Bob Gilligan is vice-president of 'Digital Energy' business at GE Energy Services, which aims to provide integrated smart grid solutions for electric utilities. Smart grids refer to the marriage of information and automation technologies with existing electrical infrastructure.
Carmakers are turning to electric vehicles as the winning technology for the future. What impact do you think this is going to have on the stability of the electricity grid?
The good thing about electric vehicles is it's going to be a very gradual addition to the load of the grid. In the United States they are projecting a million vehicles by 2015. That is out of 300 million, so that is a pretty slow progression.
What we will see though is concentrations. So you will see particular neighbourhoods beginning to feel the impact of electric grids coming on and the way the grid is set up in the United States, the distribution transformers only serve 4-8 individual homes, so it's fairly few homes to each transformer. And an electric vehicle for charging is about the equivalent of another home, on average. So if you get four to add, near one of those transformers, then you're going to overload.
Are electric vehicles best suited as the third family car?
I talked to some of the automakers and I was surprised that they were focusing on the US as one of their entry markets. But they're doing it because most families have at least two cars, and most families won't move immediately from an internal combustion engine to solely being reliant on an electric vehicle. So the US is good for that.
Let me ask some very general questions about smart grids. What is the cost of this new infrastructure? And how can they help us deal with climate change?
That is one of the challenges. To make it very simple it's just marrying sensor technology to communication technology and computing technology to our existing electrical networks. This is no different in my view from the automation brought into process industries in the 80s and 90s.
The grid has not had the same level of automation because it is so large and so distributed, but communication costs have come down enough, computing power has expanded so much and the cost of computing power has come down so much that now you can apply those same technologies in this very big distributed grid.
These networks are extremely complex systems and we are running them with very little real-time information about the state of the grid, so we have very rudimentary controls today. If you go into a network centre, people there have a permanent estimate of the state of the grid.
There are some other reasons that we have to do it now. You mentioned renewables. The way the electric grid has evolved for 100 years is we have centralised generating stations, we pump up the voltage to high transmission voltage levels, they go out to areas of use, drop it down to distribution voltage – a one-way power flow, and then we send you a bill at the end of every month and sometimes it's an estimated bill.
So what is going to happen now? You have renewable power resources that are intermittent, you can't really plan on precisely how much power you are going to have minute to minute. So you got to adjust for that and it's more distributive in nature – photovoltaics in particular – now you have a two-way power flow. So you are not trading just with the consumer level, you have all of these more complex inputs to deal with, so you need to have more intelligence, more computing, more real-time decision support for these network centres.
Some smart grid experts have compared it to publishing: with magazines it was all one-way, and like Web 2.0 now it goes both ways…
Yes, it's an interactive system now. For our whole history, the way they've managed electricity – because storage is so inefficient for electricity – they did not try to control demand, so they just tried to match supply, whatever that demand was.
Well, the variability in demand has continued and that is why variations become such a huge issue. It is harder and harder for supply to chase that moving demand. So one of the big opportunities here is that we're beginning to manage the timing of demand.
I'll give you some examples from our clients division. For those of us that are over forty, we remember our mothers defrosting the freezer, now there is automatic defrosting going on, but that more than doubles the electric consumption of the refrigerator. Today it goes on whenever it wants to, but you can easily time it to come on when power is readily available – off-peak times.
So simple things like that, having those less time-dependent loads programmed to come on when power is readily available. And electric cars are a huge opportunity: not to charge it at six o'clock when you come home but just set it up and say, 'I want to charge it when the power is really cheap but it has to be fully charged by six in the morning'. And then let it just do what it wants. So that now you have that dispatchable demand, just like you have dispatchable supply.
It's not rocket science, it's just that there are a lot of devices to talk to.
Moving on to standards and interoperability, how do you make sure that machines can speak to each other?
Yes, if you want to have efficiency and competitive systems, you've got to have open standards and interoperability. Nobody is going to buy one smart grid from one vendor. Nobody would want to do that, no one vendor can do it. So you have to establish these standards. And there is a ton of work going on to ensure that this is happening in the right way. Appliance manufacturers are all working together to establish proper standards for communication for their devices, so that in the home you can unplug a GE refrigerator and plug in another.
Now what we want is that they become more international standards, not US standards, European standards, Chinese standards. Because then you're really opening up competition globally. That is what we want as a vendor, but it is also what consumers and utilities should want, because now it's a more competitive market system.
The next question leading from that, then, has to relate to the costs of this infrastructure and the role of public funding and private funding.
The unspoken secret is that whether we like it or not, huge reinvestment has to go into the grid. The grids were built largely after WWII in mature markets, so when you look at the age of the equipment in the grid today, 50% of the assets are reaching the end of their useful life. The average age of the transformer in the United States is over 40 years old, and these things were typically designed with a 30-year lifespan. So you've got a lot of assets that have to be replaced - and the same thing in Western Europe.
So the challenge is – are you going to just replace them piecemeal as they fail, in other words do spot repairs to an old system, or are you going to plan on the renovation of the system? It's the 21st Century, digital infrastructure supporting digital society needs, not a 19th Century analogue system that has been updated. That is our challenge.
For consumers, they are not going to like it, because the fact is, this infrastructure we have been working with has been fully depreciated, so the cost of electricity appears low. But now you have to go and reinvest and put money back into the system and that is going to raise their cost, but I do not see any way to avoid it. What I do see is a way to optimise this investment so that it supports a more green, environmentally-friendly energy system.
Economists say the amount we pay for energy is artificially low, as oil subsidies are so high. And until there is some balancing, renewables will not ever be price competitive…
That is part of it. We want to have a plan, as we are updating the grid we are moving towards that 21st Century infrastructure. This is going to be a ten- or twenty-year transformation, it's not a two- or three-year challenge. The carbon-based generation that we have all grown up with has really been in place for over a hundred years. We have had a hundred years to work at the cost of that.
Wind generation has been around for twenty years. From a scale standpoint we are nowhere near the steam and gas turbine, so there is a lot more to be learnt: how do you build them, how do you optimise their use, how do you optimise them for maintenance?
On solar, we are projecting that we are going to get to parity in the cost of photovoltaic electricity sometime in the next ten or twenty years without subsidies. So certain markets will get there sooner than others, because the cost of conventional electricity is already higher in certain markets. It depends on their fuel, the age of their fleets, etc, but the cost for photovoltaics is really dropping quite substantially, because the efficiency of electric generation is evolving so much from the cells.
So we are going to see all that happening and the grid is going to have to respond to that. Because now you've got these more distributed power generating sources that you have to manage and optimise.
Moving on to the second part of my question then, relating to financing: there is a possibility that large amounts of public finance will go into this. Where do you see this going, what sort of magnitude are we talking, and what sort of time frame?
We've got a lot of reviews for the smart grid. If you assume that the cost for smart-grid implementation is something like $500 per metered endpoint - not just the meter, but the sensors, communication, software, etc. that are required - we think around $500 per meter endpoint is reasonable.
So when we look at the United States today, we are only about 5% penetrated with smart meters. So the cost for that four million meter points is somewhere around $2 billion that has been spent for the meters, the communication, other sensors in the system.
That is displacing the need for five coal plants. So five new coal plants would cost somewhere around a billion and a half. And it is reducing the operating maintenance expense associated with the coal plants and other activities by more than $250 million.
And then it is also having a positive impact on GDP, because we see fewer customer minutes interrupted. So that reliability has a real impact on our digital economy. That is worth about $2.5 billion. So when you just look at that math – this makes sense. Now it takes a while to get to that.
The reality is, when you talk to a utility executive, they'll tell you, the operational benefits of a smarter grid give a good pay back. And they are talking about less than a four-year pay back because you are able to minimise their investment in new plants and to optimise their mobile work crews, able to extend the life of old assets, so it just makes sense from an economic standpoint.
It's hard to get there, though, because the problem for us is the consumers. One day, you get a notice when someone is going to put a smart meter in your house. Months go by and nothing changes. Maybe your bill will go up because you are paying subsidies for that cost. It's going to be a year before you see new information come to you that helps you manage your bill better. And still you are going to say, 'well, did my cost, my total bill, really go down?' Well, it may not have because you are avoiding some other cost that may have come to you.
That is the problem: everybody is expecting costs to drop when they do this but the reality is that costs are going to go up. The question is: can we reduce the rate at which they increase?
Essentially, what you said is that once people learn how to manage their own electricity use, then costs, if they still increase, will be increasing much more slowly. Possibly they'll be able to lower their costs completely, who knows, but until they figure that out, the meters will cost them more initially.
Yes, that's it. I just think that we as a society are not prepared for the idea that our electricity costs as a share of our disposable income are going to start going up. And this is about how you minimise the rate of growth of that cost while moving to a greener energy system.
Communication to consumers is obviously key in this. Who is responsible for communicating this – governments, utility companies or the private sector, or a combination?
All of the above. For GE, we are involved with the utilities in helping them with their messaging, in sharing messages across utilities, because we work with so many of them. We facilitate that. We are doing some things on our own in terms of advertisements that we do on television, in terms of alignment with third parties in providing messages through museums and other kinds of science centres. But I think this is something that we all have to participate in.
If, as you say, the costs are worth the spend in the long term, and it's going to take years to actually get there, what government policy changes are going to be required from here to there to help us bridge that gap?
I think first of all clarity in energy policy is critical and I think the EU has some advantage over the United States in that regard: you can at least define the 20/20/20 objectives and you put a price on carbon, and that is certainly helpful for where we want to go, because then the regulators have a basis for making decisions. They can say, 'OK if we want to achieve this by 2020, then these investments help take us down that road'. That's helpful. So clarity in policy is important.
Understanding where there is a mismatch between who pays and who benefits is another important consideration. In some places, you have renewable energy that wants to come online but you have to build transmission across territories in order to have a regional load centre. How do you marry up who pays for that transmission, who ultimately benefits in terms of market sale of electricity? Addressing those disconnects is important. And that is something that the government needs to focus on.
The next big subject is climate change. Large energy companies like GE – what are they doing to help prevent climate change?
Well, we are investing in renewable energy sources, so various wind-energy sources – solar energy investment, battery storage technology – we are playing in all of those areas as well as electric vehicles, where we are a big participant.
We are making very substantial investments in smart-grid technologies whether it is at the smart-metering end or the communication and controls in a residence or whether it is in the grid, in the advanced systems and analytics to better optimise the management of the grid.
So we've got a lot of projects under way, various utilities around improving the efficiency of delivery, we have a lot of investments under way to improve the reliability by making the grid more self-aware, having self-healing characteristics by switching around problem areas.
We are doing a lot to help with the optimisation of connected renewable sources – how you make sure that those renewable assets get fully utilised. And that requires more participation of demand-response, in a way that marries management of demand to the variability of supply.
Of all the areas you mentioned, do you think there is one that stands out which is going to make more of a difference to fighting climate change than others?
I think the top part is that there is no one thing. You have to do many different things and the smart grid is the enabler. So I am a proponent of the smart grid, not just because it is part of my business but because it is an enabler for everything else, whether it is electric vehicles, photovoltaic or wind or more efficiency. And I also see, particularly in the United States, which is very consumer energy-intensive, there is a huge opportunity for conservation, and information is the tool that will get us there.
We have seen, without any automation in the home, simple information that compares one consumer's energy profile to his neighbour's, where the neighbours have equivalent size homes, equivalent number of residents in the home. Being able to tell them that you are in the fourth quarter, you are the worst performer of your population set, makes people say, 'I wonder why'. And that, just that information being made available to consumers has shown a 3% reduction in the use of electricity in those consumers. No further automation, just information. And it's been a 3% reduction that has been sustainable, without doing further automation. Now, when you further automate in the home, you see more. You see a 9 or 10% reduction. But information alone is powerful.
To come specifically back to smart grids, how do you see the market developing between domestic households and commercial property? Because you know we hear a lot about energy efficiency and buildings, which is the most important market for GE Energy, for example, and where do you see the potential for each?
We are trying to play across the spectrum. I think that industrial and commercial buildings are the easiest ones to address first in terms of demand-response because the loads are bigger, so that the opportunity is bigger in comparison to the controls that need to be put into place. So that is why you see that this has been worked on at the industrial level for years and there has been a reasonable start on commercial buildings that can be further built out.
Is this something you expect consumers to be interested in?
There is going to be a segment of the population that has an interest in saving a few dollars but the reality is that people will do it if it does not interfere with their lifestyle.
A lot of people will do it just for the environmental benefit and because it's kind of cool. You know it's more technology at home, it's gadgets, we like gadgets. We'll do it for the novelty of it, as long as it does not negatively impact upon our lifestyle.
Europe is a little different because your energy costs are significantly higher than in the US, but I think electricity is still a back-of-the-mind issue for people. We spend more on our communication technology than we do on the electricity that enables it. Cell phones, cable TV and Internet access – we spend more on that stuff and are willing to spend on that than we spend on the electricity that serves it.
In the United States, electricity costs 1.9% of disposable income – so it is a back-of-the-mind issue. So whatever we do here has to be something that appeals to the consumer but is simple and does not make me make that a front-of-the-mind problem.
You have said the United States needs a defined energy policy.
Yes, the US needs clarity, it needs a real energy policy. And the policy is only one part, then you have to have the enforcement mechanism. What is the penalty for not achieving this? There has to be a financial implication to that – that is what forces an investment.
The United States has had various energy legislations – in 2004, 2007 – without associated timing for implementation, penalties or benefits for implementation. And unless you can clip this into a financial model that says, 'If I don't do anything, here is what it costs me, if I do something here are the benefits' – at the end of the day these utilities are public companies with shareholders, and they have to look at the financial implications of what they are doing. They are also supposed to be good community stewards, but they have to serve the shareholders.
We have been talking about the number of jobs that green energy could produce. Off the top of your head: how much do you think will be created by introducing smart grids in the United States?
Kema, the consulting company, did a study for the Department of Energy, with respect to smart grid and the jobs that would be created by that, and they are projecting 140,000 new jobs generated through the creation and support of the smart grid. That is a US number.
And in Europe?
I don't have a figure for Europe. But we are seeing developing markets moving quickly to a greener energy infrastructure. As they are putting in their first investment, they are doing it with a digital energy infrastructure. It's easy for them and because they are making such huge investments anyway, it creates the opportunity to develop an industry for export.
That is what China is all about. China is going really big after wind energy, solar energy and smart grid technology today. And if we are not careful - and the rest of the world - we are going to find that they have the Internet industry of tomorrow.
The wind energy industry has expanded more quickly in China than anywhere in the world. Are they banking on the green jobs bonanza?
Yes, but we need to be careful with how we define green jobs, because there is no green industry in the first place. The guy who makes the tower for a windmill out of steel, is that all of a sudden a green job? Is he doing something different than he did before? Maybe not.
There are many more opportunities by investing in these new technologies, if you are just going to create green jobs people tend to forget that sometimes what you also do is maintain jobs in existing industries. I'll give you an example: we have an oil and gas business in Italy, where the technology that we use in the compressors, the same technology can now be slightly modified and adapted for compressed air storage. We are working on a big demonstration project with a German utility on that and it's the same technology. So are these guys that used to work with fossil fuel, are they all of a sudden out of the market? It opens up new opportunities and that is really very important too, when you sometime read about green jobs.
Where to draw the line is difficult. UK investments in port infrastructure to physically take the wind turbines out to sea – the people that are doing the port infrastructure, are they now green jobs because they are being done to enable the transportation of wind turbines?
I do think that whether it's Europe or the US, China or India, the first moving regions have the best opportunity to be at the forefront of the creation of an industry and become mass exporters. That is the way the markets work. The industries are born around the market that is adopting it first. And you have the first opportunity to become an exporter globally and that is what creates the jobs for your local economy.
On energy technologies, the European Commission has published a strategic plan for investments in energy infrastructure and key energy technologies. Was this a good move in your view?
The Commission, I think, with the infrastructure plan is going in the right direction but it is not yet funded, so that is something that needs to be ensured – that the money that the EU had intended for these six, seven priority technologies is really there to demonstrate and then deploy on a commercial scale. Not only the smart-grid technologies but also wind offshore and CCS, whatever else is in the plan, can really be demonstrated and tested.
The energy industry has suddenly become excited, you know for years it was the same old technology…now we see people graduating from university and we're getting a great uptake of talent coming back into this old industry, because they see it as something where they can really do something, where they can enable a greener future, and do it without sacrificing our economic future. They're excited about this.
We have seen a really great renaissance here. When you get smart people together who have a lot of energy and passion about something, if you can match that to a market need, we are going to see great things happen. So this is just about focusing efforts, ensuring that we can communicate to regulators, to policymakers, to consumers to drive the right decisions, and we have a lot of work to do on that.