Will Anyone Pay for the SmartGrid?
By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity
First posted in the GMH Blog, on January 1st, 2009.
Copyright © 2008 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to firstname.lastname@example.org to contact the author for any kind of engagement.
On May 17, 2007, Martin LaMonica reported on the Clean Energy Venture Summit, with the article “Will anyone pay for the 'smart' power grid?” Its introduction says:
Like the Internet today, the electricity network needs to be able to connect billions of devices and still operate reliably. Because of growing environmental concerns, the grid needs to become far more flexible than it is today, accommodating distributed power generation from renewable sources and use several energy-efficiency techniques.
But while many people can agree on the vision of tomorrow's utility grid, few are willing to pay for it, according to experts who spoke at the Clean Energy Venture Summit on Tuesday.
A number of technologies need to be put in place to make the power grid smarter, notably more automation within the network and tools to give end users better information. But utilities are "grossly risk-averse and grossly hesitant to adopt new technology", said energy industry consultant Alison Silverstein.
"The utilities all want someone else to make the mistakes and take the risk (of adopting new technologies) for five or 10 years," Silverstein said. "And regulators are not willing to get out of their way and let them take those risks. It will require a transformation."
The question who pays? is necessary, but not sufficient to enable the needed transformation identified by Alison Silverstein. According to Eberhardt Rechtin and Mark Maeir, in their book "The Art of System Architecting," to go forward "[S]ocial economist bring two special insights to sociotechnical systems." They are: 1) "the four who's:" who benefits? who pays? who provides? and, as appropiate, who loses? and 2) In any resource-limited situation, the true value of a given service or product is determined by what one is willing to give up to obtain it.
From the article, it is very clear that with a few exceptions, the Investor Owned Utilities (IOUs) paradigm is unable to respond well to the social economists' insights. Utilities want to benefit and to provide, but they don’t want to pay, nor lose. They want someone else to pay and take the risks, while they retain their obsolete price control business model that is set as an average service that don't let customers get the true value of electricity that the smart grid will provide.
The true value of electric service will come from business model innovations of a restructured power industry. As can be seen in www.energyblogs.com, more than 130 articles have been written on the emergent electricity without price control (EWPC) to the end-customer paradigm. To provide a market/regulation balance, the emergent EWPC whole involves a transportation (transmission and distribution) only utility, under a regulatory compact with a responsibility to transport electricity, as the IOUs get divided into regulated transportation and the open market value chain of generation and retail.
I invite readers to comment about the social economists’ insights about the IOUs and EWPC paradigms.