Feasibility of a Smart Grid on Nantucket

Executive Summary

Nantucket residents pay uncommonly high electricity rates, because delivery of electricity to the island is costly and demand for it fluctuates widely by season. Nantucket‘s electricity rate (18.4 cents/kWh) is nearly 15% above the average rate for residents elsewhere in Massachusetts and 1.5 times the national average rate (National Grid, 2010eNational Grid, 2010a).

A major focus of the Nantucket Energy Study Committee (NESC) is how smart grid technology might reduce the cost and consumption of electricity island-wide. This Interactive Qualifying Project explores this prospect by analyzing the feasibility of various smart grid scenarios and conservation initiatives and quantifying associated benefits and costs.

Electricity is delivered to Nantucket via two submarine transmission cables, which span 26 miles from Cape Cod to Nantucket and both cables supply up to 70 MW of power (Nantucket Electric, 2010). The expense of this infrastructure partly accounts for Nantucket‘s uncommonly high electricity rates. Although island-wide electricity demand peaked at only 40 MW in 2010, electricity usage has trended upward over time, necessitating an even higher capacity in August, the peak month of tourism on Nantucket (see Figure 1). The population on Nantucket fluctuates from approximately 12,000 people in the off-season to 60,000 people in August. The large number of people on Nantucket in the summer months, including year-round residents, seasonal homeowners, an influx of weekend trippers and daytime visitors cause electricity usage to spike to a degree not seen in most communities.

Until 1996, electricity was generated by an approximately 20 MW Electro Motive Diesel (EMD) power plant located in Nantucket‘s Candle Street historic area (Business Wire, 1996). A succession of brownouts and blackouts prompted the installation of Nantucket‘s first 35 MW cable by National Grid, Nantucket‘s utility company, which made it possible to shut down the EMD plant and improve electric supply reliability and rate stability (P. Morrison, personal communication, 2010).

By 2005, Nantucket‘s energy needs had surpassed the capacity of this 35 MW cable (see Figure 1). National Grid installed another cable costing $41 million and imposed a 2.958 cents /kWh surcharge onto delivery rates from June to September and a 1.834 cents/kWh from October to May to pay off the cables (Freshwater, 2010; National Grid, 2010e).

Yearly power peaks from 1996 to 2010

Following installation of this second cable, the Town of Nantucket recognized that island-wide energy consumption would inexorably rise (see Figure 1) and established a committee to research options to reduce electricity costs on the island (A. Kuszpa, personal communication, December 2, 2010). The Nantucket Energy Study Committee has been instrumental in promoting efforts for renewable energy, electricity conservation, and potentially a smart grid. Specifically, the committee has facilitated the installation of 8 MW of solar energy and a 1.5 MW wind turbine adjacent to Nantucket High School‘s 100 kW wind turbine success. In order to integrate these renewable energy resources, the NESC has promoted interest in smart grid technology.

For readers unfamiliar with smart grid technology, these systems actively communicate power input and output information and distribute power accordingly between power production facilities, transmission and distribution systems, homes, and appliances. They enable consumers to make informed choices, and to participate actively in modifying their energy consumption rates based on information and control options provided (US Department of Energy, 2009b). Smart grid systems are designed to conserve energy, reduce peak demand, enable bidirectional flow of energy, and provide a two-way communication system between the end-user and the utility (U.S. Department of Energy, 2008).

A smart grid would offer Nantucket a wide range of possibilities, most importantly the ability to lower the upward trend in electric power peaks¹. The compelling rationale for postponing the need for a third National Grid transmission cable is to postpone a further electric rate surcharge to consumers for covering the major ($50 million) capital costs of building the cable.

Beyond peak reduction, smart grids also enable power utilities to “net meter”² the electricity produced locally by renewable energy resources. The current plans for renewable energy could be beneficial: solar would produce the most energy during sunny summer days, corresponding with power peaks caused by air conditioning, whereas wind would produce a majority of its‘ energy at night and during the winter, corresponding with winter space heating consumption.

From our analysis of potential monthly renewable power generation over the course of a year, we concluded that the renewable energy load reduction would be relatively consistent at 1000 MWh annually. This will reduce the amount of electricity imported from the mainland, thereby postponing the need for a large capital investment for a third submarine cable.

Another way to delay that capital investment would be to promote electricity conservation through island-wide programs. We estimate that conservation with 100% participation could save Nantucket residents up to $3 million annually, including initial costs. The prospect for 100% participation is highly improbable, but participation by 10% to 20% of Nantucket residents would make a meaningful difference. Specifically, we explored scenarios envisioning 10% to 20% of households replacing all incandescent light bulbs with CFLs, installing energy saving thermostats, and regularly unplugging their electric appliances.

Smart grids are another option for trimming energy use. Based on pilot studies and the opinions of experts in the field, a smart grid might reduce 5% to 20% of electricity per year. The payback period could vary from 10 to 30 years–or much less if other energy consumption reduction practices were put in place such as increased use of renewable energy or greater energy conservation.

The implementation process for smart grids would begin with negotiations with the utility company—National Grid owns the grid and therefore must be a partner. If Nantucket wanted to install a smart grid it must negotiate rates with its utility. Specifically, time-of-use (TOU) rates³ play a large role in how smart grid will be perceived by the public. If peak electric rates are high and off-peak rates are very low the likelihood increases that peak demands will be reduced because consumers will recognize and respond to monetary incentives. The negotiation over rates may include a variety of solutions. Some of the cost of the smart grid could be dispersed over the consumer population through TOU rates, funded directly by grant money from the federal government or by the utility, which could be reimbursed in part by government funds and/or tax breaks. Smart grids are rarely ever funded privately or by local or state governments because the most incentives for smart grid still lie with the utility (D. Hurley & R. Tullman, personal communication, 2010). Though it is possible for the town and its residents to invest in a smart grid and reap a return from their investment, that return lies in the distant future through forestalling a third submarine cable.

In conclusion we recommend that Nantucket include National Grid in a smart grid installation because National Grid will provide the resources, information, and experience necessary to upgrade the grid. Additionally, we recommend that the town push forward on the proposed alternative energy projects, if proven cost-effective, and explore other opportunities for additional power generation. We also recommend that the town should encourage energy conservation programs educating the public about installing compact fluorescent lamps, installing programmable thermostats, and unplugging electrical appliances when not in use. If these recommendations are instituted together then the Island could see cost savings of approximately of $0.5 to $2 million per year on the typical energy costs.

¹  Electric power peaks are caused by the normal “rhythms” in a typical household. Peaks normally show up in the morning, nights, and on weekends (Hargreaves, 2010). Peaks drive up the demand for more expensive energy, which drive up the costs of electricity.

²  Net metering allows a consumer who is generating electricity through solar wind or other means to sell their excess power back to the grid.

³  Utility companies offer time of use rates (e.g., higher rates at peak times such as during the daytime in summer) to encourage consumers to shift usage to off-peak times (e.g., night time).