EE379K/EE394V Smart Grids: Smart Grid, A Contrarian View Roger Duncan Research Fellow Energy Institute Ross Baldick, Department of Electrical and Computer Engineering Spring 2017

Outline Smart Grid and Complexity Valuation of DG/Smart Grid Platform Model Issues AI and Autonomy Conclusions

Complexity and Smart Grid Failure due to complexity Flash Crash like NYSE Uber “surge” pricing Complicated rate structures Emergent behavior Privacy Ownership and control

Valuation of Distributed Generation and Smart Grid Benefit Cost Analysis California Standard Manual Participant Test Ratepayer Impact Measure Societal Test Utility Test

Background: Demand-Side Management (DSM) DSM encompasses mainly three energy and demand-reducing activities: Conservation: Using less of a resource By making a behavioral choice or change last for a short duration or may be incorporated into a habit or lifestyle Energy Efficiency: permanent installation of energy efficient technologies / elimination of energy losses in existing systems Demand Response/ Load Management: changing the patterns of energy use, at times of peak demand

California Standard Practice Manual (Oct, 2001) on behalf of different stakeholders’ interests conservation and load management (C&LM) programs five tests to evaluate the cost-effectiveness of programs Purposes: To help ensure that ratepayer dollars are prudently spent (if the benefit/cost ratio is larger than or equal to one, then the program is cost-effective) To help program managers make decision among resource/program options (larger benefit/cost ratios deliver more benefits per dollar)

Five Cost Effectiveness Tests Participant Test (PT) Ratepayer Impact Measure Test (RIM) Total Resource Cost (TRC) Societal Cost Test (SCT) Program Administrative Cost Test (PACT)

1. Participant Test (PT) Evaluates from the perspective of the participant (customer) compares bill savings against incremental costs of the efficient equipment measures a program’s economic attractiveness to customers used to set rebate levels and forecast participation Ignores benefit to the Utility or Society

1. Participant Test (PT)    

2. Ratepayer Impact Measure Test (RIM) Evaluates from the perspective of the non-participate of DSM program What happens to average price levels due to changes in utility revenues and operating costs caused by a program.

2. Ratepayer Impact Measure Test (RIM)    

3. Total Resource Cost Test (TRC) Evaluates from the perspective of an entire service territory a program passes the test indicates total resource costs will drop, and the total cost of energy services for an average customer will fall Most widely used test by regulatory bodies

3. Total Resource Cost Test (TRC)    

4. Societal Cost Test (SCT) Evaluates from the perspective of the whole society A variation of the TRC with the exception of including environmental externalities avoided pollutants water savings detergent savings other non-energy benefits

4. Societal Cost Test (SCT)    

5. Program Administrator Cost Test (PACT) Also known as the Utility Cost Test (UCT) Evaluates from the perspective of the sponsoring utility or program administrator Based on costs incurred by the utility Excludes net costs incurred by the participant The test ensures that the benefits to ratepayers will exceed the costs

5. Program Administrator Cost Test (PACT)    

Conclusion Benefit-cost testing can be informative, and useful for decision-making Reliance upon TRC for cost-effectiveness screening is very widespread, and it is the primary benefit cost test Combines most of the perspectives: participant, rate payer, and utility customers may be motivated by factors other than energy savings, and costs used in the tests are not necessarily directly tied to the energy benefits.

Value of DER Capacity Energy Reliability Ancillary Services Storage Demand Response Energy Efficiency

Value of DER to D Generally small Location Dependent Characteristics

Individual DER Value Decreases Distance Market Penetration Granularity of Measurement “Greening” of the Grid

Value of Solar Tariff Avoided Peaker Avoided Transmission Avoided Fuel Avoided Line Loss

Energy Efficiency and Smart Grid Main Components of Building Energy Efficiency, in order of importance: Building Envelope Appliance Efficiency Turning appliances on and off (Smart Grid)

Platform Business Model Platform for services Individual product increases in value with number of connections Customer growth Collect from both buyer and seller Reduce transaction costs New Products and Services

Platform Model in new Utility Business Models New York Reforming Energy Vision LBNL Studies Rocky Mountain Institute California Proceedings Transactive Energy model

Limited Applicability to Electric Distribution System Market Penetration and Value Customer Growth “Prosumer” – both buyer and seller New Products and Services

Smart Grid and distribution markets Facilitates markets Reduce transaction costs May not be robust Seasonal Minimal platform system revenues

Artificial Intelligence and Smart Grid Automation Autonomy Pass our ability to understand

Summary Reliability may go down due to complexity Value of DER will decrease as market penetration increases Integration of Smart Grid with IoT and AI may lead to security and privacy issues

Homework Exercise: Due April 27 4. In a high DER scenario values will move in the following direction: Savings on utility bills will move UP Financial incentives will move DOWN Saved taxes will move DOWN Customer Additional Cost Incurred will move DOWN Avoided supply Costs will move DOWN Program Administrative Costs will move UP

Homework Exercise: Due April 27 Revenue Losses will move UP Increased supply costs will move UP Avoided supply costs will move DOWN Avoided collection costs will move DOWN Revenue Savings will move DOWN Quantifiable Environmental Externalities will move DOWN

Homework Exercise: Due April 27 Given the above trends, review the following tests, assume the results are currently 1.0, and determine whether they would PASS (>1.0) or FAIL (<1.0) in a high DER scenario: Participant Test RIM test Societal Test Program Administrator (Utility) Test