Monthly Archives: April 2013

Building the New SG 2.0 Infrastructure (III) – There Will Be Losers

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Dominic Geraghty


This dialog addresses the fifth success condition for SG 2.0: regulations and market structure.

We have a problem: there is (and will be) a lag in the changes in regulations and market structure necessary to realize the full benefits of SG 1.0 and SG 2.0 applications.

These delays negate potential returns on SG 1.0 and SG 2.0 investments, reducing their ability to cut customer bills by preventing the monetization of their potential value.

We need concomitant changes in different types of SG 2.0 support “infrastructure”: regulations and market structure. Examples of needed regulatory and market changes include, but are not limited to, TOU and RTP tariffs, interconnections to utility assets, privacy and ownership of consumption data, regulated return incentives, and market structure/products/protocols. We invite you suggest others in the comment box below.

Our rate-making process must also shoulder a portion of the blame

The rate-making process incentivizes over-investment in capital assets (the “Averch-Johnson Effect”) and can also dis-incentivize conservation investments. Incentive regulation, similar to that now being implemented by Ofgen in the U.K. offers an opportunity to better align utility risks and rewards with SG policy goals. But that’s a dialog for another day………………….

There will be “losers” -- the benefits of further IX investments and Smart Grid 2.0 implementations will be unevenly distributed

The implementation of SG 2.0 will result in asymmetric benefits across SG stakeholders, in terms of both the size and timing of these benefits.

A Cisco white paper on Gridonomics provides an interesting analysis of value flowing to stakeholders from the implementation of a basket of SG 2.0 applications in three states with different power market structures.  The following table summarizes Cisco’s analysis:

Value Chain Stakeholder Analysis

Customer value gain

Retail value gain/loss

T&D value gain

Generator value loss

Uncaptured value





$16 B

Adding across the row in the table, we get $37B in net benefits for the three states of GA (100% regulated power market), CA (~ 50% deregulated power market), and TX (fully deregulated power market).

Not unexpectedly, generators shoulder the majority of the losses associated with the transition to the SG 2.0, while customers accrue the majority of the benefits. Cisco defines the uncaptured value column above as comprising reliability, carbon emissions reductions, and other benefits not monetized in U.S. power markets.

To support a policy goal related to the implementation of the SG, a portion of the net positive benefits could be reallocated to compensate some of the biggest losers, while still coming out ahead in terms of the customer case as a whole --  good grist for a future dialog.

Building the New SG 2.0 Infrastructure (II) – Six Conditions for Success

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Dominic Geraghty


Mr. Can-Do: “So, we need to build a communications iX (infrastructure) using already available, mature technology to enable SG 2.0 applications? OK, let’s get on with it.”

Hold on a second, Mr. Can-Do -- it’s a little more complicated than that -- we need to juggle a few more balls.

Success is not just about the technology – to make the transition to SG 2.0, we need to get six conditions right:

(1) Technology (engineers)

(2) Standards (SGIP, and other standards development bodies)

(3) Economics (business cases by corporations, entrepreneurs, and investors – SGiX’s “deliverables”)

(4) Capital/financing (private investors, public investment)

(5) Regulatory and market structure (the regulators, legislators, and policy-makers), and

(6) Consumer education and support (marketing communications)

The first success condition, technology, has been studied the most -- in terms of developing viable business cases, we need for the other conditions to get caught up to this first success condition.

In the build-up to defining these success conditions, we posted the “Is The Smart Grid Deadlocked?” dialog, and presented a new, standardized definition of the SG that differentiates it from the power system iX, folding in some public and private comments that we received from the SG community.

The new standardized definition will be the context within which we develop SG 2.0 business cases at

Thanks to commentators and private e-mailers for their collaboration in the above effort.

We have subsequently posted a new dialog on the technology success condition, point (1) above.

In a series of follow-up dialogs, we will discuss other individual SG 2.0 success factors. We invite your comments, as always.

Mission reminder: SGiX has a different mission from other SG web-sites. Please see here our response to Jesse Berst’s blog at where we explain how we are different. We are focused on creating pre-defined deliverables step by step through an on-line collaboration of the SG community. The deliverables are individual business cases for SG 2.0 applications that span the SG value-chain.

“Building the New SG 2.0 Infrastructure (I) – The Technology”

(a.k.a. “Outrage in Gridiopolis” – a Greek Tragedy about the Smart Grid)

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Players: “The Archon”, “The Engineer Ultra”, and “The Chorus” -- the citizens of Gridia, known as the Gridians

Setting: Gridiopolis, in the province of Gridia -- in a parallel dimension

 “I’m afraid that AMI is not the Smart Grid (SG) – and today’s AMI communication infrastructure is not SG 2.0-capable”, said the Archon of Gridiopolis. “This requirement was not anticipated in the rate-making processes for AMI – it was generally assumed our AMI communications infrastructure, or to be more precise, υποδομή, would support SG 2.0 applications.

For example, AMI investments were justified on the basis of their professed ability to enable a wide variety of demand response and distribution automation applications. This was in addition to AMI-enabled real-time pricing and time-of-use rate applications. The industry got into the habit of using the AMI and SG acronyms interchangeably, and in some people’s minds the acronyms became, incorrectly, synonymous.”

“What!” the astounded citizens of Gridiopolis exclaimed, “We don’t have a smart grid? We thought that’s what we paid for!”

The Archon turned to address His Eminence, The Engineer Ultra: “So, if AMI isn’t the smart grid, what exactly do we need then, Ultra, to enable SG 2.0 applications?”…………………………..

The Engineer Ultra set aside his astrolabe, refilled his krater, called on the flute players to desist, and responded as follows:

“Most of the SG 2.0 applications require higher control signal speed and band-width than today’s deployed AMI systems. To physically implement SG 2.0, we need a system combining the high-speed, high band-width communications with smart “boxes” or sensors at control points at the edges of the system.

Just as importantly, SG 2.0 applications also require significant integration investments, i.e., application programming interfaces (APIs) connecting the SG 2.0 applications to existing operating systems – what we call interoperability, or, to be more precise, διαλειτουργικότητ. NIST’s SGIP 1.0 and 2.0 initiatives, and other standards groups, have been doing some fine work to address these interoperability challenges.

But we don’t necessarily need to create a custom communications system, as was almost universally done for AMI.”

 “Whew!” said the citizens, “Thank Apollo for small mercies!” The Engineer Ultra, somewhat discomfited by the boldness of their ridicule, continued: “Several suitable communication infrastructures have already been deployed at enormous expense by telephone, cable, fiber-optics, and wireless service companies.  And we have a mature empire-wide communications language: the Internet Protocol (IP).

However, we will still need to invest a significant amount of capital for the “boxes”, sensors, software integration, and data management functions required to support SG 2.0.” He paused, exhausted, and lulled by the sweet scent of myrrh, fell into a deep sleep, muttering as he did, “I should have definitely consulted the Oracle………………………...”

At SGiX, our new definition of the SG and the iX cleans that up the ambiguity that is present today between AMI and SG concepts -- to recap, AMI is simply a part of today’s power system infrastructure (iX), enabling consumption measurement and monitoring. These applications don’t require real-time communications or high band-width, whereas the SG and its SG 2.0 applications do.

To be fair, AMI does enable a limited set of smart grid applications that can tolerate some latency. For example, the smart meter can enable remote disconnects, outage detection, theft detection, and direct load control. In our standardized definition, we call these applications SG 1.0. Continue reading

“…and the Power Infrastructure said to the Smart Grid, ‘I want a divorce’….”

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Dominic Geraghty

(The Players: SG -- the Smart Grid, and iX -- the infrastructure)

To date, discussions and investment commitments related to the SG have co-mingled the SG and its enabling infrastructure (iX).  But, from a business case perspective, they need to be considered separately—they are completely different types of investments.

In the graphic below, we have deconstructed the SG into two separate elements:

(1) the evolving power system iX, and

(2) SG applications that are mostly, but not always, enabled by this iX, and evolve with it

This is the context in which our business cases for SG applications live, and within which we will evaluate them.

Evolving Power System Infrastructure (iX) Enables SG 2.0 Applications

Evolving Power System Infrastructure (iX) Enables SG 2.0 Applications

Across the top, we show the evolution of power system infrastructure as its ability to support increasing levels of automation is added. It moves from plants (G), wires (T & D), and traditional meters, to plants, wires, and smart meters (AMI) with an ultimate overlay of high-speed, high band-width communications.

Along the bottom, we show the emergence of SG applications separate from, but enabled by, the increasingly sophisticated communications infrastructure of the power system. The advanced Internet Protocol (IP)-based communications system offers the capabilities required to support real-time SG applications, well beyond what is deployed today to support automated meter-reading.

The AMI application can continue to use its current communication systems for a time, provided that it can be configured to support time-of-use and real-time pricing regimes, presumably in a "store-and-forward" mode of operation.

The new definition also makes it possible to implement SG applications that do not involve the use of utility-owned assets.

We might also want to think of a third, and critical, supporting infrastructure that could (should?) be added to the above graphic -- the prerequisite evolution of regulatory and market structures necessary to realize/monetize the value of SG applications. That's a dialog for another day.

This new standardized definition of the SG, as a separate entity from its supporting communications iX, is a keystone deliverable for SGiX. It clarifies how we will think of, and evaluate, SG business cases going forward. Our next dialog, “Building the New SG 2.0 Infrastructure (I) – The Technology”, provides the underlying thinking that led us to this new definition.

We welcome your comments, below.