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Compared to telecommunications networks, electricity grids are pretty dumb. A power company has little information about your electricity usage. It does not know when you switch on your AC and for how long before you decide to switch it off. In fact, it has no way of knowing whether it was your AC you switched on or some other electrical appliance. This will all change soon, benefiting both your pocketbook and the Earth.

Taking a Lesson from Telecommunications
Electricity grids are rapidly becoming smart. Let’s illustrate this with an example about telecommunications networks, which are already as intelligent as electricity grids hope to be. If your telephone company knows that you often call at 7 a.m., it may alert you about its early-bird offer, which gives a substantial discount on calls made between, say, 10 p.m. and 6 a.m. You (and many other customers) are probably happy to save money by calling a bit earlier than most people normally do. Other customers may be willing to postpone their evening calls till after 10 p.m.

But what’s in it for the telephone company? Why would it give you a discount on calls that you are going to make anyway? Answer: By spreading out demand for phone calls more evenly throughout the day, the company can serve its customers with less capacity than would otherwise be the case, and pass part of the savings on to you. It’s a win-win situation. They make more money and you pay less.

And Applying That Lesson to Power Grids
In theory, power providers could do the same thing as telephone companies: spread out demand, save on investments in new capacity (read: fewer power plants), and pass on much of the savings to customers. These savings are potentially enormous, and are the main driver of investment in smart-grid technology.

In Europe, for example, electricity consumption per hour is almost twice as high in the late afternoon and early evening as during the rest of the day. If demand was spread out perfectly, Europe would in theory need only half of the power plants currently in operation (in practice it would need perhaps a few more, if only because power plants add spare capacity as a safety buffer). A recent US Department of Energy study estimates that modernizing US power-delivery systems by adding smart grids would save $46 billion to $117 billion over the next 20 years.

So, if there is money to be made, what are power providers waiting for? Well, first of all, they aren’t waiting. In 2005, Enel of Italy installed the world’s first smart-grid system and claims that it delivers annual savings of €500 million at a project cost of €2.1 billion. In Italy, over 27 million customers now have smart meters. In North America, smart grids are being installed in Austin, Boulder (CO) and Ontario.

Helping The Environment
The Earth will benefit as well. To understand how, it is helpful to differentiate between environmental gains that will be realized at the level of power plants (let’s call this the macro level) and at the level of an individual customer (the micro level).

As we have seen, by spreading out demand, power providers will be able to furnish the same amount of power with fewer plants. Apart from needing fewer plants, the plants will run more efficiently—just as a car that runs at constant speed is more fuel-efficient than one that stops and starts. The environmental benefits arising from these two factors—lower capacity at a given level of power supply, and more efficient power plants—are potentially huge, especially in countries such as China, India and Ukraine that currently generate electricity primarily from fossil fuels. It all adds up to less pollution, less release of CO₂ and reduced global warming.

On the micro level, it is likely that customers will reduce their electricity consumption once they are given better information about electricity price. If your smart meter told you that using the oven for 30 minutes during dinner time has just cost you $10, you may want to change your cooking habits (by, for example, using your microwave, switching to natural gas or eating more raw foods), thereby indirectly realizing further environmental benefits.

Overcoming Technological and Social Hurdles
However, before smart grids can fully realize their considerable benefits, power corporations must overcome two hurdles—technological and social. Remember, to make smart grids work, a power corporation needs to know at what time you use your AC (or any other electrical appliance), and how long you keep it running before deciding to switch it off.

To collect this information, you would need to plug monitoring devices into your outlets and plug your appliances into them. Once installed, details of your electricity usage is reported to your power company so it can start its own demand-smoothing programs, similar to the early-bird plans of telephone companies. Designing these monitoring systems is the technological hurdle and it has been largely overcome.

Then there’s the social hurdle, related to prickly questions of privacy. Do you want your power company (or anyone with whom it shares information) to know that you were at home last night, what rooms you were in, whether you were watching TV or not, and what time you went to sleep? Many people won’t. Power companies and the government will have to convince people that only aggregate data will be collected and that no personal information will be used or shared.

It appears that the smart grid is a technology whose time has come. The remaining technological issues will soon be worked out. True, the social challenges may be harder to lick. But if we do resolve them in a way that protects personal privacy, the enormous cost savings and significant environmental benefits will make the effort well worthwhile.

Additional resources:
Smart Grids

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