”smart grid” or “smart hype”… an analytical perspective from a ‘grid’ neophyte

Vinod Khoslavk@khoslaventures.comNovember 2010

Last year’s summary…

I’m not skeptical about investing in the grid

Storage better than Demand response

Let’s not get caught up in the hype of the smart grid

one successful smart grid company doesn't create a wave

networked grid = new applications

Open = innovation

hype cannot defy economic gravity

Consumer behavior hard to change2

Opportunity exists, hype exists

…”certain” dispatchable supply

Source: Morgan Stanley3

Solar & Uncertain

4

Wind & Uncertain

5

Uncertainty Time Scales

Milliseconds

Seconds

Minutes

Tens of minutes

Hours

Days

Years

Decades

Faults

Markets

EV uptakeC credits

Source: Resnick Institute

PV

WindBackup

Gen

Demand/Response

6

Increased renewables deployment, EVs

Increased reliance on innovation (e.g., Storage, renewables, software, etc)

Huge capital at risk & fast changing technology

Increased security requirements

Consumer response

Drivers of Uncertainty

7

Aggregating supply: wind, solar, coal, gas, nuclear…

Aggregating over geography

Aggregating over time

Information technology

Dynamic response of subsystems

Design for non-catastrophic failure

Increasing Certainty…

8

Central problem of uncertainty demands grid infrastructure redo

… not minor issues like meter reading

…though AMI has a role… Silver Spring with $800m of DOE funding does not make for sustainable “wave” even if it means good equity returns

9

smart meters, HAN and thermostats

Closed protocols

Real-time pricing

most value is automating meter reading

Focus on demand response

Increases energy security

Intelligent consumer electronics

More money in the GRID than in the HOME

OPEN protocols will win (mesh?)

Diverse, bandwidth needs 100X larger?

Grid = smart power electronics (PE)

hard to predict needs (flexibility)

Architecture determines security

distribution automation, 2-way flow, redundancy

…REAL smart grid wisdom?

10

…where’s the BEEF?

… SECURITY & CYBER WARS

… De-coupling “rigid grid”: self healing & adaptive

… Local “power quality”: locally self adjusting

… Evolvable architecture, open, predictive

… Power Electronics (control, quality, locality…)

… (modularity/flexibility & Management)

11

Source: McKinsey

Opportunity: $130B in US alone?

12

Storage and DG can play these roles…

Storage and DG can play these roles…

5-15% from consumer behavioral change or

…efficiency could shrink by 50%

This is what many utility commissions

focus on

May grow…

Issues, drivers & concerns

13

… useful (concerning) but hyped?

…. smart meters (automation, not smart device)

…. demand response (5-15% factor?)

…. consumer engagement

…. time of day pricing

…. proprietary networks

…. fashion of the day & “deterministic need” assumption

14

… modularity and “design for the future”

“The problem here is there has been a rush to install these fancy new hi-tech meters and they're not energy-saving devices; they are simply meters. They're not going to be worth the customer investment.”

15

Westinghouse’s Law vs. Moore’s LawWhen a 70 year lifecycle collides with 18 months..

“Instead of installing meters capable of receiving high-speed broadband Internet signals, Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric have opted for cheaper, lower-speed connections.

Yet the utilities are also laying the groundwork for advanced "smart grid" networks that will use broadband technology for managing power supplies and distribution.

The upshot: smart grids and smart meters that, in essence, won't speak the same language.”

16

Eco:nomics vs. Greco:nomics( or the principle of economic gravity)

Avoid the hype (and the environmentalist’s solutions)

Economic gravity WILL win: with consumers, regulators and Governments

17

Consumers resistant to costs

…who decides, who pays?

18

Smart grid subsidies?

Misdirected…$19M for networked

home appliances

Needed…$19M for power distribution & management

19

Smart hype ….even your remote is smart grid

20

Zero Net-Energy vs. Efficiency

Environmentalists dream “pay for itself 1st year” Efficiency

VS.

Zero energy is an irrelevant focus21

Standby Power

efficiency vs. “smarts”..what if everything used 80% less electricity?

22

What if we had fundamental new power electronics devices?

…early transistor …Intel I7 (transistors 774million)

23

1 MW wind “converter”: huge=expensive

What if we had the perfect power electronics sub-system?

Reactance worries=expensive

1900’s transformers

24

What if a Russian Hackathon brought down electricity to 20 million US homes?

….is a hackers “how many homes” competition improbable?

25

Managability: focus on IT to Increase Certainty?

Silos ESB Adapter-based Common

Current-state System Integration (IBM) Approach

DoD “style” Approach

Standards –basedInternet-style

Source: Jeff Gooding, Jeremy McDonald, SCE

…but managing (Smart) Grid means manageable grid

elements

26

Efficiency vs. DR

Efficiency vs. conservation/insulation

Storage vs. DR

Storage vs. DG

Transmission vs. storage

Load regulations vs active devices

Command & control vs resilient networks

What if we asked …

A lot of the “wisdom” may be made obsolete by technology27

… beefy solutions?

Active sub-systems, manageable grid components

Ultra efficient consumption devices (80% less!)

Automated & predictive grid flow management

Ubiquitous storage

DC transmission

Beyond networking - fundamental device capability

Cyber security

28

Design for evolution

Design for resiliency

Design for competition

Design for open standards

…..

Suggestions from a neophyte:

29

What will drive grid change?

30

Mckinsey : US mobile subscribers

Source: American Heritage Magazine - http://www.americanheritage.com/articles/magazine/it/2007/3/2007_3_8.shtml

forecast actual

1986 forecast for 2000

31

yesterday’s technology, tomorrow’s forecast1980’s phone: year 2000 phone:

32

2010 phone:

300,000 available apps7bn+ apps downloaded

Forecasters, Analysts, Pundits & Astrologers

1990 Unimaginable: >480 pixel, interlaced, analog HDTV

1995 Unimaginable: IP in telco networks

2007 Unimaginable: Iphones & wireless bandwidth use

Today’s unimaginable becomes tomorrow’s conventional wisdom 33

What would change?

34

vk@khoslaventures.com