Cost/Benefit Analysis for Smart Grid Investments

1. Cost/Benefit Analysis for Smart Grid Investments Bernie Neenan EPRI Technical Executive Workshop Massachusetts DPU December 17, 2012

2. EPRI Smart Grid Demonstration 4-Year Update • Participants • 23 Utilities • 15 Host Sites • 2012 4-Year Update • 13 Case Studies • From 10 Members • 2012-2014: • Case Studies • Benefit Assessments EPRI Report 1025781 – Available for Download at www.epri.com

3. Cost-Benefit Analysis Guiding Documents Methodological Approach • Jointly funded by DOE and EPRI • Framework for estimating benefits & costs • Definitions, concepts and data sources • Publicly available: Product ID EPRI 1020342 (Jan 2010) Coming Soon! Volume 1&2 Measuring Impacts and Monetizing Benefits • CBA Guidebook, Volume 1: Measuring Impacts • Manual for practical application with step by step instruction • Guidance for documenting the project in detail and approach to perform a CBA, • Includes templates for working through the process. • Publicly available: EPRI 1025734 (December 2012) 2012

4. Cost and Benefit Analysis (CBA) – Design Principles • Adaptable to all Smart Grid technologies • Consistent and fair comparison of alternative Smart Grid technologies and systems • Adaptable to derivative technologies and expanded applications • Counts all benefits, but only once • Distinguishes benefits according to: • Level (how much) • Distribution (who is the beneficiary) • Timing (when they are realized)

5. How is CBA for a Smart Grid Project Different? • Scope of technologies involved • Can be broad and range from generation bus to customer end-use devices • Can facilitate integration of new technologies into dispatch operations and wholesale electricity markets • Can facilitate DG installed at various locations on system • Scale of technologies • Can range from small isolated parts of grid to expansive projects • Span of markets and market participants • SG investments can cross customer classes, utility markets, market participants, regional market operators and reliability organizations

6. Process Flow for mapping Smart Grid assets to functions to impacts to benefits Impacts (physical measures) Assets Functions Benefits (monetized) • Technologies • Devices • Systems • Examples: • AMI/Smart meters • Distribution Automation • Intelligent electronic devices (IEDs) • 2-way communication • Smart Appliances • Examples: • Automated Voltage/VAR control • Dynamic Capability Rating • Flow control • Intelligent line switching • Real-time load management • Customer use optimization • Compare project performance to baseline case • Example measures: • Reduction in kWh • Reduction in peak kW • Loss reductions • Outage reductions • Improved asset utilization • Monetize physical measures • Example measures • Fuel savings • Capacity savings • Reduced outage costs • Customer bill reductions • Reductions in CO2, Hg, etc.

7. Benefit (effect) • the monetary equivalent of the impact (who gets what?) A Important Distinction • Impact (cause) the impact of the investment on the system (what aspect of service or performance changed?)

8. Impacts  Monetization Demonstrating Physical Impacts Impacts Metrics Costs/Benefits Impacts Metrics Costs/Benefits Impacts Metrics Costs/Benefits System(Program, Project, Sub-Project) Application Systems:Combination of Devices and Software Functions:Physical Capabilities Application:Use of Systemin its Environment Impacts:MeasurablePhysical Changes Metrics:Calculatedfrom Impacts Costs/Benefits:MonetizedImpacts Function1 • System Configuration & Operation • Location • Connection • Direction of Influence • Point of Impact • Intended Use • MarketEnvironment • Market versus Integrated Utility • Regulatory conditions Function2 Monetizing Impacts Device1 Device2 • Mantra • We measure impacts, • calculate metrics, • monetize costs and benefits. Function3 Device3 Device4 Measure Calculate(algorithms) Monetize

9. Demonstrating Physical Impacts ExpectedImpacts/Benefits PhysicalMeasurableQuantities Hypotheses ExperimentDesign Verified Physical Impacts • Formulatehypotheses: testable statements about measurable impacts. What to expect. Baseline Measurements • Design a sequence of experiments to test the individual hypotheses. Isolate effects • Produce measurements through experimentation. Observed and measure the change • Test hypotheses by analysis of measurements versus baselines. Does it work?

10. Utility Operating Cost Savings • kWhs and kWs reductions/increases Environmental Improvements Power Quality • Reliability National Security Sustainable Economic Prosperity Smart Grid Benefits

11. Monetizing Impacts • Monetary equivalents of impacts are generally economic and financial determinations • Accuracy is often had to establish because of uncertainty an subjectivity: • Energy savings/costs • Capacity/investment deferrals • Avoided customer interruption costs • Manpower savings/costs • Important distinctions • Market structure • Effected customers • Order in which technologies are implemented • Economic and technological obsolescence

12. The Key Issues – MA and any State • What perspective do you adopt? • How do you create verifiable and locally acceptable impact metrics for Grid Modernization technologies? • How do you monetize those benefits? • Who gains and who pays • How do you merit order investments? Be prepared to either monetize the value of reliability, or rationalize and justify it on other grounds

13. QUESTIONS?