The oft-enunciated primary goals for regulated electric utilities are to keep electricity safe, reliable, and inexpensive. An unintended consequence of these objectives have meant that US investor-owned utilities (IOUs) have underinvested in everything from distribution grid upgrades to the latest in information and communications technologies (ICT) to avoid adding costs to electricity rates. But are we stepping over dollars to pick up dimes?
We now live in an economy that can’t function without electricity – there are no substitutes for it. Our lifestyles depend on electricity to power the devices that keep us comfortable and productive on a 24 x 7 basis. So it’s time for a new approach to measuring and evaluating the economic and societal costs of disruptions in electricity and justifying the most beneficially effective investment decisions. As noted in my previous articles, engineering the grid on reliability alone is inadequate. We need to build a resilient grid too. In his 2013 State of the Union speech, President Obama mentioned the need for a self-healing grid. This is what grid resiliency is all about – the fast recovery with continued operations from any type of disruption.
Do today’s models for cost recovery factor in the explicit and implicit financial benefits of resiliency? No. Cost recovery considers financial impacts of an investment to the cost of electricity for ratepayers by various residential, commercial, industrial, and agricultural categories. Cost recovery does attempt to factor in reliability, but there is growing evidence that the costs of outages and the benefits of avoidance are miscalculated and often underestimated. Some studies have been done on what is called the Value of Service (VOS) to true up the real costs of electricity service interruptions to customers. This study from Lawrence Berkeley National Lab in particular is important reading understand why utility and regulatory approaches to Smart Grid investment decisions should include VOS considerations. First, the study examines methodologies for developing outage costs and identifies problems and the best approach. Second, it concludes that a reduction in the frequency of outages has higher value than the reduction in durations of outages. That is an important attribute of distributed energy resources (DER) advocated by transactive grid proponents – DER reduces the number of outages that impact customers because it builds grid resiliency.
Obtaining an accurate assessment of the costs of outages helps guide Smart Grid investments. Understanding the costs of frequency versus duration of outages will help utilities appreciate the economic and societal benefits of grid resiliency. That in turn opens up new possibilities for not only determining the prioritization of investments, but how to assess the costs of distribution grid upgrades across customers. Perhaps we’ll see future tariffs that offer what we call Quality of Service (QoS) in telecommunications – and customers may opt to pay a premium for guaranteed electricity uptime, thereby defraying the investment costs of building grid resiliency in their immediate distribution configurations. For instance, a residential customer with a serious wine cellar may opt to pay a monthly premium for no downtime in electricity service rather than risk cooking their collection in an outage. It would be an interesting market-based and probably cleaner alternative to that customer purchasing a diesel generator to preserve their wine cellar. It could open up new scenarios for utilities and third parties to lease renewable generation and energy storage installations to customers who then get exclusive use of that electricity if the distribution grid experiences outages.
The Smart Grid can be built to be a reliable and resilient grid. We need to include VOS calculations in Smart Grid investment assessments and how VOS factors into recognition of the quantifiable benefits of grid resiliency, transactive grids, and new paradigms for electricity QOS valuations. Perhaps a more realistic understanding of the true costs of outages will reorient our evaluations of the most bang for the buck in Smart Grid investments.