Posted by: nialljmcshane | May 9, 2010

So What is Smart Grid Anyway: Smart Meters and Demand Response

May 9, 2010

An article in Intelligent Utility this week notes that, despite deployment of 13 million smart meters in the US, most consumers are unaware of the potential benefits of smart grid technology.   This low level of awareness, coupled with stories out of Texas and California where consumers have filed lawsuits alleging that new smart meters installed in their homes resulted in unexpected increases in their electricity bills, represent obstacles to the general acceptance of smart grid technology.

In my own discussions with people that I meet, many do not know what smart grid is and, among those who are aware of smart grid, there are many misconceptions.  For many, the smart grid seems to begin and end with the concept of smart meters and the potential for consumers to achieve incremental savings on their electricity bills.

The real benefits of the smart grid go far beyond the direct savings to an individual consumer.  These benefits include:

  • reduced green house gas emissions resulting from shifting of demand out of the peak periods where older, dirtier and more costly generating facilities may be required to meet demand,
  • reduced demand for new power generation plants,  which are expensive to build and maintain and which many communities do not want sited near their homes,
  • improved fault detection, isolation and recovery capabilities within the grid to reduce outages and minimize the impact of those that do occur,
  • Improved transmission efficiency to reduce the losses that occur when electricity is transported long distances through high voltage transmission lines from large centralized generating facilities to remote communities,
  • increased capacity for integrating renewable power sources into the grid while preserving grid stability,
  • preparing the grid to accommodate  the projected increase in the number of electric and plug-in hybrid electric vehicles,
  • significant cost savings to the utilities which will help to curb the increases in energy costs that we would otherwise see in the future,

I will discuss some of these benefits in future columns but, in the rest of this blog entry and another entry that I will post later this week, I want to take a closer look at smart meters and the concept of demand response which most directly impact the individual consumer.

Smart meters can be used for metering electricity, gas and water consumption by industrial, commercial or residential consumers. An earlier generation of meters provides Automated Meter Reading (AMR) capabilities.  The primary motivation of AMR was to reduce the costs associated with manually reading meters and eliminate the need for a meter reader to gain physical access to the meter location, thereby reducing or eliminating the practice of estimated billing.  There are multiple technologies for AMR ranging from walk-by or drive-by solutions that still require a meter reader to travel a route that brings them into close proximity of all the meters to be read, to more advanced technologies that use networked communications to aggregate meter data from across a neighborhood area and transmit it to the utility for processing and billing purposes.  As AMR solutions evolved, utilities identified a need for more granular data from the meters than the once a month readings that the walk-by or drive-by solutions typically provide.  They also identified a need for two way communications with the meter to send real time pricing signals and other data to the consumer and to allow the meter to report service quality issues to help with fault detection and isolation.  AMR solutions have evolved to meet these needs and the newer technologies are referred to as Advanced Metering Infrastructure (AMI).  The term AMI extends beyond the actual meters and encompasses

  • the communications networks used to transport the data to and from the meters,
  • meter data management systems used by the utilities to process the data and interact with the network of meters,
  • business systems used to provision and manage customer accounts and
  • consumer displays or web portals that provide consumers with access to data on their energy usage and the cost of that energy.

Many, but not all, modern smart meters also include an interface to a Home Area Network (HAN) that extends the two way communication between the utility and the consumer into the home or commercial premises, allowing for the integration of so-called smart devices that can be programmed to respond to real time pricing data from the utility.  Home Area Networks can also be connected independent of the meter through existing broadband internet connections or through a direct interface between a HAN gateway and an RF network used to interconnect the meters to the utility network.

In the meter centric view of the Smart Grid world, consumers will sign up for  time-of-use (TOU) or real time pricing which more accurately reflects the actual cost of electricity on the spot markets.  Electricity costs will be substantially higher during periods of peak demand and much lower during other times.  As a result, these consumers will modify their behavior through the use of smart devices that reduce or shift demand for electricity to off-peak times in response to pricing signals from the utility via the Home Area Network.  This beneficial cycle of reducing or shifting consumption in response to high prices in periods of peak demand is referred to as Demand Response.  What is particularly important about this process is that, by reducing peak demand, consumers help to level out the demand cycle for the utilities, thereby reducing the need for peaking generators which are often older, dirtier and more costly to operate.  In this way, demand response can be a significant contributor to greenhouse gas reductions and lower overall energy costs.  This ability to automatically shift peak demand will also help to curb the need for new generation facilities for base load generation and enable the integration of electric and plug-in hybrid electric vehicles.

However, as skeptics are quick to point out, savings of 10% or even 20% on a monthly electricity bill that might average around $100 are not really significant to many families and, given the expected costs of HAN equipment and smart devices, the expected return on investment is simply inadequate to motivate people to make meaningful changes in how they consume electricity.  Those for whom a saving of $10-20 a month would be significant are least likely to be able to afford the expensive HAN and smart device equipment.  Note however, that the expected advent of significant numbers of electric or plug-in hybrid electric vehicles will eventually change that analysis as we shift more and more energy consumption to electricity.

In part two of this article, which I will post later this week, I will address these concerns and show why I think that demand response will be effective both in the short term and, more especially in the longer term.



  1. A 10 or 20% savings can be a small amount in a $50 monthly bill of a apartment dweller or the $100 bill of a homeowner. Particularly if it requires a change in behavior of the utility customer. However, owners of larger homes and those with swimming pools common in warmer climates can experience larger monthly bills which are made even larger by tiered electricity pricing. In my opinion it is these homeowners with $100-$300 bills may be the more likely first group to be act on the data of smart meters.

  2. […] company’s creative way to re-use wine and beer glass bottles. Love the green glasses. So What is Smart Grid Anyway This whole smart grid idea has had me really puzzled. Nice article explaining what it means for […]

  3. Nice article, One thing we should not forget, not all peak power is dirtier than basload power. Even a modern simple cycle Gas turbine emits substantially less carbon than a old coal fired plant. Anyhow releaving the peak power demand frees up capacity on the grid for renewable energy and that is at the moment a real bottleneck. Smart metering with differentaited tariffs will motivate households to shif load to the night – new appliances with tiemdelay starts make that possible without any inconvenience.

  4. […] those transformers to fail, especially if the vehicles are allowed to charge during peak hours.  Demand response is a key Smart Grid solution that needs to be in place to enable the expected growth in EVs, but […]

  5. Greentech media recently published an interesting article that looks at what comes after smart meters and AMI systems. Read more at

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