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Low-Cost CVR May Pay for Your AMI System

Jerry Jackson, Ph.D.'s picture
President Jackson Associates

Jerry Jackson has provided energy market analysis, software and utility customer databases and analysis to more than two-hundred energy technology companies, energy service providers, utilities...

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  • Mar 22, 2014
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A recently-completed study identifies a new smart grid investment strategy that can transform a poor AMI business case into an attractive investment. Many electric cooperatives and public utilities have rejected AMI systems because expected meter-related benefits are not compelling enough to outweigh costs. Adding demand response savings boosts benefit-cost ratios; however, the uncertainty and long lead times surrounding these customer engagement programs add more risk. Adding distribution automation (DA) benefits and costs including customer valuations of improved reliability provide added costs and benefits but leaves utility decision-makers skeptical.

This new study shows that the combination of AMI and low-cost conservation voltage reduction enabled with smart meters can provide a compelling business case for many of these utilities with little risk.  

This study turns the traditional smart grid business case analysis approach on its head:  instead of viewing AMI as the foundation, then adding demand response and then distribution automation benefits and costs, the analysis started with a joint AMI/low-cost conservation voltage reduction (CVR) strategy as the foundation for the business case.  The  low-cost CVR provides significant benefits and, because it is enabled with smart meter data, more than makes up shortcomings in the stand-alone AMI business case for many utilities without going on to more speculative smart grid benefits.

A significant advantage of this new strategic approach is that costs and benefits of individual AMI and CVR elements can be determined with considerable certainty prior to initiating the project. In addition, the low-cost CVR component can be developed simultaneously with the AMI implementation avoiding the long delays that many utilities are experiencing with customer engagement infrastructure development. The CVR strategy requires utility distribution information including some voltage-demand experiments.

The CVR strategy considered here is low cost, averaging about $15,000 per feeder for controls, communications and installation with no new investments in voltage regulators or capacitor banks.  This CVR strategy uses smart meters for voltage metering, retrofitted controls and communications to existing feeder equipment, where appropriate, and lowers and " tightens" grid voltage control during peak periods.  

This study and its implications for utilities are noteworthy for six reasons:

  • The AMI/low-cost CVR strategy reflects a new paradigm for smart grid business case analysis
  • The analysis quantifies an often omitted contribution of smart meter data,
  • Results illustrate the incremental financial value of limited, low-costs CVR grid improvements enabled by smart meter data,
  • The financial value of this strategy is easy to verify beforehand,
  • The CVR portion can be implemented simultaneously with the AMI implementation, and
  • Contributions of smart meter-enabled CVR can turn a negative AMI business case positive


Study analysis is based on results from a recently completed CVR study conducted for an electric cooperative utility and data on electric coops and municipal utilities drawn from existing CVR, and other smart grid pilot studies and implementations.

Why Some AMI Business Cases Fail

AMI/smart meter business cases do not meet investment requirements at some electric cooperatives and municipal utilities for two primary reasons:

1.    Utilities who previously installed AMR systems are already achieving much of the AMI meter-reading benefit.  While these systems have reduced meter-related costs, many do not provide the bandwidth required to support many modern AMI systems' valued-added benefits associated with outage management and other distribution management functions.
2.    Distribution system characteristics, operating structure, wage levels, and customer characteristics at some utilities are such that AMI meter-related savings estimates are not sufficient to provide an attractive business case.

Conservation Voltage Reduction

Conservation voltage reduction (CVR) reduces voltage during peak period times reducing peak kW demand.   CVR reduces the monthly demand charge for utility wholesale power purchases or, for utilities that self-generate, provides excess power to sell at peak prices on the wholesale market.   CVR has received new attention in recent years as metering, communications and control technologies have advanced.    

CVR strategies attempt (among other objectives) to provide voltage at the meter as close to 114 volts as practicably possible.  ANSI standards require voltage between 114 and 126 volts.  Voltage declines from the head end of a feeder at the substation depending on the length of the feeder, loads along the feeder and other variables like conductor size, temperature and placement of voltage regulators and capacitor banks.  Voltage along the feeder varies from day to day and hour to hour.  Determining the appropriate substation voltage to maintain minimum voltage at the meter is not an easy matter. 

A variety of voltage drop calculation approaches are used to determine desired substation feeder voltage and to estimate meter-level voltage.  Most utilities set head end voltage at considerably higher levels than necessary to reduce the possibility of low-voltage situations at the meter.   This is a prudent approach since meter -level voltage is an estimated value with a large confidence interval.  

The Consortium's work with utilities in 20 Smart Grid Investment Model projects and a review of case study reports indicate that typical head end voltage is typically 122 - 125 volts with meter-level voltage in the 118 - 120 range.

Low-Cost CVR

The low-cost CVR strategy considered here includes developing and processing feeder-level information from smart meter data to reduce end-of-line voltage closer to the 114 minimum.  Costs are estimated to be $15,000 per feeder which includes controls, communications and labor costs.  Voltage information is provided by smart meters.  Substation costs for a substation with a single substation transformer and three feeders would be $45,000 in this example. 

This cost is "low" at 6-10 percent of the cost of comprehensive volt/VAR control and optimization that add voltage regulators, capacitor banks, metering, communication and control, and other technologies/strategies.  The low-cost CVR strategy achieves load flattening where possible with existing voltage regulators and capacitor banks using  meter-level data to adjust settings of voltage regulators and capacitor banks and adding control/communications capabilities as appropriate to equipment that already exists along feeders.

A relatively small number of utilities already apply no-cost CVR by lowering substation voltage by small amounts during peak period times.  These strategies tend to be quite conservative because of the uncertainty of meter-level voltage that occurs with this voltage drop during peak period times.  These utilities can also benefit from the low-cost CVR strategy described in this paper.

The AMI Business Case

The objective of this paper is to examine the potential impact of including low-cost CVR benefits in a joint AMI/low-cost CVR business case when the AMI business case alone fails.  These low-cost CVR benefits  are enabled with the data available from the new AMI installation.

As indicated in a previous section, the CVR program considered here results only in a "tightening-up" of voltage control with no addition of voltage regulators, capacitor banks and other investments that would be applied in more comprehensive voltage/VAR and  CVR initiatives.

Every utility presents a unique AMI/ low-cost CVR  business case depending on current meter-related costs, distribution infrastructure, system peak period hourly load profiles and avoided cost structures.  The representative utility used for this analysis has about 60,000 customers with system load shapes consistent with a moderately hot and humid climate reflecting about 85 percent residential, 10 percent commercial and 5 percent industrial loads. The utility purchases its power and faces a peak demand charge of $12.00/kW with a one year ratchet that applies the previous year's average 4-month summer peak to each month of the current year.

The utility has an AMR system that was installed a decade ago providing automated meter reading but does not have the ability to connect and disconnect remotely and does not have bandwidth and latency to provide many AMI functions.

If instead of its dated AMR system, this utility reflected a typical electro-mechanical metering-based utility, its AMI business case would look something like that shown in the following figure.   The internal rate of return (IRR) reflects the return on the investment.  An IRR greater than the cost of capital (i.e., the interest rate on utility bonds) is considered an attractive investment.  The undiscounted breakeven period is the payback period and the discounted breakeven period is the discounted payback period, that is, the payback period when financial values are discounted to reflect current financial values.  The net present value is the discounted benefits minus discounted costs.  The benefit cost ratio is calculated as discounted benefits divided by discounted costs.

Conclusions

A new study finds that many utilities can achieve large returns with an integrated AMI/low-cost conservation voltage reduction (CVR)- strategy that utilizes smart meter voltage data to achieve peak period voltage reductions - even if the AMI portion doesn't meet financial targets on its own.   For utilities that already have an AMI system, this low-cost CVR strategy can boost returns and significantly shorten payback periods.

The low-cost CVR strategy differs from comprehensive Volt/VAR and  CVR initiatives in that no new voltage regulators or capacitor banks are installed on feeders while  voltage information from smart meters and low-cost communication/control  technologies are used to "tighten" up voltage delivery, eliminating the extra margin traditionally used to ensure sufficient voltage delivery at the meter.

The added benefit of smart meter data in a voltage control application is quantitatively isolated in this study with the Smart Grid Investment Model - that is, the voltage reduction achieved is a result only of more accurate information and more precise control provided by data from smart meters. 

This strategy is especially important for utilities with existing AMR systems and other utilities that do not see a positive AMI business case. 

This study and its implications for utilities are noteworthy for six reasons:

  • The AMI/low-cost CVR strategy reflects a new paradigm for smart grid business case analysis
  • The analysis quantifies an often omitted contribution of smart meter data,
  • Results illustrate the incremental financial value of limited, low-costs CVR grid improvements enabled by smart meter data,
  • The financial value of this strategy is easy to verify beforehand,
  • CVR portion can be implemented simultaneously with the AMI implementation, and
  • Contributions of smart meter-enabled CVR can turn a negative AMI business case positive.


The take-away from this analysis is that utilities who have considered AMI investments and found the business case lacking should reconsider a combination AMI/low-cost CVR business case. 

Jerry Jackson, Ph.D.'s picture
Thank Jerry for the Post!
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