January/February 2010

Cover Story

Smart grid: A value proposition for industry

Global infrastructure transformation in how energy is produced, transmitted, consumed

Fast Forward

  • In the U.S., electrical energy use in the industrial sector is about 25% of the grid's total energy.
  • Electrical disturbances on the grid can affect power quality and reliability.
  • Industrial microgrids are self-contained energy systems that include the capability to consume on-site energy generation as well as grid-supplied generation.
By Dave Hardin

Sustainability and energy management are more than green issues driven by social responsibility. They are becoming economic imperatives in industry and manufacturing. "Smart grid" can help achieve both objectives.

smart2Manufacturing is trying to recover from one of the deepest downturns in recent history. Consumer spending is down, manufacturing plants have closed, and personnel reductions are widespread. Companies are in survival mode and struggling to control expenses. Many are relocating operations to lower cost regions, all the while slashing capital budgets. This is not a time of prosperity for manufacturing and service industries as our economy undergoes major changes. While signs of life conjure up optimism, it is clearly a time for retrenchment.

Meanwhile, the media is alive and well with stories about the green jobs being created, the need to reduce our carbon footprint, the deployment of smart electric meters to homes throughout the country, a new wave of plug-in electric vehicles getting ready for production, cyber-security vulnerabilities of our power grid, and the threat of global warming unless we get serious about our environment. Fueling the media coverage, the U.S. government issued a statement that billions of stimulus dollars will be provided to kick start the repowering of the U.S. energy system with what is called the "smart grid." And this is just the beginning.

While amounts vary, The Brattle Group, which provides consulting and testimony in economics, finance, and regulation, estimates the total investment in the U.S. energy system could reach as high as $1.5 trillion dollars over the next 20 years. Something big is going on!

At first glance, it does not seem like something that industry should pay much attention to. New transmission lines, distribution systems, electric cars, and smart meters in homes are all well and good, but they have not been very interesting to industries such as manufacturing. Maybe it is time to reconsider involvement.

Impact on the grid

The Energy Information Administration of the U.S. government in the report "International Energy Outlook 2009" stated: "Energy is consumed in the industrial sector by a diverse group of industries-including manufacturing, agriculture, mining, and construction-and for a wide range of activities, such as processing and assembly, space conditioning, and lighting. … In aggregate, the industrial sector uses more energy than any other end-use sector, consuming about one-half of the world's total delivered energy."

In the U.S., electrical energy use in the industrial sector is about 25% of the grid's total energy. This is down from 33% in 1996 and reflects the decline in U.S. industrial capacity. In spite of this trend, electrical energy is still a major operating expense of many industrial operations. The top 10 electrical consumer groups in industry are:

  1. Chemicals
  2. Primary Metals
  3. Nonmetallic Minerals
  4. Paper
  5. Non-ferrous Metals
  6. Food
  7. Plastics and Rubber Products
  8. Transportation Equipment
  9. Computer and Electronic Products
  10. Textile Mills

Chemicals, primary metals, minerals, and paper constitute more than 60% of the industrial electrical consumption. These energy intensive industry sectors are the most sensitive to variation in energy costs.

Industry also plays a role as a producer of electrical energy. The contribution of electrical energy generation from industrial sources is about 4%. While this may seem insignificant, it is equivalent to current non-hydro renewable energy generation.

Impact of the grid

It is clear industrial consumption has a significant impact on the grid; however, it also works the other way. The electrical grid has a major impact on industrial customers.

Electrical disturbances on the grid can affect power quality and reliability. Bulk power plant failures, transmission congestion, stresses caused by peak demand, and distribution failures all contribute to conditions that can increase operational costs and curtail productivity. Industrial energy efficiency suffers due to the above-normal energy required to resume operating pressures, temperatures, and momentum after each electrical disturbance.

A Lawrence Berkeley National Laboratory report estimates electric power outages and blackouts cost the nation about $80 billion annually. Of this, $20 billion represent losses to the industrial sector and $57 billion to the commercial sector. This is misleading, as the impact to industrial customers in real terms is significantly greater than the impact to commercial customers.

Another impact is that of power quality where voltage surges and sags can affect electronic equipment operation unless protective equipment and backup power generation have been installed at extra cost.

And cost is the key. Cheap energy has fueled growth, but cheap energy is becoming not-so-cheap. Average retail costs have been on a consistently upward trend, even as consumption has stabilized during the recession.

Infrastructure transformation

The smart grid represents a global infrastructure transformation in how energy is produced, transmitted, and consumed, driven by the capabilities of modern automation, communication, and information technology. According to the Energy Independence and Security Act 2007, Title XIII, this transformation will include:

  • Integration of distributed renewable energy generation
  • More reliable transmission and distribution
  • Bi-directional energy flow with customers
  • Intelligent energy consumption.

Critical first steps have already been taken, but the path to a smarter grid is a journey, not a destination. Initial funding under the American Recovery and Reinvestment Act includes $4 billion for smart grid investment grants and demonstration projects. This is in addition to $42 billion for energy efficiency and renewal energy programs and $21 billion in energy incentives. It is important to realize this funding represents only a fraction of the total investment required.

Driving change

The transition to a smarter grid will drive change. No longer will energy be a bill that shows up a month after it is used. Instead, energy usage and cost information will be available for timely analysis and financial decision making. Energy will be a cost that is dynamically controllable. While this is currently the case with some large industrial customers, dynamic energy management will become widespread.

Energy price and demand shaping will be used to make financial decisions not only related to energy consumption but also to energy production. If the price of energy is high then producing power locally and selling back to the grid may make good financial sense. When the price is low, industrial processes that are financially marginal may become economic to operate. This decision making will require intelligent automation systems but …

With change comes opportunity

Industry should embrace smart grid as an opportunity to blend sustainability with profitability. Not only should companies focus on internal projects that reuse and optimize energy, but they should evaluate the impact they can have on their community. Industrial companies can capitalize on their larger size and rural locations to become net energy exporters in addition to maintaining efficient operations. Opportunities come in many flavors.

Energy management

Energy is a valuable resource that needs to be managed. The first and most important step is to understand where and how energy is being consumed or exchanged and the impact of that consumption on operational economics. Energy management systems can help by providing transparency into energy usage through key economic indicators that can aid in the decision-making process, both in offline design and online optimization. Stabilization and demand shaping can improve energy efficiency by as much as 10%, which for some heavy process facilities represents more than 30% of their operating profits.

Many industrial processes are decades old, dating from a time when energy was cheap and abundant. These represent areas of opportunity for creative energy management solutions.

An important consideration is the ability to upgrade on-site energy systems to enable integration with smart grid signals such as dynamic pricing, curtailment demand response, and reliability signaling.

Industrial microgrids

Industrial microgrids are self-contained energy systems that include the capability to consume on-site energy generation as well as grid-supplied generation. This flexibility provides insulation from grid faults that affect power availability and quality while also permitting excess energy to be exported back to the grid. The decision to import or export energy is controlled by an energy management system that optimizes consumption with generation.

In many cases, local backup generation is already required due to the negative operational impact of an electrical failure. If the backup generation capacity is significant, then some of the core elements of a microgrid may already be in place.

Distributed renewable generation

Industrial facilities are often built on large plots of land and are located in areas conducive for the installation of renewable power generation, such as wind, solar, geothermal, and biofuels, on the distribution grid. In this case, generation is controlled directly by the local electrical utility or aggregator with benefits accruing through land lease and other agreements.

Many industrial facilities currently operate gas-fired or coal-fired co-generation (combined heat power) power plants, and many of these are importers and exporters of grid power. A financial opportunity may exist to leverage and expand upon these existing installations.

Industrial control of variable energy requires advanced automation and optimization. There exists an opportunity within the automation industry to adapt existing modeling and simulation technology toward this important application.

Bulk renewable generation

In the case where an organization has sufficient real estate and financial resources, the development of a bulk generation station based on diverse renewable resources that are geographically-dispersed may be an option that makes fiscal sense. Solar energy during the day can be balanced by wind energy at night with gas turbines and storage providing energy balance when needed. This would permit a virtual power plant to be operated as if it were a single "dispatchable" generator. "Dispatchable" resources provide grid operators with known generation capacity that can be brought online and taken offline as needs arise on the grid. Solar and wind generally provide "base load" generation.

A long way to go

The ideas presented could be impacted greatly by current events. The United Nations held its Climate Change Conference in Denmark at the end of 2009, with cap-and-trade being debated on Capitol Hill in Washington, D.C. Limits could be imposed on greenhouse gas emissions impacting industrial facilities worldwide and bending the economics further toward the concepts presented. Even if little results from these global initiatives, there is still a high probability the true costs of energy in terms of security and environmental impact will get factored into the price.

The qualitative affect of green house emissions is understood and widely accepted even as the quantitative impact is being modeled and debated.

World peak oil production is also vigorously debated, but few estimates reach beyond 2030. A recent article in The Economist quotes Faith Birol, chief economist of the International Energy Agency, saying she "believes that if no big new discoveries are made, 'the output of conventional oil will peak in 2020 if oil demand grows on a business-as-usual basis.' " Many of us will personally experience the negative effects of peak oil as it impacts the global oil-dependent economies.

Solar and wind have the potential to replace a very significant percentage of our oil consumption in the long run. This will require new technology and systems that transform solar and wind farms into first-class generation resources. In addition, coal-fired plants using CO2 sequestration are poised to be cost competitive with wind providing improved predictability. One thing is for sure, the world will need energy from many sources, all integrated on a smarter grid and working together.

Call to action

Industrial customers have the opportunity to be active and effective participants in transitioning toward a smarter grid. The new regulations, business models, technology, and communication standards required are in the process of being formulated, and their effect on industry will be significant.

Organizations have two fundamental options: 1) passively wait and accept what happens or 2) get involved and help shape smart grid regulations and standards through active engagement. The National Institute of Standards and Technology (NIST) welcomes industrial user participation in the standards process. If interested, e-mail Keith Stouffer at keith.stouffer@nist.gov. More information can be found at http://www.nist.gov/smartgrid.

Understanding the impact of energy on your business operations and developing a proactive, long-term business strategy that recognizes and leverages smart grid opportunities will be investing in the business's future, the country's future, and the world's future.


Dave Hardin (David.hardin@ips.invensys.com), Invensys Operations Management, serves as a member of the Department of Energy-supported GridWise Architecture Council and co-chair of the NIST Industrial-to-Grid Domain Expert Working Group. Dave also serves as a member on the NERC Smart Grid Task Force and OPC Foundation's Technical Advisory Council. He is a Registered Professional Engineer (P.E.) and Project Management Professional (PMP).