Environmental Engineering Reference
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cooperative, or government-owned/municipal utility? Second, does the utility operate in a
traditionally regulated or restructured environment? Other important factors, such as the
total amount of electricity generated and distributed (often referred to as load), whether
the utility is a net importer or exporter, relationships with the state Public Utilities
Commission, and the legacy power system infrastructure also affect a utility's appetite for
smartgridinvestments andtheirability totakeadvantage ofnewtechnological capabilities.
A utility can benefit from smart grid and ensure cost recovery for investments only if the
state-level regulator, municipal council, or co-op board approves the project. If an IOU,
muni, or rural co-op cannot make a strong and persuasive business case and get approval
for smart grid investment - whether this involves installing new smart meters or other
grid-facing investment - they cannot invest in new smart grid technologies. Smart grid
adoption rates, therefore, vary by jurisdiction and are often influenced by a complex set of
societal factors.
The attractiveness ofsmart gridisshaped bythe legacy powersystem infrastructure, and
must respond to both institutional and customer needs. State-level policies and regulations
provide incentives (or barriers) which can further influence smart grid investments. If a
utility produces excess power for sale or needs to purchase energy to serve its customers,
its smart grid needs are different. If a utility's base load is provided by coal plants
or large hydro, its risks from climate legislation will be different. If a utility operates
in a jurisdiction with renewable electricity requirements or policies promoting energy
efficiency, these will again shape the demands on electric system development. For
example, a utility with steady industrial load will not benefit as greatly from the ability
to shift demand compared to a utility with a high residential load and high peak demand.
Whether electric load is increasing, flat, or decreasing also determines the cost or benefit
of energy efficiency and demand management investment, and the subsequent value of
different smart grid technologies.
Smart grid technologies also present new risks to utilities. Increasing energy efficiency,
demand-side management, and distributed generation programs could help utilities to
be more productive, but they could also capture market share and shift profits from
utilities. This could lead to declining utility revenues, increasing costs, and lower future
profitability, which could adversely affect long-term profit projections and discourage
investments in the industry (Kind
2013
). How smart grid affects incumbent utilities
depends on the politics and regulatory processes shaping the electricity industry. For
example, German investments in solar PV and wind have changed the economics of the
power industry and forced incumbents to shut down many natural gas plants (additional
generation and the expansion of the prosumer (individuals involved in electricity change
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