Smart Grid as a disruption: thinking 10 years ahead

Humayun Tai

February 23, 2011

CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited

Todays Smart Grid paradigm: 5 non-uniform ecosystems

PowerCo

1234

Smart Metering Allows: Outage info Remote reading/ disconnect Home gateway

Grid applications Enables: Automation Diagnostics Volt Var Syncrophrasors

Home Area Network Supports: In-home display and Time of use pricing Smart appliances Home automation

Integration of renewables and distributed storage Facilitates: Cogen, storage, distributed solar (LV) EV Centralized renewables (MV/HV)

Systems Integration Allows: Front-end operational integration Data management Back office integration Business apps
McKinsey & Company

SOURCE: McKinsey analysis

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Large societal value at stake: size of value pools

Smart Grid benefit by 2019 $ Billions annually, 2009 dollars 106-148 Shift peak Customer apps 59 Energy conservation Avoided capacity Total Meter data over network Description of benefits 16 17 26 59

CUSTOMER VIEW

Shift demand away from the peak Overall reduction in energy consumed Decrease in peak and energy consumption

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2

Smart Metering

Automated meter functions Total

Eliminate manual meter reading Increased info on usage/outages Remote disconnect/ connect

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Volt-VAR drives energy efficiency Switching reduces outage time M&D reduces inspection and maintenance WAM increases throughput
Total value of benefits ~$1-1.4 trillion

38-80 Grid apps

Volt-VAR FDIR M&D DER WAM Total

30-60 5-10 1-8 n/a 2 38-80

SOURCE: McKinsey analysis

McKinsey & Company

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Sequencing of functionality over next 10 years

Typical utility focus

Level of Grid Sophistication

Future

Emerging

Experienced Basic AMI Operations improvement Customer service

Demand management Grid automation Volt / Var Remote asset monitoring

Facilitate decentralized generation (CHP, PV) Wind stabilization Electric vehicles and dispatchable storage

Horizon
SOURCE: McKinsey analysis

McKinsey & Company

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Todays Smart Grid faces significant challenges in delivering the value

PowerCo

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Smart Metering Significant evolution Commodization? Comms technology of future unclear

C D

Grid applications Slow innovation? Regulatory obstacles Reliability has little direct value
E

Home Area Network B2C models not working Hardware obselete in 5 years?

Integration of decentralized resources Regulatory challenges Lack of standards

Systems Integration 3xERP spend No clear solutions Spend with 0 return

SOURCE: McKinsey analysis

McKinsey & Company

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What is transformative--and disruptive--about the Smart Grid?

From traditional utility . . . Highly centralized asset model Focused on delivery and supply of an aggregate demand profile

. . . to utility of the future

Conventional power plants Customers Offices Storage House s CHP Demand management

Shift towards distributed generation in low voltage grid Customers now connected to supply curve Storage (including EV) moderates mismatch of demand/supply Hard and soft customer experience enhancement
Renewables

Distributed solar Smart Meters Microturbines Advanced battery systems PHEV Fuel cells Industrial Plants

Virtual Power Plant

SOURCE: McKinsey analysis

McKinsey & Company

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Emergence of Behind-the-meter landscape

B Customer B applications PowerCo C Distributed C generation F Grid Applications F A Home electronics A penetration

G Storage G
123 4

J Data collection/ J analytics/ management

D PHEV/EV D

H H E Energy efficiency Smart metering E

IT integration and communications backbone

SOURCE: McKinsey & Company McKinsey & Company

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Some key implications as

A

Load shape changes fundamentally (and leads to demand destruction)

LV generation alters conventional dispatch

New capabilities needed for utilitiesbut currently lacking

New opportunities created for information and software (EV, demand response)

Energy efficiency and Smart Grid benefits merge

Finding a way to monetize energy/non-energy data is critical Regulatory paradigms need to shift considerably Distribution utilities need to decide on their roles
McKinsey & Company

SOURCE: McKinsey analysis

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