When it comes to grid modernization, understanding some history can help us map the best path forward – particularly in ensuring that the Smart Grid is both reliable and resilient for everyone.
For instance, the transformations that occurred in the telecommunications sector within the past 25 years offer cautionary and instructive lessons. In the past, everyone received universal service or phone dialtone from a monopoly called American Telephone and Telegraph (AT&T). You leased your phone and phone number from them. Then Private Branch Exchanges (PBXs) became commercially available and created dialtone for their owners. Businesses could buy their own equipment. Calls that occurred within their four walls never left the premises and never used the AT&T phone system, reducing their revenues. Calls that occurred to the outside world used AT&T’s system.
AT&T’s monopolistic business model was disrupted and disintermediated by new technologies and entities that enabled consumers become prosumers. This term, invented by Alvin Toffler in his 1970 book Future Shock, defined a new dynamic relationship for producers and consumers*.
But while you could be a dialtone prosumer within a building, it wasn’t feasible to sell excess dialtone back to the phone company. That’s not the case with electricity. It is feasible to sell excess electricity back to a local utility when regulations such as Feed-in Tariffs (FiTs) create the mechanism for it. Grid modernization offers tempting prosumer opportunities for commercial and residential consumers to enable at least some degree of self-sufficiency and reduce their payments to local electric utilities.
The electric grid could evolve to be a patchwork of areas with privately owned distributed energy resources (DER) and local distribution grids upgraded to allow a two-way or bidirectional flow of electricity. Under existing cost recovery mechanisms, all ratepayers would have helped to pay for the upgrades to these parts of the grid. But would all ratepayers benefit?
We need to ensure that the sum total of ratepayers enjoy shared benefits for grid upgrades through business models that support grid resiliency. How can this be done? Here is one suggestion. Utilities could be allowed to manage privately-owned DER assets with agreements that identify emergency scenarios where DER-originated electricity would flow back to the grid rather than remain onsite. DER asset owners would not pay fees to tie their equipment to the grid, and would enjoy all the monetary benefits of a transactive energy market on blue-sky days. But when an emergency occurs, be it natural or human-caused, those assets would be managed to benefit the greatest number of beneficiaries. Scenario definitions should be modeled on the coordinated inter-agency planning activities that identify disaster events and responses by utilities, police, fire, and other emergency services. The utility becomes the arbiter of a social DER compact that leverages grid resiliency to deliver energy and economic security for all.
But this can’t happen under current investor-owned utility (IOU) operations, organized to satisfy dual stakeholders – regulators and Wall Street. State regulatory commissions would do well to ask utilities to design distribution grid upgrades for shared benefits of resiliency in addition to reliability. Regulators would also serve their constituents best by thinking how utilities should be re-organized to continue to deliver the broadest service coverage for customers. Otherwise, we might end up with a grid patchwork that resembles nationwide wireless networks or broadband service coverage that doesn’t come close to the universal service ideal.
* The Smart Grid Dictionary definition of a prosumer is: A term coined by Alvin Toffler to describe a producing consumer. From a Smart Grid perspective, it would apply to distributed energy resource situations in which the owner of electricity production or storage assets may also have a consumer relationship with a utility, aggregator, or other energy services provider.