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Quantifying Key Economic Issues in the Smart Grid


Under the terms of the 2007 Energy Independence and Security Act (EISA), NIST is assigned the primary responsibility to coordinate the development of interoperability standards that support the implementation of the Smart Grid. Much progress has been made in testing and refining the physical system measurements for the Smart Grid. However, less has been completed with relation to the economics of the Smart Grid. To assist the development of the Smart Grid, it is necessary to make the business case for incorporation of “smart” technology and associated energy services into each aspect of the utility grid to improve interoperability. To develop the business model for investing in modern grid assets requires modeling and valuing the costs and benefits of the Smart Grid, including consideration of all the physical and economic issues. This project will take the first step in identifying, summarizing, and analyzing these issues and associated interactions to assist in evaluating the economic implications of Smart Grid infrastructure and market scenarios.


Objective -The project objective is to identify and analyze the economic issues facing Smart Grid development by building upon the research completed in FY2018. In FY19 the project will focus on two items: (1) organize and conduct stakeholder outreach through the Grid 3.0 Workshop with a specific focus on the role of interoperability in improving the resilience of the electric grid and (2) complete quantitative analysis evaluating potential interactions of locational marginal price mechanisms (LMPs) with interoperability enhancements and subsequent impacts on economic and physical grid outcomes.

What is the Technical Idea? 
The new technical idea is to expand the scope of the current Smart Grid research by (1) parameterizing and translating economic considerations into quantifiable physical phenomena, and (2) evaluating the impact of interoperability between firms, customers, and devices.

Rigorous treatment of the economic opportunities and business model constraints of the Smart Grid is necessary, specifically those related to provisioning of distributed energy services by third party suppliers. By relating economic considerations to the physical characteristics of delivered services, the Smart Grid research program will be able to prioritize the physical measurements and device characterizations most relevant to supporting investments and business as well as accelerate smart grid infrastructure deployment.  Accurate price signals are imperative to the economic success of both incumbents and third party suppliers.  Distributed energy service providers need price signals that reflect locational differences in system and market conditions.

What is the Research Plan? 
The research plan will involve two key elements.  AEO researchers will organize and conduct stakeholder outreach through a Grid 3.0 Workshop with a focus on the contribution of interoperability to grid resilience. AEO researchers will complete a quantitative analysis evaluating the interaction of LMP mechanisms and interoperability implementations within the context of select segments of the U.S. electric grid. The product will be a journal article that clearly articulates the findings from the analysis.  AEO researchers will continue to contribute to the Smart Grid Interoperability Framework and regional stakeholder workshops as necessary.

Created July 21, 2017, Updated October 17, 2019