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Smart Grid as a disruption:thinking 10 years ahead

Humayun Tai

February 23, 2011

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

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McKinsey & Company 1|

Today’s Smart Grid paradigm: 5 non-uniform ecosystems

1234

1234

1234

PowerCo

Smart MeteringAllows: Outage info

Remote reading/ disconnect Home gateway

Grid applicationsEnables: Automation

Diagnostics Volt Var Syncrophrasors

A

A

Integration ofrenewables and

distributed storageFacilitates: Cogen, storage,

distributed solar (LV) EV Centralized

renewables (MV/HV)

D

D

Home Area NetworkSupports:

In-home display andTime of use pricing Smart appliances Home automation

C

C

SOURCE: McKinsey analysis

Systems IntegrationAllows:

Front-end operationalintegration

Data management

Back office integration

Business apps

E

E

B

B

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McKinsey & Company 2|SOURCE: McKinsey analysis

9

7

Total

Automatedmeter functions

2

Meter dataover network

Total 59

Avoided capacity 26

Energyconservation

17

Shift peak 16

Description of benefitsSmart Grid benefit by 2019$ Billions annually, 2009 dollars

Customerapps

Shift demand away from the peak

Overall reduction in energy consumed

Decrease in peak and energyconsumption

9

106-148

38-80

59

SmartMetering

Eliminate manual meter reading

Increased info on usage/outages

Remote disconnect/ connect

Grid apps

2

Total 38-80WAM

30-60

DER n/aM&D 1-8FDIR 5-10Volt-VAR

CUSTOMER VIEW

Total valueof benefits

~$1-1.4 trillion

Volt-VAR drives energy efficiency

Switching reduces outage time

M&D reduces inspection and maintenance

WAM increases throughput

Large societal value at stake: “size of value pools”

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McKinsey & Company 3|

Sequencing of functionality over next 10 years

Basic AMI Operations

improvement Customer

service

Facilitatedecentralizedgeneration(CHP, PV)

Wind stabilization Electric vehicles and

dispatchable storage

   L  e  v  e   l

  o   f   G  r   i   d   S  o  p   h   i  s

   t   i  c  a   t   i  o  n

Horizon

Demandmanagement

Grid automation Volt / Var Remote asset

monitoring

Experienced

Emerging

Future

Typicalutility focus

SOURCE: McKinsey analysis

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McKinsey & Company 4|

Today’s Smart Grid faces significant challenges in delivering the value

123412341234

PowerCo

Smart Metering Significant evolution Commodization? Comm’s technology

of future unclear

Grid applications Slow innovation? Regulatory obstacles

Reliability has littledirect value

AA

Integration ofdecentralized resources Regulatory challenges Lack of standards

DD

Home Area Network B2C models not

working Hardware obselete in 5

years?

CC

SOURCE: McKinsey analysis

Systems Integration 3xERP spend

No clear solutions Spend with 0 return

EE

BB

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McKinsey & Company 5|

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

Highly centralized asset model Focused on delivery and supply of an aggregate demand profile

From “traditional utility” . . .

. . . to “utility of the future”

Shift towards distributedgeneration in low voltagegrid

Customers now connectedto supply curve

Storage (including EV)

moderates mismatch ofdemand/supply

‘Hard’ and ‘soft’ customerexperience enhancement

Advanced batterysystems

Conventional powerplants

Offices

Houses

PHEV

Industrial PlantsMicroturbines

Fuel cells

VirtualPower Plant

Storage

Renewables

CHP

SmartMeters

Customers

Distributed solar

Demandmanagement

SOURCE: McKinsey analysis

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McKinsey & Company 6|

BB

EE

JJ

CC

DD

Emergence of “Behind-the-meter” landscape

SOURCE: McKinsey & Company

PowerCo

PHEV/EV

Customerapplications

Smart metering

Data collection/analytics/management

IT integration and communications “backbone”

Grid ApplicationsDistributedgeneration

Energy efficiency

Storage1234

GG

AA Home electronicspenetration

FF

HH

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McKinsey & Company 7|

Some key implications as

Load shape changes fundamentally (and leads to demand destruction)

LV generation alters conventional dispatch

New capabilities needed for utilities—but 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

AA

BB

CC

DD

EE

FF

GG

HH

SOURCE: McKinsey analysis