Monthly Archives: July 2013

How Do You Spend $400 Billion? Part IV: A Least Cost Strategy for SG 2.0

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Dom Geraghty


Given the high costs and risks associated with SG 2.0, we recommended in Part III that SG 2.0 be implemented based on a “Managed Deployment Strategy”.

What is a Managed Deployment Strategy? It comprises:

(1) Picking SG 2.0 applications that provide the best benefit to cost ratio, prioritized within an affordable budget,

(2) Building-in sufficient flexibility to minimize the impact of major future uncertainties, and

(3) All the while maintaining the target level of service reliability.

That is, our Managed Deployment Strategy combines budgeted high-benefit-to-cost-ratio investment commitments (abbreviated to “Least Cost Strategy”) with a risk management strategy.

In this dialog, we look at the Least Cost Strategy component. In the following dialog we will talk about identifying high-value SG 2.0 applications and evaluating their business cases within the context of a risk-managed, Least Cost Strategy.

Developing a Least Cost Strategy for SG 2.0 Deployment

DSC_1310-150x150It has been estimated in several studies that a national deployment of SG 2.0 would cost about $400 billion and provide a benefit to cost ratio of 3:1, including the value of qualitative benefits (which comprised a substantial portion of the total benefits). The studies assume significant national market penetrations for different SG 2.0 applications.

Some studies of service-area deployments by utilities have been less optimistic about the benefits, suggesting a benefit to cost ratio of approximately 1:1. These studies have included less, or no, qualitative benefits, which could likely account for the lower benefit to cost ratio. These studies also include fairly significant market penetrations for different SG 2.0 applications.

In both the national and the utility cases, the costs of various SG 2.0 applications have been derived from similar data sources. We don’t think that there is a lot of disagreement about the “ball-park” costs of deploying various SG 2.0 applications. However, there is much less consensus about the benefits.

We have suggested that the SG 2.0 costs could be much less than the top-down forecast as a result of the 80%/20% rule, i.e., experience in similar situations indicates that one may be able to obtain perhaps 80% of the benefits of SG 2.0 applications by deploying into about 20% of the power system.

Assuming that this rather convenient rule applies here, we could reduce the investment budget for SG 2.0 deployment substantially below the projected $400 billion above, and yet still derive most of its benefits. We’ll see – it sounds somewhat optimistic, but we do buy into the idea of “surgical” deployment of SG 2.0 applications, i.e., focusing on, and limiting the deployments to, high-benefit situations.

Caveat Emptor!

We’ve received a warning. The original business cases for AMI have proven to date to be weak. Continue reading

How Do You Invest $400 Billion? – Part III: Planning Assumptions and Trade-Offs

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Dominic Geraghty


What Is the Transition to SG 2.0 About, in Reality?

The transition is not just about an orderly, four-stage SG architecture change, driven by logical change-outs of information and communications technology, as presented in Part II. It is important to have thought this through, but it is not enough, and the transition will likely look quite different. This road-map will have detours.

It won’t happen that way because economics will determine in what parts of the system the transition will occur – the changes will take place through “cherry-picking” the highest benefit-cost ratio SG 2.0 applications. Realizing cash benefits will be a priority to offset the high capital requirements of power systems, i.e., to create “avoided costs”.

IMG_2597-150x150Neither will the transition be just about architecture and economics – it will be about the timeliness of supportive regulatory and policy changes. Regulations and policy deeply affect the economic incentives and outcomes of SG 2.0 applications.

The transition will be also mediated by tougher requirements on technology readiness. To date, value-added applications that were supposed to be provided by AMI installations have had mixed delivery results. SG 2.0 vendors will be increasingly required to demonstrate value propositions, to “prove” them. Demand for “pilot demonstrations” will increase, and “system acceptance tests” will become more stringent. Certification of functionality and interoperability will become the norm.

And lastly, a successful transition is about end-use customers, who are concerned about the size of their electricity bills and about receiving an adequate level of service reliability – will the continued polarization of the political processes that govern power system investments create a reliability crunch in stressed locations? Customers have already exhibited hardening resistance to AMI installations, in part because they do not see benefits. Will customers increasingly “self-optimize” by building more DG in the light of higher bills and the potential for lower reliability?

To understand how the transition will occur, and at what pace, we need to build in assumptions about all of the above determining factors as we develop corporate and individual business cases for SG 2.0 applications.

Competing for the Capital Required for Utility SG 2.0 Installations Continue reading

How Do You Invest $400 Billion? Part II: The CEO of the SG Develops a Budget Forecast

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Dom Geraghty


This is the second part of a four-part dialog series.

The first dialog in this series presented, from a top-down perspective, the costs and benefits of SG 2.0 deployment plans created by five different, credible groups.

This second dialog prepares and discusses a conceptual multi-decade budget for a national SG 2.0 deployment, an approach that could also be used by individual utilities.

The third dialog will provide a holistic budget forecast for the deployment of SG 2.0 and the replacement of aging infrastructure for the power system as a whole. Our final dialog will suggest a “Managed Deployment Strategy” for SG 2.0 that combines a least cost approach and risk management.

10. DSC_1334-150x150We have already noted that the only meaningful way to choose which individual SG 2.0 applications to deploy was from a bottom-up, project-oriented approach within the context of the regulatory, market and business environment, including taking account of the costs and benefits of any power system impacts. Our mission here at SGiX is to facilitate these project choices.

As a first step in fulfilling this mission, the “ground-work” as it were, we feel it would be useful to create an understanding of the “big picture” -- the national context within which these individual SG 2.0 business cases are to be evaluated and financed. That is the purpose of this current series of dialogs.

The CEO of the “National Smart Grid” Does Some SG 2.0 Deployment Planning

Imagine for a minute that you are the CEO for the entire ‘national smart grid’. You are concerned about the large capital investment requirement over a multi-decade period of time, how you are going to finance this multi-decade investment, and perhaps the “softness” of some of the benefits.

How would you go about evaluating an investment commitment, and determine the recommendations you’d want to present to your Board?

Well, for sure you’d want to prepare a budget forecast.

But to develop a budget, you would first need a road map of the expected deployment of SG 2.0.  So, you would review the road-maps that have been developed by various credible entities, and talk to the leadership of these efforts.

Some SG 2.0 Deployment Road-Maps

DSC_0026 150x150One credible road-map for the transition has been presented in the 2011 joint report by Cisco/IBM/SCE (link) entitled: “Smart Grid Reference Architecture: Volume 1”, referencing and making use of previously published seminal work by NETL, GridWise®, NIST, and IEEE. The Cisco/IBM/SCE proposed transition moves gradually through four stages -- a senior Cisco executive estimated that the transition would take about 30 years to accomplish:

(a)    Stage 1:  Today’s silo-ed architecture, e.g., metering/billing and EMS/SCADA as separate architectures Continue reading

How Do You Invest $400 Billion (in the SG)? — Part I

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Dominic Geraghty


SGiX is about business cases. Obviously, one needs a very strong set of business cases to commit to an investment of as much as $400 billion for SG 2.0, even if it is over a period of 30 years.

DSC_1310-150x150We are going to propose that a “Managed Deployment Strategy” might give us the best chance of success, i.e., delivering prioritized, well-defined benefits over time coupled with a commensurately-paced investment rate. We will define and present the “Managed Deployment Strategy” in Part 2 of this dialog series.

In all of this, we are assuming that the above required capital for SG 2.0 can be made available even in the context of an industry that appears to need an additional ~$1.7 trillion for infrastructure investments over the same period of time, estimated as follows:

Estimate of the Total Capital Requirements of the Power Sector through 2030

Investment Category

$ Billions


SG 2.0


See Dialog, here
Traditional Power System Infrastructure (G,T, and D)


See Dialog, here


Zpryme, Pike market research reports cited by GreenTechMedia
Environmental Compliance


EEI 2011
Policy-Driven Subsidies

$ ?

For example: RPS, EVs, DG, Storage, etc.



Caveat: the above estimates and those below are based on data from a variety of different sources. The sources reflect somewhat different or overlapping definitions of the costs (capital investments), and it is possible that some of the benefits may be double-counted. Some other costs and benefits were not counted -- see below.

Analyzing SG Benefits and Costs

Let’s first review what we know about the “top-down” aggregate benefits and costs of the SG, and identify the “gaps” in terms of inclusion and quantification. We are then positioned for our following Part II dialog about the desirable attributes of a “Managed Deployment Strategy” for SG 2.0.

From a business case perspective, we know that it is meaningless to evaluate an aggregated investment of $400 billion in terms of aggregated top-down benefits. Continue reading