Jan 14 - Business Week

For a year, Jerry Brous lived a little piece of the future. The 67-year-old resident of Sequim, Wash., was part of a test of a home energy system smart enough to respond to changing prices of electricity. When the price rose because of greater demand on the grid, the house automatically dialed back the thermostat, or shut down the water heater and clothes dryer. That shaved an estimated 15% from Brous' energy bills, giving him average monthly payments of $85 with a monthly high of $148. More important, with more than 100 houses equipped like Brous' in the experiment, the smart system was good for the grid as well. It smoothed power peaks, reduced the need for expensive new power plants, and cut the chances of a blackout. "It was a wonderful thing," says Brous. "I frankly miss it."

Right now, electricity use in U.S. homes is pretty darn dumb. Electrons come in, get eaten by TVs, heaters, lightbulbs, iPod chargers, and myriad other devices. A meter records how much is consumed, but that's about it. So when people come home from work and turn on lights and appliances, or when Arctic cold or summer heat waves hit, the demand for power soars. Utilities must crank up additional generators or tap power coming across the grid from other locations. It's often a delicate balance. If something goes wrong, the result can be brownouts or blackouts, like the one that crippled the Northeast in 2003.

That's why researchers and utility executives have been pushing the idea of a smarter grid. Many homes already have computers hooked up to the Internet or other networks. So why not add appliances and other electricity-users as well? Throw in meters with enough brains to know the changing overall demand and the corresponding change in price for electricity, plus software and devices to control the appliances, and the whole grid can go from dumb to downright intelligent.

Boon to Sensor and Device Makers Such a smart grid -- connected to only those energy users who agree to it -- brings a host of advantages. Household electricity use can be adjusted to ease, if not prevent, peak power loads. As renewable energy alternatives like wind and solar grow, the grid can be better adjusted to handle the fluctuations in power when the wind ebbs or clouds thicken. "Widespread adoption of these technologies can help provide reliable clean energy," says Robert G. Pratt, program manager at Pacific Northwest National Laboratory [PNNL].

Plus, it offers a huge business opportunity for the companies making sensors, control devices, and software. IBM (IBM), for one, figures that the market for its software and other technology would be in the many millions of dollars, if the nation were to adopt the smart grid.

But does it really work? Will ordinary homeowners cede control over water heaters and dryers to some Big Brother-like network? In 2005, researchers such as Pratt decided it was time to do an actual experiment to find out. "We said that we need to stop talking and start showing," he says. "We needed a concrete example."

Giving Up Thermostat Control So with $2 million in funding from the U.S. Energy Dept., an additional $500,000 from Bonneville Power and Portland General Electric (POR), and technology from IBM and Whirlpool (WHR), Pratt devised a test. At a cost of about $1,000 per home, his team outfitted 112 homes on Washington State's Olympic Peninsula with smart electric meters, thermostats, water heaters, and dryers. The dryers, for instance, were commercially available Sears/Kenmore units modified to include a circuit board that automatically senses stress on the grid by detecting the telltale tiny decrease in the AC frequency at a regular wall outlet. When a controller sensed stress on the grid, it then automatically turned off the heating element in the dryer.

Similar controllers were put on heat pumps, thermostats, and water heaters. The equipment was linked, via a router-like gateway, in a network and run with IBM software.

Brous, a retired traffic manager at U.S. Steel (X), heard about the project on a local radio station. He immediately volunteered. "I thought it was a very important thing for all people to have," he recalls. The equipment was installed in December, 2005, and was in place through early 2007.

Option to Override the System Like the other volunteers, Brous and his wife allowed the system to reduce their energy use when prices went up. As a result, the thermostat sometimes got turned down, allowing the house to get colder. Or when they went to dry clothes, the dryer occasionally suggested that they wait until prices declined. But if the house got too cold, or if they really needed to dry some clothes, they could override the system. Brous says, however, that they intervened only about 1% of the time.

He could also control the house from anywhere, telling it, for instance, to warm up just before he and his wife returned from camping trips. "If for some reason we came back early or stayed late, we could jump on the Internet and make changes," he says.

For Brous, the technology was not only convenient and money-saving, it was consciousness-raising. He became more aware of the electricity he was using -- and ways to cut use further. Instead of just putting off drying clothes until electricity prices dropped, he and his wife started using a clothesline, "saying that we can save a bit more electricity," he says. "We found we really liked it."

Smoothing Power Peaks And overall, Pratt says, the project was a big success. The total amount of power needed when demand was the greatest was cut by 15%. Indeed, in times of heavy demand, power consumption went down to 50% of normal for days at a time.

"The first cold snap came in November, 2006, and we were all anxiously looking at the data," Pratt recalls. Would electricity demand jump up and down as usual, or would the smart system tame the rise? "I was absolutely astounded," he says. The system "kept the load absolutely flat for 72 consecutive hours. I've never seen such a thing before."

Applied to a whole region, the smoothing of peaks in electricity use would prevent the need to ramp up power plants to churn out more expensive electricity. And it would obviate the need to build new power plants to meet future anticipated needs. Indeed PNNL's calculations show that such a system could save the nation $70 billion of the projected $450 billion needed in new power generation and distribution capacity in the next 20 years.

Of course, there are still daunting hurdles. State and local regulations often make it hard to implement such systems. Not all consumers are as willing as Jerry Brous to allow technology to control their house's electricity use. And installing smart devices in millions of homes is a massive undertaking. But the ultimate payoff is large -- and the demand is there. "When it becomes available, I'll be the first to get it installed," says Brous.