Grid Parity vs. Grid Quality: The Smart Grid

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Grid parity is a term used to describe an energy technology when it has reached a cost per kilowatt-hour equal to or below that of conventional energy production. Often government subsidies are used to support clean technology until grid parity is reached. A July 2013 study released by the Deutsche Bank found that the solar market will “transition from subsidized to sustainable in 2014”.  If the externalized costs of coal and natural gas were truly accounted for, solar grid parity would have come much sooner. The true cost to society of coal, for example, includes not only extraction and production, but also air pollution, water pollution, climate change, and health impacts. Grid parity is a useful tool for policy makers, as it provides a means to evaluate the financial costs and benefits of promoting clean energy.  Focusing solely on the cost per kilowatt-hour of a particular technology however misses a crucial part of the equation: grid quality. It doesn’t do much good to have an amazing solar network that delivers energy to an inefficient grid. It is often observed that, when considering overall costs, the least expensive and least polluting type of energy is the kilowatt you never produce.

The power grid is, according to the DOE, “the interconnected group of power lines and associated equipment for moving electric energy at high voltage between points of supply and points at which it is delivered to other electric systems or transformed to a lower voltage for delivery to customers.” In the U.S., this complex system is not coordinated by a federal body, but is instead owned and operated by a vast number of independent operators. Without a clear federal direction, grid improvements are implemented in a piecemeal fashion, and typically only when there is no other option. The result is a varied mix of aging systems, which makes achieving a high level of grid efficiency and reliability a true challenge. Modernization is the word of the day, and a large part of that modernization will include the smart grid.

The smart grid aims  to replace the 19th century method of energy forecasting, which is based on manual meter reading, with energy management, which involves energy communication. The image above demonstrates how the smart grid differs from the conventional model.

The key point to notice is the two-way arrow between the utility network and the consumers. The most effective types of smart grid technology allow for not only one way communication, such as remote meter reading, but also real time energy management, which requires two-way communication. Two-way smart grid technology transforms the end user from a disinterested consumer of energy into an active participant in energy decisions.

In addition to the consumer benefits of the smart grid, quality is increased from the utility perspective as well. Two-way communication enables energy curtailment strategies such as load shedding and demand response, both of which reduce peak demand. Electricity outages can be more quickly and easily identified. The increased quality of the grid leads to both cost and pollution reductions.

A high quality grid combined with grid parity for clean technologies offers the ideal solution to our most pressing energy and environmental challenges. The EIA estimates that North American peak electricity load will increase 15% by 2050. In the paper Impact of Smart Grid Technologies on Peak Load to 2050,  the EIA estimates that the smart grid will be able to reduce peak demand by 8-12%. So the next time you hear the phrase grid parity, make sure to ask “How is getting there?”.

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