The Smart Grid Status and Outlook Updated April 10 2018 Congressional Research Service https crsreports congress gov R45156 The Smart Grid Status and Outlook Summary The electrical grid in the United States comprises all of the power plants generating electricity together with the transmission and distribution lines and systems that bring power to end-use customers The “grid” also connects the many publicly and privately owned electric utility and power companies in different states and regions of the United States However with changes in federal law regulatory changes and the aging of the electric power infrastructure as drivers the grid is changing from a largely patchwork system built to serve the needs of individual electric utility companies to essentially a national interconnected system accommodating massive transfers of electrical energy among regions of the United States The modernization of the grid to accommodate today’s more complex power flows serve reliability needs and meet future projected uses is leading to the incorporation of electronic intelligence capabilities for power control purposes and operations monitoring The “Smart Grid” is the name given to this evolving intelligent electric power network The U S Department of Energy DOE describes the Smart Grid as “an intelligent electricity grid—one that uses digital communications technology information systems and automation to detect and react to local changes in usage improve system operating efficiency and in turn reduce operating costs while maintaining high system reliability ” In 2007 Congress passed the Energy Independence and Security Act P L 110-140 Title XIII of the act described characteristics of the Smart Grid and directed DOE to establish a Smart Grid Investment Matching Grant SGIG program to help support the modernization of the nation’s electricity system In 2014 DOE concluded that the adoption of Smart Grid technologies was accelerating but at varying rates “depending largely on decision-making at utility state and local levels ” DOE noted that the nation’s electricity system is in the midst of “potentially transformative change ” with challenges for Smart Grid deployment remaining with respect to grid-connected renewable and distributed energy sources and adaptability to current and future consumer-oriented applications Costs of deploying the Smart Grid remains an issue and study estimates vary While some DOE programs have supported grid modernization Congress has not explicitly appropriated funding for deployment of the Smart Grid since the American Recovery and Reinvestment Act of 2009 P L 111-5 In its 2014 study DOE estimated historical and forecast investment in the Smart Grid as approximately $32 5 billion between 2008 and 2017 averaging $3 61 billion annually in the period If this level of investment remains constant it would put spending well below levels the Electric Power Research Institute in 2011 and the Brattle Group in 2008 estimated were needed to fully build the Smart Grid by approximately 2030 From 2010 to 2015 $3 4 billion in SGIG grants supported 99 projects resulting in $8 billion in grid modernization Congress could provide funding to help bridge the funding gap if it chooses to accelerate adoption of the Smart Grid A number of near-term trends—including electric vehicles environmental concerns and the ability of customers to take advantage of real-time pricing programs to reduce consumer cost and energy demand—would benefit from investments in Smart Grid enabled technologies While concerns such as cybersecurity and privacy exist most electric utilities appear to view Smart Grid systems positively Costs could be reduced and system resiliency improved by further integration of automated switches and sensors even considering the cost of a more cybersecure environment But with the potentially high costs of a formal transition some see the deployment Congressional Research Service The Smart Grid Status and Outlook of the Smart Grid continuing much the same as it has with a gradual modernization of the system as older components are replaced Congressional Research Service The Smart Grid Status and Outlook Contents Introduction 1 Smart Grid Technologies 2 Status of Smart Grid Deployment 4 Technology Compatibility as a Barrier to Adoption 4 Estimates of Smart Grid Cost 5 Potential Smart Grid Benefits 5 Smart Grid Investment Matching Grants 6 Estimating the Cost of Smart Grid Deployment to 2030 6 Electricity Infrastructure 7 Electricity Providers and Sources of Infrastructure Funding 8 The Smart Grid as Enabler or a Result of Change 10 Potential Drivers of New Infrastructure Spending 10 Electric Vehicles and Climate Change 10 Customer-Focused Programs 11 Major Smart Grid Concerns 12 Cybersecurity 12 Privacy and Customer Data 13 Recent Legislation 13 Figures Figure 1 Traditional “One-Way” Power Flows in the Grid 1 Figure 2 Emerging “Two-Way” Grid Infrastructure 2 Tables Table 1 Examples of Smart Grid Technologies and Applications 3 Contacts Author Information 14 Congressional Research Service The Smart Grid Status and Outlook Introduction The electrical grid in the United States comprises all of the power plants generating electricity together with the transmission and distribution lines and systems that bring power to end-use customers The “grid” also connects the many publicly and privately owned electric utility and power companies in different states and regions of the United States However with changes in federal law regulatory changes and the aging of the electric power infrastructure as drivers the grid is changing from a largely patchwork system built to serve the needs of individual electric utility companies to essentially a national interconnected system accommodating massive transfers of electrical energy among regions of the United States The modernization of the grid to accommodate today’s power flows serve reliability needs and meet future projected uses is leading to the incorporation of electronic intelligence capabilities for power control purposes and operations monitoring The “Smart Grid” is the name given to this evolving intelligent electric power network with digital technologies increasingly replacing analog devices thus enabling Smart Grid hardware and software functions The U S Department of Energy DOE describes the Smart Grid as “an intelligent electricity grid—one that uses digital communications technology information systems and automation to detect and react to local changes in usage improve system operating efficiency and in turn reduce operating costs while maintaining high system reliability ”1 The Smart Grid is viewed as a modernization of the nation’s power grid by the Edison Electric Institute EEI the trade association of the U S investor-owned utilities which serve approximately 68% of U S electricity customers EEI states that “ t he modern grid will utilize telecommunications and information technology infrastructure to enhance the reliability and efficiency of the electric delivery system The smart grid will meet the growing electricity needs of our digital economy more effectively ”2 Figure 1 Traditional “One-Way” Power Flows in the Grid Source DOE Quadrennial Energy Review Report An Integrated Study of the U S Electricity System January 2017 Smart Grid technologies are seen as necessary to handle the more complex power flows on the modern grid The grid was originally designed by electric utilities to serve customers within the same state and as shown in Figure 1 electricity flowed in one direction from power plants to customers Over time the grid expanded as utilities formed power pools to interconnect their transmission systems to share power generation resources In the closing decades of the last DOE Transforming the Nation’s Electricity System The Second Installment of the Quadrennial Energy Review January 2017 p S-4 https energy gov sites prod files 2017 01 f34 Transforming%20the%20Nation%27s%20Electricity%20SystemThe%20Second%20Installment%20of%20the%20Quadrennial%20Energy%20Review—%20Full%20Report pdf 2 EEI What Is the Smart Grid 2017 http smartgrid eei org Pages FAQs aspx#grid 1 Congressional Research Service R45156 · VERSION 3 · UPDATED 1 The Smart Grid Status and Outlook century with the advent of competition in the electricity industry and power marketing and the development of regional transmission organizations serving multi-state areas large regional power flows began to dominate transmission systems Figure 2 Emerging “Two-Way” Grid Infrastructure Source DOE Quadrennial Energy Review Report An Integrated Study of the U S Electricity System January 2017 Note Distributed energy resources are small modular energy generation and storage technologies that provide electric capacity or energy near the consumer of electricity Now with increasing two-directional power flows as illustrated in Figure 2 the grid is being augmented with new technologies to manage an evolving system with many potential points for electricity generation demand response 3 and energy storage Smart Grid Technologies DOE summarizes Smart Grid technologies as being able to “monitor protect and automatically optimize the operation of its interconnected elements including central and distributed generation transmission and distribution systems commercial and industrial users buildings energy storage electric vehicles and thermostats appliances and consumer devices ”4 These “Demand response programs are incentive-based programs that encourage electric power customers to temporarily reduce their demand for power at certain times in exchange for a reduction in their electricity bills Some demand response programs allow electric power system operators to directly reduce load while in others customers retain control Customer-controlled reductions in demand may involve actions such as curtailing load operating onsite generation or shifting electricity use to another time period Demand response programs are one type of demand-side management which also covers broad less immediate programs such as the promotion of energy-efficient equipment in residential and commercial sectors ” See Energy Information Administration Glossary 2017 https www eia gov tools glossary index php 4 DOE QER Report Energy Transmission Storage and Distribution Infrastructure April 2015 https energy gov sites prod files 2015 04 f22 QER%20ch3%20final_0 pdf 3 Congressional Research Service R45156 · VERSION 3 · UPDATED 2 The Smart Grid Status and Outlook technologies will include both new and redesigned technologies such as phasor measurement units and advanced meters which are expected to increase electric system reliability flexibility and grid resiliency Within the delivery portion of the electric grid smart grid technology is enabling sizable improvements in distribution and transmission automation Emerging technologies on the distribution grid whether digital communications sensors control systems digital “smart” meters distributed energy resources greater customer engagement etc present both technical and policy challenges and opportunities for the delivery of energy services 5 According to DOE there are likely to be many other opportunities to infuse advanced technology into key operating elements of the grid and some of these technologies are described in Table 1 Table 1 Examples of Smart Grid Technologies and Applications Grid Component Opportunity Description AC DC power flow controllers converters Technologies that adjust power flow at a more detailed and granular level than simple switching Advanced multi-mode optimizing controls Controls capable of integrating multiple objectives and operating over longer time horizons to replace simple manual and tuning controls or controls that operate based only on conditions at single points in time Bilaterally fast storage Energy storage in which charge and discharge rates are equally fast and thus more flexible Control frameworks New hybrid centralized distributed control elements and approaches Management of meta-data including network models New tools for obtaining managing and distributing grid meta-data including electric network models Synchronized distribution sensing Synchronization of measurements in order to provide more accurate snapshots of what is happening on the grid Transactive buildings Buildings with controls and interfaces that connect and coordinate with grid operations in whole-grid coordination frameworks “X”-to-grid interface and integration Interface technologies tools and standards for the general connection of energy devices to power grids includes integrated mechanisms for coordinating those devices with grid operations in whole-grid coordination frameworks Distribution System Operation Structure for clear responsibility for distributed reliability Source DOE QER Report Energy Transmission Storage and Distribution Infrastructure Table 3-1 Examples of Key Technologies for the Grid of the Future https energy gov sites prod files 2015 04 f22 QER%20ch3%20final_0 pdf 5 DOE QER Report pp 3-13 Congressional Research Service R45156 · VERSION 3 · UPDATED 3 The Smart Grid Status and Outlook Status of Smart Grid Deployment In 2014 DOE issued a report assessing the status of Smart Grid deployment concluding that the adoption of Smart Grid technologies i e digital sensing communications and control technologies was accelerating but at varying rates “depending largely on decision-making at utility state and local levels ”6 DOE noted that the nation’s electricity system is in the midst of “potentially transformative change ” with challenges for Smart Grid deployment remaining with respect to the incorporation of grid-connected renewable and distributed energy sources and adaptability to current and future consumer-oriented applications 7 A study by the RAND Corporation discussed hurdles to Smart Grid adoption noting that cost was among the primary barriers Our findings suggest that although the benefits of the smart grid are likely positive on net when viewed from a societal standpoint several barriers to adoption i e costs can reduce the size of the overall benefits and create both winners and losers across households and other consumers Technical solutions at the transmission and distribution levels such as the increased ability to monitor the system for problems and incorporate intermittent renewable energy sources can provide some benefits to both utilities and customers through passed through savings and the efficiency benefits associated with real-time pricing and demand response enabled by smart-grid technologies can be significant 8 Technology Compatibility as a Barrier to Adoption In 2007 Congress passed the Energy Independence and Security Act EISA P L 110-140 EISA directed the National Institute of Standards and Technology NIST to develop a set of standards to help ensure the compatibility of Smart Grid technologies 9 The Federal Energy Regulatory Commission FERC was authorized to adopt a set of interoperability standards that NIST would develop based on recommendations of the Smart Grid Federal Advisory Committee SGAC In 2010 NIST developed a set of recommended interoperability standards and presented these to FERC 10 FERC did not adopt the recommended standards largely due to cybersecurity and other concerns expressed by industry and state stakeholders 11 The SGAC continues to work on developing and recommending standards that might meet interoperability and cybersecurity goals 12 6 DOE 2014 Smart Grid System Report August 2014 https www smartgrid gov files 2014-Smart-Grid-SystemReport pdf 7 DOE 2014 Smart Grid System Report p 17 8 Christopher Guo Craig A Bond and Anu Narayanan The Adoption of New Smart-Grid Technologies Incentives Outcomes and Opportunities RAND Corporation 2015 p xii https www rand org pubs research_reports RR717 html 9 “Such protocols and standards shall further align policy business and technology approaches in a manner that would enable all electric resources including demand-side resources to contribute to an efficient reliable electricity network ” See EISA §1305 10 The proposed standards focused on protocols for data exchange between devices networks and control centers and common data formats to facilitate substation automation communication and addressing the cybersecurity implications of all proposed standards 11 U S Government Accountability Office Electricity Grid Modernization GAO-11-117 January 2011 p 17 https www ferc gov industries electric indus-act smart-grid gao-report pdf 12 NIST Smart Grid Federal Advisory Committee 2018 https www nist gov engineering-laboratory smart-grid smart-grid-federal-advisory-committee Congressional Research Service R45156 · VERSION 3 · UPDATED 4 The Smart Grid Status and Outlook Estimates of Smart Grid Cost Estimating costs for Smart Grid systems can be difficult given that digital technologies are constantly evolving and must be designed or augmented for cybersecurity That said two recent estimates illustrate a range of costs for building the Smart Grid In 2011 the Electric Power Research Institute EPRI estimated that $338 billion to $476 billion over a 20-year period would be required for a “fully functioning Smart Grid ”13 The estimate includes preliminary amounts of $82 billion to $90 billion for transmission systems and substations $232 billion to $339 billion for distribution systems and $24 billion to $46 billion for consumer systems 14 Previously the Brattle Group had estimated in 2008 that the electric utility industry “will need to make a total infrastructure investment of $1 5 trillion to $2 0 trillion by 2030” in its “realistically achievable potential” RAP efficiency base case scenario 15 As part of that investment Brattle identified $880 billion in transmission and distribution system modernization to integrate renewable energy and continue the installation of the Smart Grid 16 Potential Smart Grid Benefits EPRI estimated that investments between $338 billion and $476 billion could result in net benefits between $1 294 billion and $2 028 billion for a benefit-to-cost ratio between 2 8 and 6 0 EPRI’s study described the potential benefits of the Smart Grid as follows Allows Direct Participation by Consumers The Smart Grid consumer is informed modifying the way they use and purchase electricity They have choices incentives and disincentives Accommodates all Generation and Storage Options The Smart Grid accommodates all generation and storage options Enables New Products Services and Markets The Smart Grid enables a market system that provides cost-benefit tradeoffs to consumers by creating opportunities to bid for competing services EPRI states that since the present grid “was not designed to meet the needs of a restructured electricity marketplace the increasing demands of a digital society or the increased use of renewable power production ” the Smart Grid will require the modernization of the “electricity delivery system so that it monitors protects and automatically optimizes the operation of its interconnected elements—from the central and distributed generator through the high-voltage transmission network and the distribution system to industrial users and building automation systems to energy storage installations and to end-use consumers and their thermostats electric vehicles appliances and other household devices ” EPRI Estimating the Costs and Benefits of the Smart Grid 2011 p 1-1 https www smartgrid gov files Estimating_Costs_Benefits_Smart_Grid_Preliminary_Estimate_In_201103 pdf 14 EPRI Estimating the Costs and Benefits of the Smart Grid p 1-4 15 Brattle defined its RAP base case scenario as “realistically achievable potential for energy efficiency distributed resources EE DR programs but does not include any new federal carbon policy This scenario includes a forecast of likely customer behavior and takes into account existing market financial political and regulatory barriers that are likely to limit the amount of savings that might be achievable through EE DR programs It is important to note that the RAP Efficiency Base Case Scenario is our most likely case in the absence of a new federal carbon policy ” Marc W Chupka et al Transforming America’s Power Industry The Investment Challenge 2010-2030 Brattle Group for the Edison Foundation November 2008 p vi http www edisonfoundation net iei publications Documents Transforming_Americas_Power_Industry pdf 16 Chupka et al Transforming America’s Power Industry p xi 13 Congressional Research Service R45156 · VERSION 3 · UPDATED 5 The Smart Grid Status and Outlook Provides Power Quality for the Digital Economy The Smart Grid provides reliable power that is relatively interruption-free Optimizes Asset Utilization and Operational Efficiently The Smart Grid optimizes assets and operates efficiently Anticipates and Responds to System Disturbances Self-heal The Smart Grid independently identifies and reacts to system disturbances and performs mitigation efforts to correct them Operates Resiliently against Attack and Natural Disaster The Smart Grid resists attacks on both the physical infrastructure substations poles transformers etc and the cyber-structure markets systems software communications 17 DOE stated in its 2014 Smart Grid status report that “ t echnology costs and benefits are still being determined and will continue to constrain decisions for deployment ”18 Another study in 2009 by KEMA Inc stated its view of the potential benefits of the Smart Grid as follows The Smart Grid is universally understood to be the key enabling technology for the nation’s ambitions for renewable energy development electric vehicle adoption and energy efficiency improvements The Smart Grid is to the electric energy sector what the Internet was to the communications sector and should be viewed and supported on that basis 19 Smart Grid Investment Matching Grants Title XIII of EISA describes characteristics of the Smart Grid to help support the modernization of the nation’s electricity system EISA Section 1306 directed DOE to establish a Smart Grid Investment Grant SGIG program to “provide reimbursement of one-fifth 20 percent of qualifying Smart Grid investments ” The American Recovery and Reinvestment Act of 2009 ARRA P L 111-5 increased potential federal matching for grants to ‘‘up to one-half 50 percent ”20 From 2010 to 2015 ARRA provided $3 4 billion to fund 99 projects under the SGIG program resulting in $8 billion in grid modernization 21 Estimating the Cost of Smart Grid Deployment to 2030 The high cost of the Smart Grid is considered a primary barrier to its adoption Smart Grid technologies and capabilities continue to be developed The eventual costs of a Smart Grid buildout may therefore be influenced by new technologies that have yet to be deployed or current technologies that may be modified 17 EPRI Estimating the Costs and Benefits of the Smart Grid pp 1-8 DOE 2014 Smart Grid System Report p 17 19 KEMA Inc The U S Smart Grid Revolution KEMA’s Perspectives for Job Creation January 13 2009 https www smartgrid gov files The_US_Smart_Grid_Revolution_KEMA_Perspectives_for_Job_Cre_200907 pdf 20 See ARRA Sec 405 Amendments to Title XIII of EISA 21 ARRA provided $4 5 billion to DOE’s Office of Electricity Reliability and Energy Delivery for Grid Modernization Smart Grid Electricity Storage with $3 4 billion going to the SGIG program DOE Smart Grid Investment Grant SGIG Program Final Report December 2016 https www smartgrid gov document us_doe_office_electricity_delivery_and_energy_reliability_sgig_final_report html 18 Congressional Research Service R45156 · VERSION 3 · UPDATED 6 The Smart Grid Status and Outlook In its 2014 study DOE estimated historical and forecast investment in the Smart Grid as approximately $32 5 billion between 2008 and 2017 averaging $3 61 billion annually in the period 22 If this level of investment continues this would put spending well below estimates made by EPRI and Brattle to fully build the Smart Grid by approximately 2030 If Congress chooses to it could provide funding to help bridge the funding gap to accelerate adoption of the Smart Grid The original EPRI and Brattle estimates consider Smart Grid investments to 2030 over approximately 20 years Using 20 years as the time frame for both estimates results in a range for annual expenditures ranging from $23 8 billion using the higher estimate of $476 billion from EPRI to $44 billion annually using the Brattle estimate of $880 billion in nominal dollars Using DOE’s estimate as a basis a reasonable assumption may be that Smart Grid spending by the electricity industry of approximately $3 5 billion annually could continue through 2030 as part of modernization efforts Under this scenario total U S Smart Grid spending by the electricity industry could reach $46 billion for the 2018-2030 period in nominal dollars Estimating a range of investment for 2018 to 2030 to fully implement the Smart Grid could be accomplished in a number of ways For example deducting the $32 5 billion in DOE’s historical and forecast spending in the period from 2008 to 2017 from the original EPRI and Brattle estimates results in remaining investment needs of $444 billion EPRI to $847 billion Brattle These amounts could be further reduced by deducting the $46 billion in assumed industry spending from 2018 to 2030 resulting in a range roughly between $400 billion EPRI and $800 billion Brattle in nominal dollars Alternatively if the original EPRI and Brattle estimates are annualized over 20 years then the remaining period from 2018 to 2030 could result in investment amounts ranging from $309 billion EPRI to $572 billion Brattle Deducting the $46 billion in assumed industry spending from 2018 to 2030 to arrive at a range roughly between $260 billion EPRI and $526 billion Brattle in nominal dollars Additionally other estimates of costs to modernize electricity infrastructure range from $350 billion to $500 billion 23 Electricity Infrastructure Electric utility infrastructure mostly consists of the power plants generating electricity and the transmission and distribution lines and other equipment delivering electricity to customers Electricity infrastructure equipment generally has a long lifespan and modernization is an ongoing process 24 As of 2014 there were more than 3 300 electricity providers—comprised of 2 012 publiclyowned utilities POUs 187 investor-owned utilities IOUs 876 co-operative electric utilities co-ops 218 power marketers and nine federal power agencies FPAs —serving almost 148 22 This includes both industry and federal cost-matched funding See DOE 2014 Smart Grid System Report Figure 2 Baseline U S Smart Grid Spending 2008-2017 Spending represents advanced Smart Grid projects distribution automation and smart metering 23 DOE Transforming the Nation’s Electricity System p 7-9 24 “The electricity sector is confronting a complex set of changes and challenges including aging infrastructure a changing generation mix and growing penetration of variable generation ” DOE Transforming the Nation’s Electricity System p S-1 Congressional Research Service R45156 · VERSION 3 · UPDATED 7 The Smart Grid Status and Outlook million customers 25 IOUs had about 52% of electric industry electricity sales in 2014 followed by power marketers with 20% POUs with 15% co-ops with 11% and FPAs with 1% 26 Most electricity infrastructure is financed by private sector investment and is built by IOUs POUs and co-ops The cost of capital can vary according to several factors including by type of electricity provider Electricity Providers and Sources of Infrastructure Funding Different electricity providers have different sources of financing to fund electric infrastructure development and are subject to different oversight and regulatory requirements POUs are nonprofit government entities that are member-owned and include local or municipal utilities public utility districts and public power districts state authorities irrigation districts and joint municipal action agencies 27 They obtain their financing for infrastructure from the sale of tax-free general obligation bonds and from revenue bonds secured by proceeds from the sale of electricity New bond issues for public power in 2016 were expected to be $7 billion and are estimated to have averaged between $10 billion and $13 billion over the last 10 years 28 This would include all public power infrastructure investments not just Smart Grid modernization Electric power IOUs are privately owned for-profit entities that operate in almost all U S states Many IOUs provide services for the generation transmission and distribution of electricity 29 Capital expenditures by IOUs were estimated at $120 8 billion in 2016 30 DOE reports that Smart Grid investments by IOUs in electric delivery systems averaged $8 5 billion annually for transmission system upgrades and $17 billion annually for distribution system upgrades from 2003 to 2012 in 2012 dollars 31 IOUs raise funds from stock and corporate bond issues and bank loans Some IOUs operate in states with competitive regional markets for power generation administered by a Regional Transmission Organization subject to oversight from FERC over wholesale rates 32 Interstate transmission projects generally require rates for cost recovery from customers to be approved by 25 American Public Power Association U S Electric Utility Industry Statistics 2014 2016 http appanet files cmsplus com PDFs Directory%20-%20Statistical%20Report pdf 26 American Public Power Association U S Electric Utility Industry Statistics 27 DOE A Primer on Electric Utilities Deregulation and Restructuring of U S Electricity Markets May 2002 http www pnl gov main publications external technical_reports PNNL-13906 pdf “Local or municipal utilities were established to provide service to their communities and nearby consumers at cost State authorities are agencies of their respective State governments Irrigation districts are primarily located in the western United States They were organized by local citizens initially to manage water resources for agricultural purposes Because electricity is integral to this function many also provide retail electric service Some States have created joint municipal action agencies for the purpose of constructing power plants and purchasing wholesale power for resale to municipal distribution utilities participating in the organization ” U S Energy Information Administration Electric Power Industry Overview 2007 2007 http www eia gov electricity archive primer 28 Email from Desmarie Waterhouse Vice President of Government Relations and Counsel American Public Power Association February 24 2017 29 DOE A Primer on Electric Utilities 30 EEI Delivering America’s Energy Future February 8 2017 http www eei org resourcesandmedia industrydataanalysis industryfinancialanalysis Documents Wall_Street_Briefing pdf 31 DOE 2014 Smart Grid System Report p 3 32 Regional Transmission Organizations “coordinate control and monitor the operation of the electric power system within their territory and engage in regional planning to make sure the needs of the system are met with the appropriate infrastructure ” DOE United States Electricity Industry Primer July 2015 pp 25-26 https energy gov sites prod files 2015 12 f28 united-states-electricity-industry-primer pdf Congressional Research Service R45156 · VERSION 3 · UPDATED 8 The Smart Grid Status and Outlook FERC 33 Other IOUs are regulated by state commissions and must gain approval for infrastructure projects as cost recovery is from customers through utility rates IOU credit ratings have “steadily declined” over the past 30 years 34 and the cost of capital for IOU infrastructure projects can be higher than for POUs 35 Co-ops generally operate in rural areas with relatively low numbers of customers per transmission mile 36 They are incorporated under state laws and are governed by the organization’s board of directors elected by the members Co-ops are owned by the consumers they serve and as nonprofit entities they are required to provide electric service to their members at cost The Rural Utilities Service RUS of the U S Department of Agriculture and the National Rural Utilities Cooperative Finance Corporation are important sources of debt financing for co-op infrastructure projects 37 The RUS electric program38 has a $5 5 billion annual loan budget authority for financing all electric infrastructure in rural areas which would likely include Smart Grid technologies 39 FPAs are part of several U S government agencies the Army Corps of Engineers the Bureau of Indian Affairs and the Bureau of Reclamation under the Department of the Interior the Power Marketing Administrations under the DOE Bonneville Southeastern Southwestern and Western 40 and the Tennessee Valley Authority TVA 41 TVA is a self-financing government corporation funding operations through electricity sales and bond financing In order to meet its future capacity needs fulfill its environmental responsibilities and modernize its aging generation system TVA uses integrated resource plans to map out infrastructure needs and costs 42 TVA’s financial statement lists $2 1 billion in construction expenses for FY2017 43 which likely includes Smart Grid innovations as part of TVA’s Grid Modernization program 44 33 For further details see CRS Report R42068 Regulatory Incentives for Electricity Transmission—Issues and Cost Concerns by Richard J Campbell 34 “Although most utilities still maintain investment grade status BBB and above there are currently utilities with ‘junk’ ratings BB and below few utilities rated AA and no AAA rated utilities ” DOE “QER Public Stakeholder Meeting Financing Energy Infrastructure Transmission Storage and Distribution ” October 6 2014 https www energy gov sites prod files 2014 09 f18 Finance%20meeting%20memo%20v18 pdf 35 “Electric utility costs of capital vary over a fairly wide range depending on the state of the economy but regardless of absolute values there is typically a 5 percent point spread by which IOU capital charge rates exceed POU capital charge rates ” Gerry Braun and Stan Hazelroth “Energy Infrastructure Finance Local Dollars for Local Energy ” Electricity Journal June 2015 http www sciencedirect com science article pii S1040619015001104 36 DOE A Primer on Electric Utilities 37 For further information on farm bill funding for the RUS programs see CRS Report RL31837 An Overview of USDA Rural Development Programs by Tadlock Cowan 38 The electric programs offer direct loans guaranteed loans and bond and note guarantees Direct loans under Section 4 of the Rural Electrification Act of 1936 as amended 7 U S C 904 may be used to finance electric distribution transmission and generation systems and for demand-side management energy efficiency and conservation programs and renewable energy systems to serve rural areas 39 See Rural Electrification and Telecommunications Loans Program Account Consolidated Appropriations Act of 2016 P L 114-113 40 FPA infrastructure budgets other than TVA are largely covered under the Water and Dams section of this report 41 Most federal power plants are hydroelectric projects designed for flood control irrigation purposes and pursuant to statutory obligations supplying wholesale power to publicly owned utilities and electric cooperatives 42 For more details see CRS Report R43172 Privatizing the Tennessee Valley Authority Options and Issues by Richard J Campbell 43 TVA Financial Statements 2017 http www snl com IRW AsReported 4063363 Index 44 Tennessee Valley Authority Grid Modernization 2018 http 152 87 4 98 environment technology smart_grid htm Congressional Research Service R45156 · VERSION 3 · UPDATED 9 The Smart Grid Status and Outlook The Smart Grid as Enabler or a Result of Change Most electric utilities appear to view Smart Grid systems positively even with the added concerns for cybersecurity Cost of operations could be reduced and system resiliency improved by further integration of automated switches and sensors even considering the cost of a more cybersecure environment But with the potentially high costs of a formal transition some see Smart Grid deployment continuing much the same as it has with a gradual modernization of the system as older components are replaced The potential for the Smart Grid to enable change may be most visibly exemplified in the potential to further integrate variable renewable resources at a lower cost A wider deployment of a “fully functional” Smart Grid could see the renewable generation in one state or region supporting energy needs in another state or region It is likely that all of the drivers and technologies—from microgrids energy efficiency smart appliances and zero-net energy homes to electric vehicles EVs and energy storage—could see more effective deployment at lower cost from an integrated Smart Grid approach 45 Modernization of the grid has been accomplished to various degrees as new digital systems replace old analog components Attempts to introduce some components of the Smart Grid have been deemed successful e g the deployment of synchrophasors providing real-time information on system power conditions and the replacement of old inverters on solar photovoltaic systems with smart inverters capable of disconnecting from the grid during times of power interruption 46 But introduction of other components have been problematic Smart meters have run into cost and performance issues and resistance to the technology generally from concerns of some customers over potential health impacts of radio wave emissions 47 Potential Drivers of New Infrastructure Spending A number of near-term trends—including technology environmental concerns and consumer interest regulation—are leading to more industry investments in the Smart Grid Electric Vehicles and Climate Change One area with the potential for increased electricity consumption is transportation A growing number of automobile manufacturers are introducing plug-in EVs Some utilities are considering whether EVs will be a longer term means for addressing increasing electricity demand and provide opportunities for vehicle-to-grid energy storage and related services 48 45 These technologies are discussed further in CRS Report R43742 Customer Choice and the Power Industry of the Future by Richard J Campbell 46 Smart inverters can also smooth the swings in power flow due to intermittent power generation from solar photovoltaic operation Herman K Trabish “Smart Inverters The Secret to Integrating Distributed Energy onto the Grid ” Utility Dive June 4 2014 https www utilitydive com news smart-inverters-the-secret-to-integratingdistributed-energy-onto-the-grid 269167 47 American Cancer Society “Smart Meters ” 2018 https www cancer org cancer cancer-causes radiation-exposure smart-meters html Smart meters emit the same type of radiofrequency RF waves as cell phones and wi-fi devices The American Cancer Society notes that “because the amount of RF radiation you could be exposed to from a smart meter is much less than what you could be exposed to from a cell phone it is very unlikely that living in a house with a smart meter increases risk of cancer ” 48 Under this concept EV batteries could eventually be used as storage of off-peak energy for the grid and help provide demand response when the vehicles are not in use Congressional Research Service R45156 · VERSION 3 · UPDATED 10 The Smart Grid Status and Outlook However obstacles exist to the wider adoption of EVs such as high cost and the limited range for EV travel Building out a national infrastructure for EV charging—whether built by electric utilities or some other entity—might address some of this concern Regulatory issues have also been raised as regards the sale of electricity from private owners of EV charging stations including the question of whether a sale of electricity from an EV charging station is a “sale for resale” and as such subject to laws governing electric utilities Some state jurisdictions have moved to prevent classification of EV charging stations as electric utilities A recent United Nations study predicted an almost complete transition of U S automobiles from internal combustion engines to EVs by 2050 should that be a policy goal for carbon dioxide reduction 49 Recent events add credence to that study as several nations have looked at greenhouse gas emissions reduction and climate change goals In 2017 Swedish car maker Volvo announced plans to phase out cars solely powered by internal combustion engines beginning around 2019 after which all vehicles Volvo produces will be electric-gas hybrids or EVs 50 General Motors made a similar announcement in October 2017 revealing its plans for 20 allelectric vehicle models to be sold globally by 2023 These moves come as China Britain and France have indicated or announced plans to ban gasoline-fueled vehicles in the next 20 years 51 The readiness of the grid to accept EVs is another issue 52 Some state and utility jurisdictions may be better able to accommodate the needs and potentially benefit from energy storage attributes of EVs than others Charging and discharging of EV batteries will primarily affect electricity distribution systems where EVs will be parked or garaged and this is where major infrastructure modifications may be needed If EV charging takes place mostly at night then electric utilities may potentially benefit if demand for power is increased 53 Customer-Focused Programs The ability of customers to take advantage of real-time pricing programs to reduce consumer cost and energy demand depends on the deployment of smart technologies and program approval by regulatory jurisdictions Such programs have been shown to result in significant customer savings and are dependent on Smart Grid sensors controls and metering technologies 54 Grid modernization programs are likely to extend beyond the grid’s operational needs and better enable customers to manage their energy choices Grid modernization investments in reliability and adaptability and price responsive demand are the building blocks to a grid that best serves the customer needs for power 49 United Nations Sustainable Development Solutions Network and Institute for Sustainable Development and International Relations Pathways to Deep Decarbonization July 8 2014 http unsdsn org wp-content uploads 2014 09 DDPP_Digit pdf 50 Volvo Car Group “Volvo Cars to Go All Electric ” press release July 5 2017 https www media volvocars com global en-gb media pressreleases 210058 volvo-cars-to-go-all-electric 51 Nathan Bomey “General Motors to Switch to Electric Vehicles as Gas Vehicles Die a Slow Death ” USA Today October 2 2017 https www usatoday com story money cars 2017 10 02 gm-electric-vehicles 722896001 52 Robert Walton “Time Not on Their Side Utilities Ill-Prepared for EV Demand SEPA Finds ” Utility Dive March 21 2018 https www utilitydive com news time-not-on-their-side-utilities-ill-prepared-for-ev-demand-sepa-finds 519530 53 Nick Stockton “Electric Cars Could Destroy the Electric Grid—or Fix It Forever ” Wired February 3 2018 https www wired com story electric-cars-impact-electric-grid 54 Environmental Defense Fund “New Smart Meter Data Shows Potential of Real-Time Pricing to Lower Electric Bills ” press release November 14 2017 https www edf org media new-smart-meter-data-shows-potential-real-timepricing-lower-electric-bills Congressional Research Service R45156 · VERSION 3 · UPDATED 11 The Smart Grid Status and Outlook Power system investments especially in the delivery system consider financial and physical factors to reflect planning and operating considerations Selecting from among alternatives should be based on the expected net benefits to the customer which includes but is not restricted to current supply costs Customers responding to prices based on marginal supply costs provide signals to what aspects of grid modernization are most essential and many elements of grid modernization are needed to achieve the desired level of price response 55 Major Smart Grid Concerns This section discusses some of the major concerns expressed about Smart Grid adoption While other potential issues exist most electric utilities appear to view the intelligence and communications capabilities of Smart Grid systems positively with regard to the potential benefits of Smart Grid adoption discussed earlier in this report Cybersecurity Smart Grid modernization ensues as upgrades to electric power infrastructure are added Substations are being automated with superior switching capabilities to enhance current flows and control of the grid Devices called “phasor measurement units” are also being added to substations to make time- and location-specific measurements of transmission line voltage current and frequency i e synchrophasor measurements made on the order of 30 times per second instead of data measured once every two to four seconds by current industrial control systems providing better tools to improve power system reliability While these new components may add to the ability to control power flows and enhance the efficiency of grid operations they also potentially increase the susceptibility of the grid to cyberattack Other aspects of Smart Grid systems such as wireless and two-way communications through internet-connected devices can also increase cybersecurity vulnerabilities The potential for a major disruption or widespread damage to the nation’s power system from a large-scale cyberattack has increased focus on the cybersecurity of the Smart Grid 56 The speed inherent in the Smart Grid’s enabling digital technologies may also increase the chances of a successful cyberattack potentially exceeding the ability of the defensive system and defenders to respond Such scenarios may become more common as machine-to-machine interfaces enabled by artificial intelligence AI are being integrated into cyber defenses However AI systems learn from experience and may be of limited use in cybersecurity defenses Unfortunately machine learning will never be a silver bullet for cybersecurity compared to image recognition or natural language processing two areas where machine learning is thriving There will always be a person who tries to find issues in our systems and bypass them Therefore if we detect 90% attacks today new methods will be invented tomorrow To make things worse hackers could also use machine learning to carry out their nefarious endeavors 57 55 U S Congress House Committee on Energy and Commerce Subcommittee on Energy Modernizing Energy and Electricity Delivery Systems Challenges and Opportunities to Promote Infrastructure Improvement and Expansion statement from Michael Howard Electric Power Research Institute 115th Cong 2nd sess February 15 2017 H Hrg 115-IF03 56 For more details see CRS Report R43989 Cybersecurity Issues for the Bulk Power System by Richard J Campbell 57 Alexander Polyakov “The Truth About Machine Learning In Cybersecurity Defense ” Forbes November 30 2017 https www forbes com sites forbestechcouncil 2017 11 30 the-truth-about-machine-learning-in-cybersecuritydefense 2 #68f33298416c Congressional Research Service R45156 · VERSION 3 · UPDATED 12 The Smart Grid Status and Outlook Thus one could envision a scenario where AI may be susceptible to intrusion feints which may cause systems to protect against false or disguised cyberattacks potentially allowing an attack focused along another path to continue DOE and the electric utility industry continue to work cooperatively to address these and other cybersecurity concerns As the Sector-Specific Agency for electrical infrastructure DOE ensures unity of effort and serves as the day-to-day federal interface for the prioritization and coordination of activities to strengthen the security and resilience of critical infrastructure in the electricity subsector Our ongoing collaboration with vendors utility owners and operators of the electricity and oil and natural gas sectors strengthens the cybersecurity of critical energy infrastructure against current and future threats 58 Privacy and Customer Data The sharing of information in applications used by the Smart Grid has raised questions on the safety of that information Security of customer information in wireless applications and how personal data characteristics such as customer usage information can be protected are issues often mentioned in discussions of the Smart Grid and cybersecurity Proposed solutions include encryption of data with limited decryption for data checking aggregation of data at high levels to mask individual usership limiting the amount of data to just information needed for billing purposes and real-time monitoring of these networks But even these methods might not be enough to guard against a sophisticated intruder The development of Smart Grid standards governing the collection and use of customer data may be a possible next step 59 If customers participate in demand-side management programs then customer usage data can provide a wealth of information for a variety of programs for interruptible loads or time-of-use rates But customer-specific data stored in home area networks HANs —or customer-specific data communicated between the HAN and distribution utility or load aggregator —must be secure to protect the privacy of information EVs may offer another potential payload of data on customer movement and habits if data collected or stored is not restricted to electricity consumption for billing purposes Recent Legislation In the 115th Congress the “Distributed Energy Demonstration Act of 2017” S 1874 introduced in September 2017 would direct the Secretary of Energy to establish demonstration grant programs related to the Smart Grid and distributed energy resource technologies that are likely dependent on its deployment These technologies include energy generation technologies demand response and energy efficiency resources EVs and associated supply equipment and systems and aggregations and integrated control systems including virtual power plants microgrids and networks of microgrid cells Federal matching funds would be provided for qualifying Smart Grid investments S 1874 would support the continued deployment of Smart DOE “Cybersecurity for Critical Energy Infrastructure ” 2018 https www energy gov oe activities cybersecuritycritical-energy-infrastructure 59 “The Office of Electricity Delivery and Energy Reliability and the Federal Smart Grid Task Force have facilitated a multi-stakeholder process to develop a Voluntary Code of Conduct VCC for utilities and third parties providing consumer energy use services that addresses privacy related to data enabled by smart grid technologies Industry stakeholders attended open meetings and participated in work group activities to draft the VCC principles ” DOE “Data Privacy and the Smart Grid A Voluntary Code of Conduct ” https www energy gov oe downloads dataprivacy-and-smart-grid-voluntary-code-conduct 58 Congressional Research Service R45156 · VERSION 3 · UPDATED 13 The Smart Grid Status and Outlook Grid technologies but modify certain conditions of SGIG grants to ensure various consumer benefits In the 114th Congress the “North American Energy Security and Infrastructure Act of 2015” H R 8 was passed by the House in December 2015 The legislation included provisions to capitalize on the enabling nature of the Smart Grid for new energy efficient technologies The bill would have required DOE to develop an energy security plan and to report on smart meter security concerns Further the bill would have directed the Federal Trade Commission to consider Energy Guide labels on new products to state that the product features Smart Grid capability The use and value of that feature would depend upon the Smart Grid capability of the utility system in which the product is installed and the active utilization of that feature by the customer Using the product’s Smart Grid capability on such a system could reduce the product’s annual operation costs Author Information Richard J Campbell Specialist in Energy Policy Disclaimer This document was prepared by the Congressional Research Service CRS CRS serves as nonpartisan shared staff to congressional committees and Members of Congress It operates solely at the behest of and under the direction of Congress Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role CRS Reports as a work of the United States Government are not subject to copyright protection in the United States Any CRS Report may be reproduced and distributed in its entirety without permission from CRS However as a CRS Report may include copyrighted images or material from a third party you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material Congressional Research Service R45156 · VERSION 3 · UPDATED 14