 2015

I recently read a paper entitled “Getting Smarter About the Smart Grid” by Timothy Schoechle. Though the paper’s primary focus is the electricity industry, it seems a fitting topic for the Quello Center blog because it raises important questions about how best to use information and communication technology to support a sustainable energy system that addresses the increasingly urgent issue of climate change and other environmental challenges we now face.  And it does so in a way that challenges conventional wisdom regarding the massive and costly deployment of so-called “smart meters” now underway across the country.

The paper’s core argument, as I understand it, is that the nationwide smart meter deployment catalyzed by the 2008 federal stimulus bill is actually a step in the wrong direction. This is because it supports a continuation of utilities’ existing reliance on:

Instead of deploying utility-controlled “smart meters” (which, as he explains, are 20+ year-old technology originally designed to reduce meter reading costs and aren’t really very smart at all), Shoechle advocates a different approach to addressing climate change and transitioning as quickly as possible to a sustainable energy infrastructure. This approach would focus on and combine:

A key question, according to Schoechle, is who controls the gateway device linking end user premises to the electrical grid. In his view, the electric utility industry should look to the model created years ago in the telecom sector:

The demarcation between monopoly utility space and customer market space was clarified over two decades ago in the case of wire-line telephone monopolies with the decisions and policy changes culminating in the divestiture of AT&T. One result was enormous…growth in new markets for premises equipment and services. The electricity grid today is facing the same demarcation inflection point as the telephone network experienced. The gateway belongs to the consumer, not to the electric utility. A demarcation and opening of the consumer premises space to market competition could unleash the creative energy of the consumer electronics industry, the home appliance industry, and others. Full two-way smart grid communication among premises-based systems, products, and services—facilitated by a consumer-controlled gateway device and already available data services (i.e., Internet and Web access via DSL, cable, fiber, etc.) —would free the smart grid from the stifling control of utilities and their proprietary meter-reading networks.

Part of the problem, explains Schoechle, is that one of the stimulus bill’s central goals was to spend money fast. At that time, the networked digital meters being deployed were the only off-the-shelf technology available to quickly absorb the bulk of the budgeted investment in a “smart grid.”  And dubbing them “smart” meters made this budget allocation seem all the more reasonable (if we need a “smart grid,” then “smart meters” sure seems like a good place to start).

Since it allowed them to retain control of the next generation of customer-premise equipment while expanding the cost-basis on which their profits are calculated, utilities (and the vendors from whom they were buying the devices), embraced the large scale deployment of these meters. And, to most politicians and citizens, it sounded like a sensible (though not well understood) step toward a future “smart grid,” especially when federal stimulus funds were available—but only for a short time—to finance the purchase of whatever form of “smart grid” technology was available at that time.

Schoechle paints a very different and more problematic picture of the stimulus-financed rush to deploy so-called smart meters (bolding for emphasis is mine):

The [smart] meter networks squander vast sums of money, create enormous risks to privacy and security, introduce known and still unknown possible risks to public health, and sour the public on the true promise of the smart grid. Data to be collected by the smart meters, including intimate personal details of citizens’ lives, is not necessary to the basic purpose of the smart grid—supply/demand balancing, demand response (DR), dynamic pricing, renewable integration, or local generation and storage—as promoters of the meters, and uninformed parties, routinely claim. Instead, the meter data is serving to create an extraneous market for consumer data mining and advertising (i.e., “big data” analytics)…

[S]mart meters have failed to deliver smart grid benefits for fundamentally technical reasons. Examples include that 1) the networks do not generally provide full two-way communication, 2) customer usage display was, in most cases, of stale data (24 hour delayed) on a third-party website—on-site real-time display is not feasible using most meter backhaul networks—and 3) smart meters and their networks cannot or are ill-equipped to implement demand response load control strategies…

What is almost always assumed or alluded to by meter advocates, but never explained, is how reading meters, however frequently, can serve the goals of functions of the smart grid—i.e., balancing supply and demand. Never explained is how granular personal meter data helps manage the grid. It is believed by some that consumer electricity usage behavior data may be useful to utilities or to consumers. But it is not clear how such data would actually be applied, nor is it clear that there are not cheaper and more benign ways to acquire it. SCADA  [supervisory control and data acquisition] networks already provide utilities with the aggregate transformer or substation load data needed to assess distribution loads and conditions. A premises meter is not needed, or would be impractically cumbersome to use, to aggregate data to derive distribution grid load information. 

Schoechle sees a different path leading to a truly smart and sustainable electric power grid.  As he explains:

[M]anagement of premises demand response, supply/demand balancing or control/monitoring of solar systems, electric vehicles (EVs), or batteries would be better accomplished by distributed control through intelligent energy management devices and transactional control strategies. What is needed is not meter data flowing out of the premises, but rather grid load, time-of-use signals, or electricity transactional data flowing into the premises so that the premises can manage its own energy. This would require full two-way communication via a gateway with premises-based equipment such as home automation systems (HA), smart inverters, smart appliances, energy management systems, etc. that do the job of managing energy on-premises.

Present day meters do not provide such a gateway. The meters generally do not provide data directly to the customer, but rather upload it to the utility, which may or may not provide it later to customers via a third-party web portal (usually delayed by at least 24 hours). Customer usage displays would need to be real-time or near real-time to be useful to consumers and even then the best displays are no substitute for premises-based automated energy management equipment that would act on behalf of consumer priorities and do so entirely within their own homes…

In another section of the paper, Schoechle provides more detail about what he sees as a true “smart grid” and how it can shift our electricity usage away from fuels and systems that contribute to climate change and pollution and are not sustainable. Unlike the widespread but superficially-driven enthusiasm for today’s “smart” meters, his perspective strikes me as grounded in an understanding of problems associated with current utility practices, what keeps these practices and problems in place, and what’s needed to change the practices and fix the problems.

The commodity sale of electricity and double-digit ROR on assets has resulted in a system historically dependent on “baseload” generation within a big-grid and big-transmission centralized structure. This means that to be economical, large centralized generating plants (primarily coal, nuclear or some types of natural gas fired plants) must run at a fixed optimum output level known as the baseload. Because the supply and demand for energy on the grid must be instantaneously matched, second by second, hourly variation in demand above the baseload supply curve is met by “peaking plants” (usually natural gas) that are more expensive to operate but can be quickly turned on or off.

Another method of dealing with variation in supply is known as demand-side management or “demand response” (DR). Demand response includes various techniques to manage demand to better match supply. DR offers ways to quickly shift peak demand by sending control signals that turn off or limit specific industrial or residential load devices (e.g., air conditioners, water heaters, etc.). However DR systems require communication pathways and special premises equipment in order to be implemented—products and services that are not yet standardized, fully developed, or readily available. Unfortunately, DR employed in a baseload system, while shaving peaks and improving system efficiency, may perversely serve to increase dependency on relatively dirtier baseload sources (e.g., coal, nuclear, etc.) and thus can actually result in higher pollution and CO2 emissions. However, properly implemented, new forms of DR (e.g., “transactive energy”) can play a crucial role in renewable integration if the resulting system is cheap, ubiquitous, and easy to use…

Renewable energy sources are inherently incompatible with a conventional baseload generation-based electricity system. When variable and unpredictable power from wind and/or solar is fed into a baseload-supplied grid, occasionally too much electricity may be produced relative to demand. The electricity system requires that supply and demand be perfectly balanced second-by-second. If supply and demand become mismatched, even momentarily, the grid may become unstable and could quickly and completely fail. For both technical and economic reasons, baseload plant operators prefer to operate at a fixed optimal output level. Rather than turn down the baseload plants, operators prefer instead to “curtail” the renewable energy (Regelson, 2011; Farrell, 2011, p. 26). In such situations, ratepayers end up paying for both the baseload and the curtailed (i.e., wasted) renewable power. The higher the proportion of renewable energy available to the system, the bigger this problem becomes. Conventional baseload-oriented utilities are cautious about adding too much renewable energy because beyond a certain level, doing so raises total costs, which wastes energy and/or threatens to de-stabilize their grid…

But baseload is not essential for meeting demand…[T]he same total supply/demand profile [can be] met by a combination of renewable (variable) supply and peaking supply…[A] renewable non-baseload supply system…does not waste power but does, however, present significant technical challenges requiring careful and rapid rebalancing by quick response to changes in supply and demand—either by quickly adding fast peaking sources (e.g., hydro, storage sources, natural gas turbines) when needed or by quickly reducing or shifting demand (e.g., demand response). This rapid rebalancing represents the essential promise, and challenge, of smart grid technology.

While the development of systems to achieve this rapid rebalancing poses some very real technical challenges, the more daunting challenges facing Schoechle’s vision of a truly smart grid may relate to issues of political and economic power.  One arena where this is playing out is the issue of “net metering,” which Schoechle considers in another paper, entitled “Green Electricity or Green Money?”

The issue [in Arizona and a growing number of other states] was “net metering” rules (also known as “distributed generation” or DG) that allow home operators of photovoltaic systems to feed excess solar power back into the electricity grid and essentially “run their meters backwards.” In late 2013, Arizona Public Service (APS), the local IOU, had proposed charging customers who install rooftop solar panels an additional $50-100 fee on their monthly bills. After tumultuous hearings, with public demonstrations, and millions of dollars spent by the electricity industry to lobby the Arizona regulators and influence public opinion, APS essentially lost. Although the ACC did approve a “connection fee,” it was only a tenth of what APS wanted—a nominal charge of about $5 per month on a typical household installation (Sweet, 2013)…

According to Shoechle, the fight over net metering reflects “a clash between the century-old method of monopoly “cost-of-service” (CoS) rate regulation and the recently emerging public desire for clean energy and the new concept of “value-of-solar” (VoS) utility rates.”

The traditional CoS model guarantees IOUs full recovery of costs of delivering electricity plus a significant guaranteed profit, regardless of how it is produced. But when the customers start producing power on their own roofs, this model doesn’t work anymore. If too many customers do it, the IOU no longer sells enough electricity to cover its fixed costs and costs of distribution to others, or to meet its investor’s expectations…). In summary, adopting VoS electricity rates encourages solar energy but is seen as threatening by IOUs to their traditional business practices and monopoly profits.

Schoechle cites “a nationwide effort initiated last year by the American Legislative Exchange Council (ALEC) to eliminate renewable portfolio standards in 16 states and to roll back or weaken net metering policies to delay solar energy.”  Opposing this ALEC push at the state level is a grassroots effort that, in Schoechle’s view, is most powerful and effective at the local level, where more and more citizens and businesses are deploying rooftop solar and other renewable energy sources.

Taken together with local citizen concern over climate-change, oil and gas fracking, and the desire for clean energy sources, the small rebellion is beginning to morph into a bottom-up, community-based revolution in electricity and energy that could re-shape society—from a centralized fossil fuel-based economy to one that is decentralized, democratized, and sustainable… It will likely be left to the people to reinvent the electricity system largely through bottom up community initiatives and disruptive technologies—motivated by the desire for a clean energy future, control of energy costs, economic growth, and local control of environmental health.

Not surprisingly, Schoechle is involved with one such localized “rebellion.” It is taking place in Boulder, Colorado, where the city government is forming a municipal utility and moving to take control of the local electric grid from Xcel Energy, the IOU that currently serves the city (for more details on what’s happening in Boulder see here).

As Schoechle explains in an article to be published in the May/June 2015 issue of Solar Today:

Boulder is inventing a new model for a “utility of the future.” Although a few other small cities such as Gainesville and Winter Park, Florida, and others have formed municipal utilities in recent years, they did so for financial, service-related, or other reasons. Boulder, on the other hand, is motivated by the desire for clean energy…

Although it must start by buying the existing wires and poles, the concept behind the Boulder muni is not to run a conventional electric utility that generates or purchases electricity. Rather, the idea is to provide energy services—health, comfort, safety, and economic vitality—to its customers, at the best price and with the least environmental impact…

Schoechle describes the model being pursued by Boulder as:

“[A]n entirely new electricity paradigm…based on distributed renewable energy…in which the users generate most of the power [via] community solar microgrids based on solar-plus-storage at scales ranging from single homes to community solar gardens to commercial and industrial buildings…[and] small-scale hydro..power.

As part of this model, Boulder has adopted an “energy localization framework,” which Schoechle describes this way:

This framework seeks to democratize energy decision making so customers have more direct control over and involvement in energy decisions. This includes opportunities to invest in their long-term energy needs and to have a say in energy investments made on their behalf.

Under the framework, energy would be generated locally or regionally whenever feasible, reducing reliance on external fuel sources. Customers would manage and reduce their energy use directly and effectively and energy service companies would compete and innovate within a diverse and robust local energy economy.

While the Boulder initiative faces and will no doubt continue to face significant challenges, it strikes me as a very worthy effort to develop practical models for:

At the close of his “Getting Smarter About the Smart Grid” paper, Schoechle shares some final thoughts on this, citing the work of Jeremy Rifkin, who has written several books addressing issues and trends closely tied to the paper (see here and here)

Due to emerging public skepticism and pushback, manufacturers, service providers, grid operators, and policymakers at all levels should begin by abandoning the term “smart grid” in favor of a more appropriate term. Intergrid was suggested by Jeremy Rifkin in his recent visionary work on energy, The Third Industrial Revolution (Rifkin, 2011). Rifkin compares the grid with the Internet, where intelligence is distributed to the periphery. He envisions that in the future, people will be “…generating their own green energy in their homes, offices, and factories and sharing it with one another across intelligent distributed electricity networks—an Intergrid—just like people now create their own information and share it on the Internet” (p. 36). This transformation took place in telecommunications well over a decade ago, bringing competition and the creativity of the market to the telephone network and customer premises. Now it is the time for electricity to do the same. America was a leader in the genesis of telephony and electricity. America now has an opportunity to be a leader in taking electricity and society to a new, clean, economically viable, and sustainable energy future.

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One thought on “Are “Smart Meters” a Costly Diversion From the “Smart Grid” We Really Need?”

  1. Deborah Cooney says:

    Thank you for republishing and commenting on Dr. Schoechle’s brilliant analysis. The Smart Grid must go! We could save ourselves a lot of money and headaches (literally) by doing it now.

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