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