BPA Study of Smart Grid Economics Identifies 

Attractive Opportunities and Key Uncertainties

Bonneville Power Administration (BPA) and Navigant 

Consulting recently released a white paper

1

documenting the 

interim results of an economic assessment for smart grid 

technologies in the Pacific Northwest. The study, called the 

Regional Business Case (RBC), is the first bottom-up 

assessment to account for the interactions of various 

technologies and quantify the uncertainties and risks of 

regional smart grid investments. BPA initiated the RBC study 

to understand how smart grid technologies might help mitigate 

the costs associated with greater demand on the grid 

infrastructure, such as integrating intermittent renewable 

generation and accommodating regional growth. 

Lee Hall, the BPA Smart Grid Program Manager:

“In the past several years there have been a lot of claims 

about the value of smart grid. When we looked under the 

hood, there often wasn’t enough rigor to support actual 

investment decisions. We needed to get a better handle on 

the opportunities and their risks.”

Erik Gilbert, the Navigant project lead:

“BPA was asking difficult questions about smart grid

benefits and wasn’t satisfied with existing analyses. To 

answer these questions we had to develop a bottom-up,

systems approach. The benefits and many of the costs of 

new technology investments are still uncertain. We knew 

that point values wouldn’t suffice—we needed to show the 

range of possibilities” 

The RBC study applies a comprehensive benefit-cost approach 

that differs from other smart grid benefit-cost analyses in 

several important ways. It:

 presents a regional assessment across states, customer 

segments, and end uses

 examines an array of specific technologies used to 

implement over 30 integrated smart grid capabilities

 uses integrated uncertainty and risk analysis

 applies conservative values and calculations

 incorporates real-world data and demonstration results, 

as they become available.

Figure 1. Map of the Pacific Northwest Region

 

1 Navigant Consulting, Inc. Smart Grid Regional Business Case for the 

Pacific Northwest. December 2013. See “White Paper” link at the bottom of:

http://www.bpa.gov/Projects/Initiatives/SmartGrid/Pages/default.aspx.

Smart Grid Investment Is Coming into Focus, 

and Looks Promising Overall

Figure 2 indicates the range and likelihood of the benefits and 

costs associated with a deployment spanning through 2040 in 

the Pacific Northwest. Benefits are expected to surpass costs, 

with $14.5B in total benefits and $10.0B in costs over the 

analysis time frame. The expected NPV is $4.6B, with low 

and high values ranging from $0.6B to $7.1B. The NPV is 

expected to surpass zero (i.e., producing a net benefit) with 96 

percent confidence.

Figure 2. Smart Grid Investment Looks Attractive Overall

These aggregate results indicate that sufficient information 

exists today to create beneficial, region-wide smart grid 

deployment plans in the Pacific Northwest. Uncertainties 

remain high in some areas, however, as discussed in more 

detail in the sections below. Furthermore, results in different 

jurisdictions will vary due to a number of parameters (e.g., 

weather, capacity constraints) that may cause results for 

specific technologies to diverge from this regional average 

view.

About the RBC Study

The RBC study is sponsored and managed by BPA and 

implemented by Navigant Consulting. The RBC is being 

developed with input from a number of regional entities 

including the Northwest Power and Conservation 

Council (NPCC), and the Pacific Northwest Smart Grid 

Demonstration Project. The RBC also incorporates input 

from regional stakeholders including distribution utilities 

in the region and findings from smart grid studies 

nationwide.

The results described herein are considered interim. 

Final results of the study will be made available after the 

conclusion of the Pacific Northwest Smart Grid 

Demonstration Project. More information about the 

interim results can be found in the full white paper.
Investment Outlook Varies by Category, with 

Clear Winners Emerging

The analysis breaks results into six broad investment 

categories to facilitate understanding. This section presents 

results for the six smart grid investment categories, described 

below. The results indicate that smart grid investments in

Transmission and Distribution (T&D) Optimization, Grid 

Reliability, and Dynamic and Responsive Demand are 

generally expected to be attractive and low risk. Smart grid 

investments to enhance End-Use Energy Efficiency (EE) and 

Grid Storage Integration and Control are not seen to be 

generally attractive. Smart grid enhancements to Utility 

Operational Efficiency are expected to produce a small net 

benefit, but the analysis results show high uncertainty. Figure 

3 indicates the range of the benefits and costs associated with 

each major investment category.

2.1 T&D Optimization

T&D optimization encompasses smart grid capabilities that 

improve the controllability or utilization of electrical 

infrastructure assets, leading to more efficient delivery of 

electricity. Example capabilities include conservation voltage 

reduction (CVR) and power factor control.2

 

2 Utilities have long engaged in T&D investment and optimization activities 

using traditional (i.e., non-smart) technologies. Only optimization activities 

that apply two-way communications and some form of automated 

intelligence are included in the RBC analysis.

T&D optimization benefits tend to be fairly well understood 

compared to other investment categories. Some of the largest 

uncertainties occur in the areas of system and operational 

integration costs.

2.2 Grid Reliability

End-use energy reliability encompasses smart grid capabilities 

that reduce the likelihood, duration or geographic extent of 

electricity service interruption, and maintain or improve the 

quality of delivered power. Example capabilities include fault 

location, isolation, and service restoration (FLISR), enhanced 

fault prevention, and wide area monitoring (WAM). 

Many technologies that improve reliability are already proven, 

but results can still vary widely. Benefit-cost analysis indicates 

that these investments have a high probability of producing a 

net benefit.

2.3 Dynamic and Responsive Demand (Smart DR)

Dynamic and responsive demand encompasses smart grid 

capabilities that allow short-term influence of end-use 

consumption by signals provided through the electricity 

supply chain. Demand response (DR) was analyzed for seven 

end-use categories (i.e., lighting, space heating, space cooling, 

appliances/plug loads, water heating, refrigeration/industrial 

processes, and agricultural pumping), four sectors (i.e., 

residential, commercial, industrial, and agricultural), and three 

program approaches (i.e., pre-enrolled participant events, price 

signals, and fast-acting/ancillary services). 

Cost and benefit results for smart dynamic and responsive 

demand are incremental to those generated by traditional DR 

programs that do not require smart grid technology.3 Results 

indicate the potential for significant benefits from smart DR 

investments; however, these results vary greatly by customer 

segment.

 

3 See Appendix B of the full white paper for more discussion on the 

distinction between smart DR and traditional DR.

RBC Model Simulation Characteristics

 Discounted cash flow model that spans 30 year 

investment period

 Covers over 80 types of equipment, 30 new capabilities, 

and 30 ways the grid can be impacted

 Costs and benefits associated with vectors for over 150

actual grid characteristics

 Monte Carlo simulation allows uncertainty 

distributions for parameters

 Accounts for shared system costs and sequencing of 

investments

Figure 3. Six Investment Categories Show Different Returns and Risks.
2.4 Smart End-Use Energy Efficiency

Smart end-use energy efficiency encompasses smart grid 

capabilities that reduce energy consumed by customers 

through enhanced information feedback, identification of 

poorly performing equipment as candidates for replacement or 

maintenance, and other enhancements to EE that require smart 

grid functionality. Capabilities encompass consumer behavior 

change, automated energy management, efficiency equipment 

upgrades, and improved maintenance.

Cost and benefit results for smart EE are considered 

incremental to traditional EE investments, which do not 

require smart grid functionality. Investment in smart EE does 

not appear to be attractive, with less than a 20 percent chance 

of benefits exceeding the costs. Note that this analysis only 

addresses end-use efficiency to the degree it is impacted by 

smart grid functionality, and does not indicate the cost 

effectiveness of traditional end-use energy efficiency 

measures.

2.5 Grid Storage Integration and Control

Grid storage integration and control encompasses all smart 

grid capabilities that provide the ability to store electrical 

energy in battery systems. This includes battery systems sited 

at end-use facilities (i.e., residential, small C&I, large C&I, 

and institutional facilities), on the distribution system, on the 

transmission system, and electric vehicle batteries when 

connected to charging stations.

Results indicate a less than a 20 percent chance that grid 

storage investments will create a net benefit outside of certain 

niche applications. However, with advances in battery 

technologies and new approaches being funded each year, it is 

possible that a breakthrough or new approach could change 

the benefit-cost equation.

2.6 Utility Operational Efficiency

Utility operational efficiency encompasses smart grid 

capabilities that improve the ability of a utility to deliver 

energy with the same reliability and efficiency, but with lower 

operations and maintenance costs. Example capabilities 

include automated meter reading and billing, reduced truck 

rolls from targeted repair work, and improved planning and 

forecasting.

Utility operational efficiency investments are viewed as very 

uncertain, with almost equal chances of producing a net 

benefit or a net loss. However, much of the costs in this 

category are in advanced metering infrastructure (AMI), 

which serves as a platform to enable or enhance the other 

more beneficial investment categories.4 Considering the 

pivotal role of AMI in many smart grid capabilities, this 

investment is likely a prerequisite for deployment of many 

smart grid capabilities. This interpretation is consistent with 

the evidence of broader AMI deployment already occurring in 

the region and the country.

Key Findings and Policy Implications

Regional stakeholders can leverage the results and information 

provided by the RBC on smart grid benefits, costs, and 

uncertainties to inform their decision-making processes and to 

help put the various smart grid capabilities into a context for 

decision making.

A primary objective of the RBC study is to characterize the 

uncertainty and risk of smart grid investments in the Pacific 

Northwest. Most graphics in this white paper present results 

with explicit uncertainty bounds. Even with an understanding 

of the uncertainties, questions remain about how utilities 

should invest. 

 

4 Typically, avoided meter reads and remote connect/disconnect result in 

benefits that meet 55%-85% of total AMI costs. In some cases where meter 

reading costs are excessively high (e.g., a rural coop with a large geographic 

service territory) operational benefits can surpass total AMI costs without 

including other benefits.

Figure 4. Some Smart Capabilities Warrant Investment, Others Need More Investigation.
Figure 4 presents an investment approach that accounts for the 

expectations and uncertainties of smart grid investments. This 

approach divides smart grid investments into four zones based 

on their expected NPV and their range of uncertainty. Smart 

grid capabilities that have a low range of uncertainty have 

sufficient information to confidently make deployment 

decisions based on their expected NPV (i.e., “identify niche 

opportunities” versus “pilot and deploy”). For smart grid 

capabilities that have a high range of uncertainty,5there may 

not be sufficient information to deploy at scale, so investment 

should focus instead on investigating the capabilities and 

reducing their respective uncertainties (i.e., “wait and 

monitor” versus “test and familiarize”). The right-hand side 

of the figure indicates generally which zones the smart grid 

capabilities discussed in this white paper fall into. This 

graphic shows that there is sufficient information available

today for some capabilities to begin or continue investing in 

smart grid pilots and deployment. It is important that utilities 

test those capabilities and become more familiar with them so 

that they might ultimately make appropriate investment 

decisions.

Looking Forward

To reduce the uncertainties in these areas, several activities are 

important to the RBC study going forward, with the goal of 

leveraging the best available information to advance the 

characterization of smart grid investments and to build a 

stronger smart grid business case. For instance, a primary 

focus will be incorporation of test results from the Pacific 

Northwest Demonstration Project as they become available. 

These results will provide information from a range of smart 

grid technology tests being conducted by participating 

regional utilities, as well as a better understanding of the use 

of a transactive control signal for regional benefit. 

Additionally, the RBC will strive to stay current with smart 

grid impact assumptions and key data inputs from pilots and 

demonstration projects that are taking place around the 

country.

 

5 Much of the uncertainty for investments in the lower quadrants arises from 

the uncertainty in the incremental impact of smart capabilities (i.e., those 

beyond investment in traditional or baseline capabilities). It can be difficult 

to determine what fraction of the benefit from smart grid investments might 

have been achievable with investments in traditional technologies. This is 

especially true for certain smart DR investments.

The RBC study is also planning to undertake additional 

scenario analyses to examine the benefit-cost effects of 

different future directions, such as carbon pricing scenarios, 

changes in avoided capacity costs, and changes in energy cost 

projections. These scenarios will explore regional 

complexities such as wind power growth and the value of 

various ancillary services for grid flexibility to accommodate 

this growth. 

Finally, continued outreach and stakeholder communication 

will be critical to achieving the goals of the RBC effort. This 

includes providing data-based, grounded analysis and 

information to regional decision makers, policy makers, 

utilities, investors, and planners.

 

Contact Information

Lee Hall

BPA Smart Grid Program Manager

Bonneville Power Administration

503.230.5189 

ljhall@bpa.gov 

Erik Gilbert 

Director

Navigant Consulting

303.728.2536

erik.gilbert@navigant.com

http://www.bpa.gov/Energy/N/smart_grid/index.cfm