Recently at the DistribuTECH Conference in San Antonio, Texas, I was in a session where someone mentioned attending DA/DSM in Miami, Florida a number of years ago. For some old-timers like myself, I reminisced about attending this conference and recognized it as the roots of DistribuTECH. Thinking back to that conference, one of the memorable take-aways for me was a heated debate about avoided costs during a session I attended.

The speaker at this session mentioned the lack of rigor that could be attributed to this concept. To drive his point, he mentioned that as soon as the conference was over he had to head to Miami airport to take a flight to his next appointment. Now the fuzziness of time has obscured the exactness of his statements, so I will have to employ some poetic license on the details, but rest assured the context of his statement went something like this:

“I have many choices for my trip from the hotel to the airport. These include hiring a limousine which would cost about $75 or taking a cab, which would cost about $25. I could take a hotel shuttle, which would be about $10, or I could walk, which would cost me nothing. If I want to maximize my avoided cost, I should walk behind the limo.”

As I recall the speaker was not warmly received by the audience, many of whom were struggling with selling the concept of quantifying numbers to attribute to the avoided cost of implementing demand response and distribution automation, rather than more traditional construction actions.

Looking at many of the business case justifications for Smart Grid, frequently, avoided costs are included on the benefit side of the equation. What the speaker neglected to include in his simplistic analogy is the value of urgency and practicality.

Certainly if one could walk behind a limousine as fast and convenient with the same equivalency, then this would represent the greatest avoided cost. However, comparing total avoidance of cost to the maximum possible cost is not realistic. The walking solution does not include factors such as carrying luggage, sweating, and the risk of a heart attack attempting to keep up with a limo driver doing 50 miles an hour.

Well constructed business cases must include realistic assumptions that equate alternatives. Re-enforcing a substation takes time, money, and effort; so does implementing substation automation and feeder automation. There are some reasonable assumptions that can be made between the long term benefits, which can include the avoided cost of iron in the ground versus technology that provides more flexible real-time condition based choices.

What is your opinion? Should utilities invest in more iron or more intelligence?

By: Ron Chebra, vice president, Management & Operations Consulting, KEMA Americas