Promises and Pitfalls of Smart Grid - Smart Grid (R) Evolution: Electric Power Struggles - page 26

When utilities are justifying smart grid investment, two areas stand out: increasing
demand response and reducing costs (both system and labor costs). As mentioned in the
previous section, smart grid is a promising platform for developing more demand response
opportunities. Because utilities pay variable wholesale market rates but are reimbursed at
flat retail rates, utility managers generally favor demand response programs because these
allow them in the short-term to reduce high-cost peak demand and, in the longer term,
to postpone construction of new generation facilities. Unlike energy efficiency programs,
which directly undercut utility revenues by reducing electricity sales and may require
special rate-reimbursement programs like decoupling to encourage compliance, demand
response is often viewed as a win-win situation.
Smart grid can also help utilities to reduce labor costs. By deploying smart meters,
utilities can eliminate manual meter-reading and remotely monitor power quality, customer
connections, and customer disconnections. In a time of economic recession, these cost
savings and associated job reductions have not always been viewed positively. For
example, Quebec Hydro faced large-scale protests from union members when it attempted
to eliminate meter-reading jobs.
Smart grid offers the promise of helping utilities to reduce electricity theft, or informal
grid connections. In Italy, where it was estimated that 40 percent of electricity was stolen,
theft reduction was the primary motivation for deploying smart grid technologies (Scott
2009 ) . In many developing countries, more than half of the available electricity is stolen
through informal connections. This electricity theft negatively affects the ability of those
managing the electricity system to invest in and improve the power system. In the U.S.,
an estimated $6 billion of electricity is stolen each year through illegal connections
(Kelly-Detwiler 2013 ). The tamper-detection feature in smart meters provides utilities with
real-time alerts if a meter has been altered, allowing rapid response to thwart potential
theft.Usingthesemeters,electricutilitiescanremotelydisconnectnon-payingusers,which
offers significant cost-saving and improves worker-safety. The scale of technological
change possible with smart grid offers multiple potential economic opportunities for the
incumbent utilities.
Economic Benefits to Other Actors
Smart grid also provides economic opportunities to new entrants in the electricity sector.
As new devices, technologies, and software are developed, smart grid investments offer
billions of dollars in new investment into companies. Smart grid also strengthens the case
for investing in research and development (R&D) in the electricity sector by offering
the possibility of new markets, cost recovery, and new opportunities for companies that
generate, transmit, and sell electricity and associated services (Nemet and Kammen 2007 ) .