Bernie Neenan EPRI Technical Executive
Workshop
Massachusetts DPU
December 17, 2012
Cost/Benefit Analysis for Smart Grid Investments
2© 2012 Electric Power Research Institute, Inc. All rights reserved.
EPRI Smart Grid Demonstration 4-Year Update
• Participants •23 Utilities•15 Host Sites
•2012 4-Year Update•13 Case Studies•From 10 Members
•2012-2014: •Case Studies•Benefit Assessments
3© 2012 Electric Power Research Institute, Inc. All rights reserved.
Cost-Benefit Analysis Guiding Documents
Methodological Approach – Jointly funded by DOE and EPRI– Framework
for estimating benefits & costs– Definitions,
concepts and data sources– Publicly available: Product ID EPRI 1020342 (Jan 2010)
2012
Volume 1&2 Measuring Impacts
and Monetizing Benefits
CBA Guidebook, Volume 1: Measuring Impacts– Manual for practical application
with step by step instruction– Guidance for documenting the project
in detail and approach to perform a CBA,– Includes templates for working through the process.– Publicly available: EPRI 1025734 (December 2012)
4© 2012 Electric Power Research Institute, Inc. All rights reserved.
4
Cost and Benefit Analysis (CBA) – Design Principles
• Adaptable to all Smart Grid technologies• Consistent and fair comparison of
alternative Smart Grid technologies and systems
• Adaptable to derivative technologies and expanded applications
• Counts all benefits, but only once • Distinguishes benefits according to:
– Level (how much)
– Distribution (who is the beneficiary)
– Timing (when they are realized)
5© 2012 Electric Power Research Institute, Inc. All rights reserved.
How is CBA for a Smart Grid Project Different?
• Scope of technologies involved
– Can be broad and range from generation bus to customer end-use devices
– Can facilitate integration of new technologies into dispatch operations and wholesale electricity markets
– Can facilitate DG installed at various locations on system
• Scale of technologies
– Can range from small isolated parts of grid to expansive projects
• Span of markets and market participants
– SG investments can cross customer classes, utility markets, market participants, regional market operators and reliability organizations
6© 2012 Electric Power Research Institute, Inc. All rights reserved.
Process Flow for mapping Smart Grid assets to functions to impacts to benefits
Assets
Technologies
Devices
Systems
Examples: AMI/Smart meters
Distribution Automation
Intelligent electronic devices (IEDs)
2-way communication
Smart Appliances
Functions
Examples: Automated Voltage/VAR
control
Dynamic Capability Rating
Flow control
Intelligent line switching
Real-time load management
Customer use optimization
Impacts (physical
measures)
Compare project performance to
baseline case
Example measures: Reduction in kWh
Reduction in peak kW
Loss reductions
Outage reductions
Improved asset utilization
Benefits (monetized)
Monetize physical measures
Example measures Fuel savings
Capacity savings
Reduced outage costs
Customer bill reductions
Reductions in CO2, Hg, etc.
7© 2012 Electric Power Research Institute, Inc. All rights reserved.
A Important Distinction
• Impact (cause) the impact of the investment on
the system (what aspect of service or performance changed?)
• Benefit (effect) the monetary
equivalent of the impact (who gets what?)
8© 2012 Electric Power Research Institute, Inc. All rights reserved.
Impacts Monetization
System(Program, Project,
Sub-Project)
System(Program, Project,
Sub-Project)
Device1Device1 Device2Device2
Device3Device3 Device4Device4
Function1
Function1
Function2
Function2
Function3
Function3
ApplicationApplication System
Configuration & Operation
• Location
• Connection
• Direction of Influence
• Point of Impact
• Intended Use
MarketEnvironment
• Market versus Integrated Utility
• Regulatory conditions
Functions:Physical
Capabilities
Application:Use of System
in its Environment
Systems:Combination of
Devices and Software
Demonstrating Physical Impacts
Costs/BenefitsCosts/
Benefits
Costs/BenefitsCosts/
Benefits
Costs/BenefitsCosts/
Benefits
ImpactsImpacts
ImpactsImpacts
ImpactsImpacts
MetricsMetrics
MetricsMetrics
MetricsMetrics
Measure Calculate(algorithms)
Monetize
Impacts:Measurable
Physical Changes
Metrics:Calculated
from Impacts
Costs/Benefits:MonetizedImpacts
Monetizing ImpactsMonetizing ImpactsMantra• We measure impacts, • calculate metrics, • monetize costs and benefits.
9© 2012 Electric Power Research Institute, Inc. All rights reserved.
Demonstrating Physical Impacts
• Formulate hypotheses: testable statements about measurable impacts. What to expect.
ExpectedImpacts/Benefits
ExpectedImpacts/Benefits
PhysicalMeasurableQuantities
ExperimentDesign
ExperimentDesign
Verified Physical Impacts
Verified Physical Impacts
Baseline Measurements
Baseline Measurements
• Produce measurements through experimentation. Observed and measure the change
• Test hypotheses by analysis of measurements versus baselines. Does it work?
• Design a sequence of experiments to test the individual hypotheses. Isolate effects
HypothesesHypotheses
10© 2012 Electric Power Research Institute, Inc. All rights reserved.
Smart Grid Benefits
Sustainable Economic Prosperity
National Security
Reliability
Power Quality
Environmental Improvements
Utility Operating Cost Savings
kWhs and kWs reductions/increases
11© 2012 Electric Power Research Institute, Inc. All rights reserved.
Monetizing Impacts
• Monetary equivalents of impacts are generally economic and financial determinations
• Accuracy is often had to establish because of uncertainty an subjectivity: – Energy savings/costs – Capacity/investment deferrals– Avoided customer interruption costs– Manpower savings/costs
• Important distinctions– Market structure– Effected customers– Order in which technologies are implemented– Economic and technological obsolescence
Economic Question: Is it worth doing?
• Labor Costs• Equipment Survivor Curves• Cost per crew hour/truck roll• Marginal cost of power
i.e., cost rates or other datato monetize Impact Metrics
for cost/benefit analysis
Cost Factors & Other Independent Data
Cost/BenefitAnalysis
ImpactMonetization
and Analysis
• Total Project Cost• Total Benef its by
Benef iciary• Benef it/Cost ratio
i.e., estimates of past and futurecosts & benefits
12© 2012 Electric Power Research Institute, Inc. All rights reserved.
The Key Issues – MA and any State
• What perspective do you adopt?• How do you create verifiable and locally
acceptable impact metrics for Grid Modernization technologies?
• How do you monetize those benefits?• Who gains and who pays• How do you merit order investments?
Be prepared to either monetize the value of reliability, or rationalize and justify it on
other grounds
Be prepared to either monetize the value of reliability, or rationalize and justify it on
other grounds
13© 2012 Electric Power Research Institute, Inc. All rights reserved.
QUESTIONS?