Smart grid advocates have done a decent job of developing and deploying innovative new technologies in a short period of time. They also have done a relatively good job marketing those technologies. Where they have fallen short, however, is in selling the whole smart grid package to utilities, customers, regulators, and policymakers. Many are still skeptical, close-minded, or plain old belligerent about it.
There are a lot of reasons for this. Due to a lack of a unified messaging strategy among the diverse stakeholders in the smart grid community, there is a lot of disagreement about how to “sell” the smart grid to utilities.
Here Is What We Want: A Clear Four Point Message
Everyone likes the sound of a smart grid. It’s snappy, sounds high tech, and has clear connections to everyday life. Although a lot has been done to make a smarter grid, we are still a long way from a fully functional 21st Century energy network. So when people, specifically in government, ask what is needed — what should (and shouldn’t) smart grid advocates say.
1) We don’t want your money; we just want you to help us make money.
Recovery Act funding is drawing to a close, and has been very successful in sparking smart grid development and demonstrations across the country. There is very little chance, particularly in this fiscal climate, of a massive new infusion of cash. And that’s okay. There is plenty of money parked in utilities, and a built-in rate base for revenue. The problem is, the kind of capital investments we want utilities to make will undercut their ability to make money. There are insufficient cost recovery mechanisms in place to recuperate these investments.
Here’s an example. We want utilities to make investments in distribution wires and substations that better facilitate distributed generation. But, as more distributed generation comes online in conjunction with friendly net metering and interconnection, the “variable costs” portion of a consumer’s bills shrinks (since it is based on energy consumed, and distributed generation offsets that consumption). This leaves only the traditional “fixed costs” part of the bill, which doesn’t compensate utilities for centralized generation that is only used intermittently or for their new role shuttling energy back and forth across wires and monitoring transactions.
What does all that mean? We are asking utilities to invest in their own demise. So what do we need from Government? Not more money, just rate regulation that compensates utilities in a new way and incentivizes them to make money creating the kind of grid we want.
2) Set the Standards. But not too quickly. Or too slowly.
The standardization process is fundamental to competition. Until there are clear standards for different technologies and their integration, it is very risky to develop new things. Furthermore, the longer America waits to act, the more likely it becomes that China (or others) develop technologies and get significant market penetration faster. American competitiveness needs action — and fast. But not too fast. Standards have to be developed in close consultation with industry to ensure stakeholder’s needs are met.
3) Clearly Define Who is Responsible for What.
Right now, this is primarily a data issue; although it certainly applies in other areas as well. Utilities, consumers, and third parties need to have clearly defined roles and responsibilities in the new world of big energy data. Consumers own the data, but what lengths do utilities need to go to in order to ensure it is secured? What do third parties have access to, and who provides that access? These are questions that must be resolved to ensure that utilities, consumers, and third parties can move forward with confidence.
4) Talk to Each Other.
The desire for more cross-cutting dialogue across government is nothing new. There are many fantastic building blocks in place, and what is needed (and what was beginning to be done by the Council on Environmental Quality with this report) is to stitch all these efforts together into one initiative.
At a slightly more granular level, there needs to be some serious conversations between FERC and NARUC to help align incentives between transmission and distribution in regulated markets. For example, companies that only own distribution don’t have much incentive to make their lines more efficient because this primarily impacts transmission, which is owned by other companies. Unfortunately, since transmission is regulated at the federal level and distribution is regulated by states, there needs to be more communication among regulators to bridge these gaps.
A Flexible Story: Selling Smart Grid to Different Market Segments
In an earlier post, I discussed the challenges of marketing clean energy and energy efficiency due to a basic misunderstanding between market classifications and market segments. To recap briefly, a market classification is the cross-section (residential, commercial, or industrial) and a market segment is the customer type (do-it-yourself, make-it-easy, etc.). The problem is that clean energy and efficiency have been great at market classification, but not so good on market segmentation. There is a serious need to tailor products to these different segments, no matter what classification they fit into. To get there, you need standardized contracts and other enabling conditions.
This same challenge applies to smart grid. Advocates know how to pitch to different market classifications — and with the four points I lay out above, they can do even better. But thus far, advocates haven’t done well with tailoring the smart grid message to different market segments.
For example, there is a kind of consumer who is never really going to care about their energy use, no matter how cool the app is. They want reliable electricity, they will install solar PV if it is automated, and they probably have instant bill pay. For those folks, the story about smart grid is very different than the narrative you want to tell a consumer who loves new apps, gets a kick out of monitoring their energy usage, and wants to install their own solar PV so they can sell electricity to the grid at just the right times to make money. The fact is, the smart grid needs a story to match every segment.
There are some significant success stories, though, and they illustrate this issue well. Consider the Green Button Initiative, which challenged utilities to give consumers their data in an easy downloadable format to do with as they wished. The success of Green Button was due to the fact that it addressed market segmentation by being flexible enough to accommodate multiple types of consumers. And, as an opt-in program, they presupposed a particular market segment: that folks employing it probably held a certain attitude about energy use. From there, it allowed them the space to do what they want with their “product,” the data.
We need different stories for different market segments. The beauty of the smart grid is that it is flexible. It really does meet highly differentiated energy needs and has something for everyone. That just needs to come across. Then, we need tools that can scale the smart grid for each of those segments best. This means technologies which can suit a variety of different needs, and meet different demands.
At the end of the day, this is communications and marketing 101. Boil down your message, and tell a good story. Know your audience. If smart grid is going to become a reality, it needs a clear ask to policymakers and a coherent story for the public.
Adam James is a special assistant for energy policy at the Center for American Progress.