The Smart Grid, A Smart Investment

February 11, 2021

Monica Volodarsky

Monica is a senior at the Wharton School of the University of Pennsylvania studying Finance and Social Impact & Responsibility. She is passionate about utilizing private-public partnerships to catalyze ecosystem-oriented positive social change. 

How does one tree create a dip in America’s GDP? It falls on a transmission line, causing a 2-day blackout for 50 million people. The 2003 East Coast Blackout cost America approximately $6.4 billion. But that was 17 years ago—one would assume the US would have improved its electrical grid by now.

According to data provided by the Department of Energy, that is not the case. The number of major outages in the US nearly tripled from 2003 to 2018. America has the highest number of outage minutes of any developed nation, totaling around 6 hours annually. US outages are getting longer too. The average US power outage is 120 minutes and increasing, while the average outage of other developed nations is approximately 20 minutes and decreasing. This is unsurprising considering 70% of American transmission lines and transformers are 25 years old, and the average age of US power plants is 36 years old.

Our current system doesn’t just need an update, it needs a reconstruction. The US should transition from its current electrical system to the smart grid, a network that utilizes digital communication technology to react to changes in electricity usage, in order to mitigate the risks associated with power outages as well as climate change.

How is a smart grid better than the current system?

Blackouts occur when electricity demand exceeds supply, or equipment in the system malfunctions. The current US grid delivers electricity from the power plant through transmission lines, substations, and transformers to homes and businesses. This system puts the burden on utility companies to match supply of electricity perfectly with demand, since electricity generated at power stations is not stored. If equipment fails, consumers notify the utility company and then a utility worker must physically reroute the flow of electricity. By the time the electricity is rerouted, the power failure could have escalated into a blackout, as other lines might not have enough spare capacity to accommodate the extra current.

Smart grids integrate digital technology such as smart meters throughout the energy system that feed real-time data back to utility companies, allowing for accurate predictions of supply and demand. Instead of relying on consumers to notify utilities of power failures, expected failures are located by smart sensors enabling quicker responses to disruption. More than just a data-aggregation vehicle, the smart grid also automatically reroutes electricity flow and prevents the overheating of transmission lines. When a disruption occurs, the smart grid isolates the outage, containing it before it becomes a large-scale blackout.

Why is transitioning to a smart grid important?

Power outages carry a myriad of risks. There are economic risks, with the inflation-adjusted cost to the US of only weather-related outages estimated at $25-$70 billion annually. There are also health and public safety risks. Power outages cause food spoilage and water contamination, as electricity-powered machinery such as refrigeration units and water pumps fail. Although most hospitals have emergency generators, most of these units provide back-up power for only about 8 hours. The power outages that last longer put hospital functionality at risk, as computer networks and medical devices are reliant on electricity. Power outages also increase mortality risk. A study on mortality during the 2003 blackout showed that mortality increased in New York City by 122% for accidental deaths and 25% for nonaccidental (disease-related) deaths, culminating in about 90 excess deaths.

Sticking to the status-quo will only increase the aforementioned risks, as extreme weather is expected to increase with climate change. According to the Union of Concerned Scientists, our current grid will require new technologies to withstand these more severe conditions. Not only will transitioning to a smart grid make our system more resilient against extreme weather, but it will also help the US mitigate the risk of climate change. The IBM white paper reports smart grid adoption would cause a 12% reduction in CO2 emissions by 2030. The study mentions 9 levers enabled by the smart grid, such as greater integration of renewable energy, which contribute to that reduction.

How can the US transition to a smart grid?

According to Power Technology, 700 million smart meters have been installed worldwide, with $14.3 billion spent on smart grid technology in 2016 alone. Although an increasing number of countries are investing in smart grids, among those leading the power revolution are Singapore and Germany. Two lessons America can learn from these nations about transitioning to a smart grid are:

1. Public-private partnerships are a must.

Singapore, with one of the most reliable electrical grids in the world, partnered with 5 private companies to install smart grid technology in 2016. For example, Singapore partnered with 3M to install smart sensors, which allow Singapore Power to repair infrastructure before it fails through predictive alerts. Singapore Power also partnered with GE Grid Solutions on substation digitalization, which allowed it to incorporate a larger portion of renewables into its energy mix.

2. Pilots can inform whether a smart grid would work at scale.

From 2011 to 2013, Germany installed a smart grid in Bavaria as part of its Integration of Regenerative Energy and Electric Mobility project. The success of the pilot, with generated power today exceeding demand by more than 5 times, led to a nation-wide adoption of smart grid technology.

The US can look towards Houston as a local pilot. Hurricane Ike in 2008 caused 2 million people to lose power in Houston, with energy restoration taking about a month. Following this disaster, the city upgraded nearly all Houston households to a smart grid. Besides making the system more resilient, the grid saved consumers $24 million in 2 years due to efficiency in remote electric service connections. The smart grid update also saved about 41 million minutes of power outage during Hurricane Harvey, which is a significant improvement over Hurricane Ike.

A cost-benefit analysis by ERPI found national smart grid adoption would generate over $0.8-$1.5 trillion in net economic benefits for the US. It is time America gets over its status-quo bias and makes a smart investment in the smart grid.