To bring on the amounts of variable wind and solar energy and plug-in vehicles needed to meet our vast energy challenges, we will need a smart grid capable of managing much more complex power flows. Outside of some progressive exemplars, however, don’t expect leadership to come from the utility sector. Instead, changes will be forced by new policies and players, including some you might not expect, like big box retailers.

Those were my key takeaways from the stellar line-up of smart grid speakers at the Discover Brilliant sustainable technology conference in Seattle this week. David has been blogging away from the conference, so I don’t want to go over too much of the same turf. Instead I’m going to synthesize what I heard across a number of sessions and offer my interpretations.

A few statistics from the conference underscore the sluggishness of the electric utility industry when it comes to advanced technologies:

  • Only 60 percent of the transmission system has Supervisory Control and Data Acquisition (SCADA) systems, the basic technology to find out what is happening on the wires. Only two percent of the local distribution network has SCADA. (via Steve Pullins of the Modern Grid Initiative)
  • After 15 years in the marketplace, even relatively simple smart meters serve only one-third of U.S. power customers. (via Mike Burns with Itron)
  • The utility industry spends one-tenth of one percent of its revenues on R&D, less than any other major U.S. industry. (via Terry Oliver with Bonneville Power Administration)

So if the utilities are going to drag their heels, who is going to advance the smart grid?

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For the past several years I’ve been hearing about the Galvin Energy Initiative. Bob Galvin of Motorola asked a question: “Why can’t the grid supply perfect power?” To get at exactly how to supply perfectly reliable power, he engaged two smart-grid veterans from Electric Power Research Institute (EPRI), Kurt Yeager and Clark Gellings. The set of answers they developed points strongly to a decentralized power grid.

“Galvin nailed it,” noted IBM Energy & Utilities Global Research Leader Ron Ambrosio in the “Brilliant Grid for North America” session. “You focus on reliability where you need it, not 99.9999 percent reliable over the whole grid but at the end use.”

The backstory is that EPRI has long promoted visionary smart-grid technologies, which utilities have been slow to adopt. So Yeager and Gellings are working on an end run around the utils. Galvin is developing localized grid systems from building to neighborhood level. A pilot microgrid at the Illinois Institute of Technology will include local generation and energy storage.

I put a scenario to Gellings, another panelist in the session, that Galvin has long suggested to me: Say a new development is being constructed. Instead of being served by a utility, it is supplied electrical power by an independent energy services company. The ESCO operates a local smart grid that supplies power from localized generation. At the portal of the community there is one intersection point between the local and big grid where surplus electricity can be transmitted out and power drawn in, when economical and needed. Gellings confirmed that is indeed one of the potentials of Galvin.

“We will always have a bulk power system,” Gellings said. The big grid can supply low-cost power and balance intermittent renewables. But there will be many more localized grids, he said.

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Ambrosio compares this trend to computing. At one point, he noted, even IBM thought central mainframe computing was going away with the rise in distributed computing. Instead, central and distributed networks now sit beside one another and interact.

Steve Pullins of the Modern Grid Initiative, a U.S. Department of Energy effort to accelerate the smart grid, noted “a diverging gulf between utilities and consumers.” That is evidenced by what Pullins called “grid divorce.” Only 185,000 buildings nationwide have pulled out of the grid, but those numbers have grown 33 percent annually for the past 10 years. Extrapolating that trend, Pullins noted that there will be four million in 10 years and 53 million in 20.

“Key innovations in the industry are happening at the edge of the network,” Pullins said. “They are not driven by federal research or the utilities, but by consumer electronics and service companies.”

Later, in the hallway, I asked Pullins, whom I have found to be one of the best sources on grid trends, where he thinks the change drivers will emerge. Look to Wal-Mart, Costco, and Target, he said. Those big box retailers have small margins and big energy costs. With increases in grid power costs — double in some parts of the U.S., recently — and improvements in distributed generation economics, they are seeing bottom-line interest in new models for energy. So they will generate more of their own power and pull from the grid when it makes economic sense, Steve said.

Indeed, major retailers are proving to be one of the best markets for large-scale solar photovoltaic installations. Despite many justified complaints one might have about the big box model, its very scale and market power are set to play a central role in breaking utility monopolies and pushing toward localized grids.

Some progressive utilities are getting in front of the curve, and Discover Brilliant prominently featured a couple of them — Pacific Gas & Electric and Austin Energy. Janice Berman, PG&E’s lead for customer generation and emerging technologies, noted the utility particularly sees opportunities in three areas:

  • extending advanced metering to all customers,
  • running plug-in hybrids vehicle-to-grid as energy storage resources, and
  • engaging in whole community planning.

She gave an example of working with developers who planned to pipe wastewater 16 miles from a new subdivision. The utility suggested on-site wastewater treatment, saving 95 percent of the energy.

PG&E is already facing challenges of mass-scale intermittent renewables. Berman said the cutting edge is all-solar-home developments now emerging in northern California. The grid there needs to be configured to ship power out during the day and import at night. California’s solar goals, 3,000 megawatts in the next 10 years, could force the utility to reconfigure some existing grids, she added. “We have to design a smarter transmission and distribution system. We will need a lot more communications infrastructure.”

Austin Energy, meanwhile, is a national leader in the movement pushing car makers to produce plug-ins. They are also working with A123 Systems on converting standard hybrids to plug-in. That is tied to a utility goal for 30 percent renewables by 2020. Tax credits have already “rained wind projects on Texas,” Austin Energy Chief Strategy Officer John Baker told a Smart Grid/Renewables session. By next December, the Texas grid will have problems absorbing all that wind power. While major new transmission investments are needed, “there are answers downstream of the meter as well as across the grid,” Baker said. One is a high level of coordination between wind output and end use through automated demand response systems. Another is charging plug-ins at night when wind tends to blow in Texas.

But progressive utilities such as these are relatively rare, said SAIC Assistant Vice President Todd Davis, who works extensively with power companies in the Northeast. California, the Northwest, parts of the upper Midwest, and Austin are the notable geographies where utilities are integrating climate considerations with demand management and renewables. Elsewhere, even where these pieces are on the radar, utility action occurs in a fragmented manner, Davis said. “We have a huge integrated technology opportunity,” he noted, but only a few clear leaders.

Outside the U.S., one clear leader is Denmark. Pullins pointed out that the country now supplies 32 percent of its power from renewables, primarily wind and biomass. So it has moved from a standard centralized control system into a series of local cells that are managed in a microgrid approach.

Ambrosio added that mass renewables set up “an absolute requirement for a much smarter grid” that can manage power variability with demand response.

Andy Frank of U.C.-Davis, godfather of the plug-in movement, made a similar comment: Plug-ins could drive renewable energy. Renewable energy would pay back investments four times faster competing with gasoline than competing with other grid power. To feed power back into the grid, which many observers see providing a potential cash stream offsetting the cost of plug-ins, “The chokepoint is an intelligent grid, so the grid can tell the car, ‘I need a little power now.'”

The utility industry is notoriously conservative. As Gellings noted, “Utilities are very fast to be the second or third.” But new competitors will emerge that provide services such as 100 percent reliable power and clean energy. Much the same way new distributed telecommunications companies emerged to beat down Ma Bell, these new grid players will break the standard utility model. Utilities that hope to maintain their position will do well to emulate leaders such as PG&E or Austin Energy, or be left in the dust by dynamic new energy providers.