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    Guidebook for Cost/Benefit Analysis of Smart Grid Demonstration Projects

    Revision 1, Measuring Impacts and Monetizing Benefits

    1025734

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    EPRI Project Manager

    M. Wakefield

    ELECTRIC POWER RESEARCH INSTITUTE 3420 Hillview Avenue, Palo Alto, California 94304-1338 ▪ PO Box 10412, Palo Alto, California 94303-0813 ▪ USA

    800.313.3774 ▪ 650.855.2121 ▪ [email protected] ▪ www.epri.com 

    Guidebook for Cost/Benefit Analysis of Smart Grid

    Demonstration Projects

    Revision 1, Measuring Impacts and Monetizing Benefits

    1025734

    Technical Update, December 2012

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    DISCLAIMER OF WARRANTIES AND LIMITATION OF LIABILITIES

    THIS DOCUMENT WAS PREPARED BY THE ORGANIZATION(S) NAMED BELOW AS AN ACCOUNT OF WORK SPONSORED OR COSPONSORED BY THE ELECTRIC POWER RESEARCH INSTITUTE, INC. (EPRI). NEITHER EPRI, ANY MEMBER OF EPRI, ANY COSPONSOR, THE ORGANIZATION(S) BELOW, NOR ANY PERSON ACTING ON BEHALF OF ANY OF THEM:

    (A) MAKES ANY WARRANTY OR REPRESENTATION WHATSOEVER, EXPRESS OR IMPLIED, (I) WITHRESPECT TO THE USE OF ANY INFORMATION, APPARATUS, METHOD, PROCESS, OR SIMILAR ITEM DISCLOSED IN THIS DOCUMENT, INCLUDING MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR (II) THAT SUCH USE DOES NOT INFRINGE ON OR INTERFERE WITH PRIVATELY OWNED RIGHTS, INCLUDING ANY PARTY'S INTELLECTUAL PROPERTY, OR (III) THAT THIS DOCUMENT IS SUITABLE TO ANY PARTICULAR USER'S CIRCUMSTANCE; OR

    (B) ASSUMES RESPONSIBILITY FOR ANY DAMAGES OR OTHER LIABILITY WHATSOEVER (INCLUDING  ANY CONSEQUENTIAL DAMAGES, EVEN IF EPRI OR ANY EPRI REPRESENTATIVE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) RESULTING FROM YOUR SELECTION OR USE OF THIS DOCUMENT OR ANY INFORMATION, APPARATUS, METHOD, PROCESS, OR SIMILAR ITEM DISCLOSED IN THIS DOCUMENT.

    REFERENCE HEREIN TO ANY SPECIFIC COMMERCIAL PRODUCT, PROCESS, OR SERVICE BY ITS TRADE NAME, TRADEMARK, MANUFACTURER, OR OTHERWISE, DOES NOT NECESSARILY CONSTITUTE OR IMPLY ITS ENDORSEMENT, RECOMMENDATION, OR FAVORING BY EPRI.

    THE FOLLOWING ORGANIZATION PREPARED THIS REPORT:

    Electric Power Research Institute (EPRI)

    This is an EPRI Technical Update report. A Technical Update report is intended as an informal report of continuing research, a meeting, or a topical study. It is not a final EPRI technical report.

    NOTE

    For further information about EPRI, call the EPRI Customer Assistance Center at 800.313.3774 or e-mail [email protected]

    Electric Power Research Institute, EPRI, and TOGETHER…SHAPING THE FUTURE OF ELECTRICITY are registered service marks of the Electric Power Research Institute, Inc.

    Copyright © 2012 Electric Power Research Institute, Inc. All rights reserved.

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    This publication is a corporate document that should be cited in the literature in the following manner:

    Guidebook for Cost/Benefit Analysis of Smart Grid Demonstration Projects:  Revision 1,  Measuring Impacts and Monetizing Benefits. EPRI, Palo Alto, CA: 2012. 1025734.

    iii

    ACKNOWLEDGMENTS

    The following organization prepared this report:

    Electric Power Research Institute (EPRI)

    942 Corridor Park Blvd. Knoxville, Tennessee 37932

    Principal Investigators C. Haddad B. Neenan J. Roark

    This report describes research sponsored by EPRI.

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    PRODUCT DESCRIPTION

    This report presents a step-by-step process for estimating the costs and benefits associated with Smart Grid demonstration projects. In its entirety, the guidebook is meant to function as a standalone user’s manual for the analysis process, from the initial step of describing the project

    to the final step of communicating the results to all stakeholders. This revision of the Guidebook updates and supersedes the material in the original Volume 1, published in 2011, but goes further  by adding detailed discussion of monetization of benefits. The steps included in this volume  present detailed instructions beginning with the overall design of the demonstration project, leading to execution of the research plan and analysis of data produced. The basic methodology is built on the framework described in the Methodological Approach for Estimating the Benefits and Costs of Smart Grid Demonstration Projects, published by EPRI in January of 2010.1 

    Results and Findings

    As Smart Grid technologies evolve from the research and development environment to  production testing and deployment, reliable methods will be needed to value the benefits of the new technology and weigh these benefits against the cost of deployment. Having a consistent, credible, and transparent approach will help promote the deployment of Smart Grid investments where they will yield the greatest value for customers, utilities, and society.

    Challenges and Objectives Integrating smart technology into the electricity distribution system is complex. There are many new devices and systems that can be deployed in a variety of different applications. Multiple technologies can be part of a single project. Not enough is known about their performance to determine which technologies (or portfolio of technologies) will be optimal across the spectrum of possible applications. Thorough documentation of actual field performance will help resolve questions about how individual technologies and portfolios of technologies are likely to perform

    under different operating conditions and levels of investment. The valuation process is also complex because many Smart Grid investments produce indirect impacts. Their benefits are derived from how they enable us “. . . to integrate, interface with, and intellig ently control innovations such as wind turbines, plug-in hybrid vehicles, and solar arrays.”

    2   Thus, a large part

    of the value of some Smart Grid investments is derived from other technologies whose use they enable. Assessing the value of Smart Grid investment must address the functions it enables, as well as the value that it provides directly.

    Applications, Values, and Use

    Engineers, planners, project managers, and other professionals can perform cost/benefit analysis for Smart Grid demonstrations by following the steps listed in the complete guidebook. Any

     project stakeholder involved in the process of defining specific values related to Smart Grid technology implementation will find value in its methodology. The process will allow for

    1 EPRI, Palo Alto, CA: 2010. 1020342.

    2  Litos Strategic Communication, “The Smart Grid: An Introduction,” prepared for the U.S. Department of Energy, Contract No. DE-AC26-041818, Subtask 560.01.04, undated, p. 15.

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    accurate analysis of the costs and benefits of various Smart Grid designs and will ultimately aid the stakeholder in steering Smart Grid deployment to provide the greatest value to beneficiaries.

    The goal of the guidebook is to present a comprehensive set of guidelines and specific instructions for estimating the benefits and costs of Smart Grid projects. It is unique in its level of technical specificity and in the range of technologies it is intended to cover. It is intended to

    complement previous publications that deal with the concepts of cost/benefit analysis as applied to Smart Grid. Finally, it is intended to help utilities produce evaluations that meet reporting requirements for DOE-funded Smart Grid projects, as well as provide the types of information that regulatory commissions are likely to require in order to approve the investments for cost recovery through regulated rates.

    The Approach The guidebook presents a step-by-step framework that provides a standardized approach for estimating the benefits and costs of Smart Grid demonstration projects. This guidebook contains detailed discussion of the first twenty-one steps, from initial project definition to monetization of  benefits. Further, it applies these steps to a specific Smart Grid technology to illustrate how the

    methodology can be applied. Keywords Smart Grid Smart Grid benefits Smart Grid costs Functionality Demonstration projects Cost/benefit analysis

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    ABSTRACT

    This report presents a step-by-step process for estimating the costs and benefits associated with smart grid demonstration projects. The entire guidebook is meant to function as a standalone user’s manual for the analysis process, from the initial step of describing the project to the final

    step of communicating the results to all stakeholders. This version of the guidebook presents detailed instructions for describing the project objectives, research plan, and technologies deployed; associating the technologies with enabled functions; and mapping these functions to impacts. The report discusses the translation of impacts to c