Cost/Benefit Analysis for Smart Grid Investments

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


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

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)


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


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.


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?)


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


Benefits


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.


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


Smart Grid Benefits

Sustainable Economic Prosperity

National Security

Reliability

Power Quality

Environmental Improvements

Utility Operating Cost Savings

kWhs and kWs reductions/increases


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


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


QUESTIONS?