How to Assess the Economic Consequences of Smart Grid Reliability Investments

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Created on Friday, 03 December 2010 00:00

What is the Smart Grid?

The Smart Grid consists of a number of technological improvements that can be made in transmission and distribution systems. These improvements have been evolving over several decades in the electric utility.

In general, these technologies are designed to improve the performance of transmission and distribution systems by:

  • Installing sensors that can detect system conditions that indicate failures either have occurred or will occur in the near future (e.g., abnormal temperature readings on heat sensitive equipment); 
  • Incorporating fast-acting microprocessors that can quickly detect fault conditions and take action (in concert with other system components) to anticipate failures and reconfigure circuit supply routes or restore service as quickly as possible to customers that can be served by alternative supply lines; 
  • Reconfiguring radial circuits adding normally open points with automatic switches that can be closed to restore service to customers surrounding isolated faults automatically; 
  • Adding voltage regulation and capacitance down-stream of substation transformers to reduce line losses – thus improving energy efficiency; and 
  • Installing AMI meters that provide a wide range of benefits including: 
    • Reduced cost of meter reading
    • Improved ability to detect outages and restore service quickly after outages; 
    • Improved theft detection; and 
    • Improved access for customers to information about the timing and magnitude of electricity consumption. 

In the context of debates about the cost effectiveness of Smart Grid reliability investments it is necessary for utilities and regulators to have a common framework for cost-benefit analysis that properly accounts for the societal benefits that arise from utility investments in reliability. This will become increasingly important as society becomes reliant on electricity to supply critical energy requirements in buildings and transportation. The key challenge in developing this framework lies in adopting practical rules for assessing the economic value of service reliability – the primary focus of this report.

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