The Australian Government announced in the 2009 Federal Budget the availability of up to $100 million for the implementation of a fully integrated smart grid at commercial scale, through the National Energy Efficiency Initiative (NEEI). The government’s investment in Smart Grid, Smart City was subject to a pre-deployment study designed to provide further information to the government on the potential economic and environmental benefits of smart grid technologies and the best way to maximise the benefits of the government’s investment including the best governance framework and business model for the initiative, and how best to bridge any gaps in knowledge about the benefits. The results of the pre-deployment study undertaken in July and August 2009 are presented in this report.

It is the intent that the program design of Smart Grid, Smart City builds off and leverages the programs and lessons from other government and industry initiatives, including but not limited to the Smart Meter program (led by the Ministerial Council on Energy), Solar Cities, Solar Flagships and the National Broadband Network (NBN).

This report contains the following recommendations:

• Smart grid implementation in Australia should aim to optimise the overall value for society, including financial and non-financial benefits (see sections 2.1 and 2.2).
• Since some underlying technologies are too immature and their business cases too unproven to allow for accurate up-front cost estimates, analysis suggests that gross annual benefits, rather than a net present value, will best prioritise the allocation of funds across potential applications. The Smart Grid, Smart City demonstration should gather data to allow more accurate calculations of the net present value of each major application (see sections 2.1 and 2.2).
• The available funding should be directed at reducing or eliminating as many of the barriers to widespread deployment as possible—including business case uncertainty, technological immaturity, standards development and regulatory uncertainty—enabling a rapid and prudent market-led adoption of smart grid technologies and capabilities that could build on other relevant government initiatives such as the National Broadband Network (NBN), subject to commercial decisions. Funding disbursements should be split between project milestone outcomes and a final performance payment upon completion of project requirements. Consortium applicants should provide significant co-investment for the program to align interests and generate ‘ownership’ and to drive lessons for Smart Grid, Smart City. Finally, the Smart Grid, Smart City program design can be adjusted or scaled in terms of the breadth of the applications deployed pending the total available funding (see section 3.6.4).
• To achieve this objective, Smart Grid, Smart City should provide a competitively solicited grant to a distributor-led consortium to fund a unified deployment of smart grid technologies within a single distributor’s region that rigorously assesses and analyses applications at a relevant commercial scale. This is consistent with the government’s recommendation for the initiative to be in one Australian town, city or region. Finally, distinct modules should address regulatory barriers and standards that could impact a broader smart grid adoption in Australia (see section 3.2).
• Consumer-side applications deployed at commercial scale should aim to understand what drives customer behaviour and therefore should test several different packages across different consumer demographics. The packages should include various tariff programs (e.g. Time of Use and Critical Peak Pricing), the provision of more detailed information for consumers (e.g. real-time energy usage and environmental information via in-home displays or portals) and controls that maximise potential behaviour change (e.g. programmable controllable thermostats and home energy controllers; see sections 3.1 and 3.2). Smart metering will be a critical enabler of customer-side applications.
• Grid-side applications to be deployed at commercial scale should include (see section 2.3):
  • Fault detection, isolation and restoration
  • Integrated Volt-VAR control, including conservation voltage reduction
  • Distributed storage.
• In order to effectively demonstrate a wide variety of customer-side applications, a minimum of 9,000 – 10,000 participating households is suggested (implying a total minimum population of some 200,000 people), depending upon the number and design of each trial, and the anticipated take-up rate of those trials within the population.
• To ensure a broader adoption of the applications shown to have a positive net benefit, the successful consortium should provide detailed commentary on how it will ensure:
  • Close ongoing engagement with the regulatory reference group established for Smart Grid, Smart City to identify most pressing regulatory challenges and help create recommendations to government and regulatory bodies (see section 3.3)
  • Active dialogue and engagement with the standards working group established for Smart Grid, Smart City to identify standards required to minimise investment in new technologies and ensure broader industry participation (see section 3.4)
  • Mechanisms to involve other industry players and disseminate lessons, e.g. peer evaluation panels and secondments from other distributors/industry players (see section 3.5).
• Government will require the consortium to ensure continuity of supply by using robust security procedures that include plans for handling breach or discovery of weakness (see section 2.3).