Understanding Smart Grid

Nov. 1, 2010
Facility managers find themselves at a critical crossroads

The concept of a smart grid is foreign to most Americans. In fact, 70 percent of Americans haven't heard the phrase “smart grid” before, according to a recent report published by EcoAlign and Russell Research.1

Similarly, facility managers are at a critical crossroads in understanding how moving to a smart grid will directly impact their building operations and bottom line. An electrical-grid transformation is taking shape quickly, and the smart grid will significantly affect how buildings consume energy — and how much utilities charge for it.

Automation, a familiar building concept, will be critical to the smart grid's success. Specifically, smart building controls will help businesses maximize energy savings with minimal involvement. A smart grid will give insight into changing energy conditions, while increased control capabilities will help facility managers choose when and how to respond.

The potential is significant: With proper controls in place, facility managers will be equipped to respond automatically to changes in electricity pricing, as well as sell excess power back to the grid if renewable technology or some other type of on-site generation is available. This, in turn, will create a revenue stream for businesses and support the drive toward lower carbon emissions.

By preparing facilities for a smart grid and ensuring the necessary components — including building controls — are in place, facility managers can position themselves not only to evolve with this new reality, but benefit from it.

What Is a Smart Grid?

A “smart grid” refers to a highly automated and interconnected network that enables two-way communications to provide better insight from both the supply and demand sides of the energy equation, helping utilities and ratepayers manage consumption and stabilize the electrical grid.

The traditional approach to energy management is not fully automated, impacting utilities' ability to manage peak demand — the time during which demand often exceeds supply and strains the grid. During periods of peak demand, utilities have employed various strategies, such as purchasing power on the spot market or using peaking plants to increase grid supply, to avoid brownouts and blackouts. Although these strategies help meet demand, they increase power prices and greenhouse-gas emissions.

The aim of a smart grid is to establish a more transparent, cost-effective, and secure energy network. A smart grid allows utilities to use existing capacity more efficiently, which helps customers decrease costs by giving them the ability to coordinate energy use with price fluctuations.

Successful energy management will rest on an organization's ability to complement traditional efficiency measures. Organizations can choose to be active participants in the energy market and manage costs more effectively. Utilities, in turn, are able to empower customers with the real-time market information needed to make smart energy decisions. For facility managers, the key is learning how to fully leverage this increased “intelligence” for true energy-management success.

The Reality of Critical Peak Pricing

The smart-grid concept is giving way to dynamic pricing structures, which more closely link overall demand with the cost of delivering electricity. These pricing structures include critical-peak-pricing tariffs, in which electricity rates are based on consumption levels and production costs. This critical-peak-pricing strategy — also known as dynamic peak pricing — ultimately helps utilities manage consumption by encouraging customers to shift or reduce their electricity use during periods of high energy demand.

Utilities across the country are beginning to transition many commercial and industrial customers to this pricing structure, meaning rates could jump 10 or more times the normal price during the hottest or most energy-intense days of the year. Facility managers need to determine how to react to these price fluctuations — otherwise, their buildings' energy costs could increase exponentially. Fortunately, a smart grid enables organizations to take an active role in implementing automatic strategies that respond to critical peak pricing quickly. Buildings will benefit if facility managers plan ahead. No longer are they passive energy consumers, simply accepting energy prices. With a smart grid, facility managers can assess cost-saving opportunities.

Generating Savings Through Automated Demand Response

Pricing shifts already are being experienced in California and the East Coast; the rest of the country is not far behind. Critical peak pricing likely will become increasingly common. The federal government is making investments in measures such as automated-demand-response programs, which enable commercial and industrial facilities to automatically implement energy-management strategies, reducing costs and improving efficiency.

Facility managers can choose to be on the forefront of this transition by opting into critical-peak-pricing programs and learning more about their facilities' energy use, rather than waiting for costs to escalate under new pricing structures.

When demand for electricity exceeds supply, utilities must react to meet customers' energy requirements. Until recently, peak demand management has been based largely on voluntary and involuntary curtailment events. Involuntary events include brownouts — short-term power losses that are inconvenient for all affected. In contrast, customers can voluntarily make loads available for utilities to tap during curtailment events.

A disparity between voluntary and involuntary events has existed because too few loads have been made available voluntarily under traditional pricing structures. Critical peak pricing aims to balance those efforts. As a result, automated-demand-response programs — which build on traditional demand-response programs by automating a building's response to energy prices and demand — will become de rigueur.

California programs currently in place provide good examples of what facilities can gain by opting into an automated-demand-response program. As California utilities move toward critical peak pricing, automated-demand-response programs are helping curb demand during peak periods, which can occur 10 to 15 days per year. The programs curb demand by allowing commercial and industrial customers to automate their responses to rate changes, capitalizing on critical peak pricing. Participating customers are able to engage in such events without manual intervention.

On the other hand, traditional demand-response programs are largely manual and require a utility to notify customers of a price increase via a phone call or e-mail. This triggers a manual response from the customer, which typically results in a walk through the facility to flip switches and turn off various loads. Unfortunately, the process is not completely foolproof, repeatable, or replicable, so reliability and insight can become an issue.

Automating customers' responses with the right technology can bridge this reliability gap. Instead of relying on verbal communication, automated-demand-response systems receive price-increase or grid-reliability signals from the utility, communicate with the facility's building-automation system, and make changes based on customer parameters. For example, a facility can reduce costs by altering its energy use during specific periods based on price-increase signals. Alterations could include turning off lights, cycling air-conditioning equipment, reducing motors, shutting down select supplemental elevator banks, or temporarily increasing temperature set points.

For California facilities already participating in such programs, the benefits have been measurable and appealing. For example, organizations may lack the staff to manage load curtailment manually during an event, so automation saves valuable time. Additionally, improved accuracy increases the amount of money a facility is able to save by avoiding unnecessary energy use during peak pricing periods.

The incentives available to participating utilities add an extra layer of appeal. Currently, lack of building-automation equipment is a barrier for many facilities. However, participating facilities often can receive low- or no-cost building-system upgrades — both a reward and a critical component to making the program work. Upgraded building systems can serve as a gateway for other energy-efficiency initiatives that reduce costs beyond critical-peak-pricing periods. In many cases, these incentives can amount to tens of thousands of dollars toward building upgrades in exchange for kilowatts of curtailed load.

Building Smart Energy-Saving Foundations

The efforts occurring in California provide a useful blueprint for facilities in other areas. Opting in to automated-demand-response programs means being at the forefront of a growing smart-energy movement. Valuable participation incentives, such as the previously mentioned building upgrades, also are possible.

These incentives likely will not be available forever — especially when critical peak pricing becomes the industry standard. As rate changes transpire more quickly, automation will become critical. Therefore, facilities should consider joining automated-demand-response programs now.

When researching programs, an organization first should look for the Open Automated Demand Response (OpenADR) protocol, a smart-grid communication standard recognized by the National Institute of Standards and Technology and the U.S. Department of Energy. This ensures a program is vendor-neutral, which is especially critical considering the market: More than 50 building-automation- and control-systems vendors are trying to provide OpenADR. This also helps ensure the necessary interoperability among technologies and software systems to deliver on a smart grid's promise.

Once enrolled, participants can expect a significant change in how quickly and easily they are able to manage their building systems and respond to peak demand events. In addition to possible building upgrades, participants will receive the technological access necessary to let a utility “talk” to their facility. In the California program, for example, participants receive from a demand-response-automation server signals about utility events prior to rate increases. The technology helps provide the key link between facilities and the utility.

The system utilized by the California program is powered by a software framework/development environment and Java application control engine. When the system receives a signal that a peak event is occurring, it communicates with the facility's building-automation system. The building-automation system then makes adjustments based on the participant's pre-set load-shedding parameters. All of this occurs automatically and simultaneously.

Ensuring Sustainable Success

With the rise of the smart-grid concept and the growing prevalence of dynamic pricing structures, facilities have an opportunity to get ahead of the curve by leveraging the insight provided and seizing control of energy volatility. Investing today will pay dividends in future savings and form the foundation of a new, “smarter,” and more efficient reality.


  1. EcoPinion 8 survey report. (n.d.) Retrieved from http://www.ecoalign.com/node/360

Ron Blagus is the energy-market director for Honeywell Building Solutions — a business unit of diversified-technology manufacturer Honeywell. He can be reached via e-mail at [email protected].

Viewing Energy Use Intelligently

Smart meters can be a facility manager's window to a smart grid, offering real-time insight into current energy prices and enabling two-way communication between facilities and energy providers.

Smart meters help building owners respond instantly to changes in energy prices, allowing the prioritization of load shedding and a more customizable way of achieving savings through reduced energy use. Perhaps more importantly, smart meters go beyond traditional electrical meters to provide users with critical-peak-pricing information.

Traditional electrical meters measure total consumption, but do not provide information about when energy was consumed. By using real-time smart-meter data, facility managers can be more mindful of how a building's energy is consumed and how loads can be shifted or shed when rates are high.

Load shedding can manifest itself in various ways. For example, a facility manager might specify that lower-priority lighting banks in a seldom-used corner of the building should be shut off during times of peak load. Instead of running a chiller during the hottest part of a summer day, smart-meter data could alert the facility manager to the need to pre-cool the building when energy prices are lower and costs more manageable.

Smart-meter data also provide an opportunity for facility managers to turn buildings into a revenue stream. Many utilities already offer financial incentives to better manage energy consumption by incorporating smart meters into a building's energy-management system. Some might offer incentives through automated-demand-response programs, enabling a building to respond to pricing signals from a utility during peak events automatically.