The Smart Grid Research Consortium (SGRC) has released a report, 7 Reasons Why Grid Investments Fail, which identifies the main reasons why investment returns at cooperative and public utilities fail to meet utility expectations.
Characteristics must be right
"Smart grid investments seem like the perfect new technology application -- transforming utility business practices, [as well as to] provide grid control capabilities that improve efficiency, provide enough cash flow to cover interest and principal payments and even give some rate relief," said Dr. Jerry Jackson, research director of the Smart Grid Research Consortium. "Those results can often be achieved if utility and customer characteristics are right, if smart grid investment strategies are designed appropriately and if implementation proceeds as planned."
However, in its review of co-op and public utility investment outcomes, SGRC found that these conditions are not often met at utilities. As a result, unanticipated rate increases transpire to make up for shortfalls in realized savings.
The report identifies seven important reasons for these outcomes, including vendor/integrator business case analysis; absence of risk analysis; failure to quantify unique utility and customer characteristics; subjective system integrator/prime contractor selection; software performance failure; inadequate post-AMI implementation strategies; and insufficient utility due diligence.
"One of the interesting findings in our study was that many utilities who fail to achieve ROI targets are also failing to take advantage of opportunities to significantly improve smart grid investment returns," Jackson said. "Traditional cautious utility approaches are unnecessary and detrimental to financial outcomes for certain smart grid initiatives." [Engerati-Smart grid spurs creativity in transforming the utility business model.] and [Engerati-Smart Grid Will Open Door To New Business Opportunities.]
Jackson cites an example of the EPRI Guidebook for Cost/Benefit Analysis of Smart Grid Demonstration Projects which suggests that "after the VVO/CVR system is installed and tested, the efficacy of CVR will be examined through two years of day-on/day-off operation that will provide data to feed a regression analysis."
Jackson explains, however, that information from smart meters can be used in day-ahead experiments and real-time applications to fine-tune CVR applications as soon as smart meters begin transmitting information, two years in advance of the EPRI recommendation. Two years of CVR savings can be enough in some cases to pay one-third to one-half the cost of the AMI system that is providing this information -- and delayed implementation of customer engagement programs dilute savings while these benefits remain unrealized, Jackson concludes.
Jackson advises utilities that have embarked on smart grid projects reassess post AMI project development and implementation plans as projects progress.