PJM Op-Ed on Smart Metering

The Charleston Gazette published an op-ed piece today by Andy Ott, a PJM Interconnection VP.  Here is a link to the piece, which may die in a week or so.

This appears to be a canned piece that PJM has sent out to newspapers across its region.  It has little relevance at the present time in WV, because the WV Legislature and the WV PSC have done NOTHING to promote or introduce smart meters in WV that are capable of doing the kind of “price responsive demand” that Ott talks about in his piece.

As is typical of PJM’s so-called public relations, Ott frames his discussion in terms that most West Virginians are simply not very familiar with.  WV’s electrical system, which includes the PSC and political leaders who make policy, is now gripped with fear at losing the massive investment that our coal-fired industry currently has in obsolete generation technologies.  All of WV’s system is geared to selling more and more electricity to pay for our state’s massive coal plants and new investments that have to be made to keep their pollution from killing more West Virginians.

Real public discussion of non-coal generation and deliberate reduction of electricity demand is actively suppressed in WV, although politicians give it lip service.  In the last WV legislative session, a committee chairman, who we thought was being helpful in our attempt to get our least cost planning bill passed, invited the coal industry’s chief lobbyist into committee caucus meetings specifically to scare committee members with false claims that increased efficiency would cost coal miners’ jobs.  See here to find out what is really costing WV coal miners’ jobs.

So Mr. Ott’s discussion of smart meters will puzzle most West Virginians.  He also admits that there hasn’t been much discussion of smart meters in PJM.  That is also because coal-dominated PJM has shown little interest in smart grid technologies until very recently.

Mr. Ott explains variable pricing of electricity pretty clearly, but he puts the argument mostly in terms of how it will help PJM, not electricity users.  Here is his explanation:

The United States is using less energy than it did in 2000 — even though the population has grown by nearly 27 million people. The average American is using less energy than at any point since the 1960s.

“Smart Grid” technology could accelerate these trends by empowering consumers to automatically schedule their energy usage at optimal times, when the electrical grid is least stressed.

That would be great news for the health of our electrical grid — and for Americans’ wallets.

Today, most consumers pay fixed prices for each kilowatt-hour of electricity they use. These prices stay the same throughout the day and don’t reflect the wholesale price that suppliers actually pay to buy electricity. That wholesale price changes every hour.

These fixed retail electricity prices encourage the use of electricity when costs are the highest and the grid is most stressed, as on a hot summer day when air conditioning use is high.

The Smart Grid can offer a more efficient pricing structure.

Digital meters installed at homes and businesses can record the amount of electricity used in real time — not just on a monthly basis, as at present. These devices can then communicate with the electric system to receive price signals that enable consumers to see the real-time cost of electricity.

Consumers can act on that information by turning to convenient automation technology that reduces electricity use when prices are high. So a smart thermostat might change air conditioning settings when prices reach a certain level.

He goes on to say:

Price responsive demand won’t just benefit consumers by helping them pay lower electricity prices. It can also ease stress on the electric grid — and ensure its reliability. Homes and businesses would respond to wholesale prices by reducing their usage when electricity demand and prices were high.

The two-way communication between home-based automated systems and electricity suppliers could also aid in both short- and long-term forecasting of the electricity needed to meet demand.

Such efficient use of the grid can delay the need for expensive new generating plants or transmissions infrastructure. And that spells savings for power companies and consumers alike.

Further, Smart Grid technology can optimize the use of renewable energy sources like wind and solar. For example, electric vehicles could be charged when wind power is most available.

The Smart Grid will reach its greatest potential to control energy costs when consumers’ electricity rates are linked to hourly wholesale electricity prices. Regional wholesale power markets like PJM’s provide the framework to benefit consumers with Smart Grid technology and flexible rates.

One thing you won’t find in Mr. Ott’s piece is any discussion of the connection between net metering for surplus electricity sold to home and business based solar power producers.  That’s because Mr. Ott, and PJM, see electricity users only as passive “consumers” whose only role is to buy electricity.  In fact, Mr. Ott, from his PJM perspective sees consumers only as aggregate “demand.”  That’s why he uses the jargon “price responsive demand” to described his real-time pricing system.  Doesn’t “real-time pricing” make more sense to most people?

Real-time pricing makes real sense for building reliability into the US electric grid when it is joined up with net metering.  Right now, in WV, when my solar panel array is producing more power than I can use on a sunny day, Mon Power my meter runs backwards, selling my surplus power to Mon Power at the current retail rate.  But my solar panels are going at full bore right at PJM’s daily peak in spring and summer.  Electricity prices on PJM are at their highest then, especially on hot days.  But Mon Power pays me the same for my electricity no matter what the prices are on PJM.  On hot days at summer peak, Mon Power is making a lot of money on my electricity.

If the price for solar generated electricity rose on PJM’s system with real-time pricing on net metered systems, PJM would benefit directly.  Just has higher electric rates at peak times would reduce consumers’ demand for electricity, solar power is at its peak production at times of summer peak load.  Real-time pricing would reduce demand AND maximize production of electricity from solar power on the system at exactly the times when BOTH actions would contribute to system reliability by relieving stresses on PJM’s system.

PJM is not embracing “smart” technologies voluntarily.  They are not even doing it in response to federal mandates.  Remember my post three weeks ago about the new world of falling demand that we live in?  Here is what Mr. Ott says early in his piece:

Americans are becoming smarter energy consumers, according to a recent report from the Congressional Research Service.

The United States is using less energy than it did in 2000 — even though the population has grown by nearly 27 million people. The average American is using less energy than at any point since the 1960s.

So PJM needs smart grid technologies to protect itself and its power company members from the economic impacts of falling demand.  Take a look at this recent Power Line post, where I quoted Mahesh Bhave’s article in Renewable Energy World:

In the next fifteen years, the importance of the current grid — smartened or not — will wane and a parallel “new intelligent network” may supplant it. This new intelligent network will manage thousands of distributed generation and consumption points, including rooftop solar installations and networked electric appliances. The network management would resemble that of today’s IT networks and would be easy to set up. We would simply treat solar panels, inverters, and appliances as analogous to computers and other electronic devices on the Ethernet.

While the current smart grid projects primarily address the operational concerns of electric utilities, tomorrow’s smarter grid will serve the end customers, and may not even be managed by electric utilities.  Of course, wherever the current grid is in place, which is most of the world, we should make it better and implement the smart grid solutions. But we should realize that parallel intelligent networks would likely be born.

The smart grid discussion is naturally about technology, but it ought to also be about business issues — how firms can adapt to non-traditional competition, industry structure changes, and disruptive innovation. With growing solar rooftop deployments, the traditional electric utilities face threats to their growth, though not to their immediate survival.

I agree with Mr. Bhave.  Mr. Ott’s PJM smart meters and real-time pricing are great, and should be encouraged — but they are the result of legacy power company practices, not the new electrical system that is emerging from the bottom up.