President Obama’s inaugural address listed climate change and renewable energy as among his top priorities in his second term. But one of the most critical means by which to achieve those goals was never mentioned: the smart grid.
A smart grid could have profound implications on electric power markets, affecting the whole utility supply chain — from the way power is generated to the way it is delivered to customers, and ultimately how much energy is consumed. At the moment, though, consumers lack an understanding of the technology’s potential, which has deterred its development. That’s why some experts are saying that state regulators must lead the way by providing financial incentives to power companies, which will then try to entice their customers to participate.
The smart grid’s relevance is becoming increasingly clear as Congress grapples with the role that renewable energy will play. It will also be an integral part of any climate mitigation strategies and energy efficiency goals to emerge from Congress. Indeed, the Electric Power Research Institute in Palo Alto, Calif., says that deployment of a highly automated system could severely cut carbon dioxide releases and at the same time limit electricity consumption by reducing sales by 1.2 to 4.3 percent by 2030.
For their part, state utility commissioners, generally, feel that they must exercise restraint: Rushing headlong into something that is unproven and expensive is imprudent. Their concern is that smart meters that can facilitate energy conservation have yet to bear fruit. And if those meters are unable to do so, then it would be consumers who pay the price for any failures.
Kurt Yeager, vice chairman of the Galvin Electricity Initiative in California, disagrees with that apprehension and says that regulators hold the keys to progress. Utilities profit on the amount of electricity they sell. Instead, they should be rewarded on the quality of service they provide, he says.
To that end, smart meters provide the price signals to consumers to tell them when to cut their energy usage. The technologies are already working and would only improve as more technology providers jump in.
But those utilities with monopolies over their electricity markets are reluctant to evolve, meaning that today’s innovators are being shunned away, says Yeager, who adds for every dollar spent on the smart grid, $4 or $5 is returned. That’s not just from the marginal savings of electricity. It’s also from job growth and productivity.
Yeager said that regulators cannot just wait and see how consumers adjust, maintaining that such a strategy will keep key technologies at bay and prevent the United States from winning a competitive edge. Collaboration is instrumental, although Yeager warns that some interests can deflect progress because they are unable to set aside their agendas.
“We have to change policies to enable innovation,” he previously told this writer. “Utilities will not do this by themselves. They will want more power sources and to make more money. They have no incentive to empower consumers. Until the incentives for utilities change, they will block the door and the public utility commissions will keep the status quo.”
Yeager likened it to the days before telecommunications reform: Innovation will remain pent up in a regulatory model that has no motivation to change. And nothing will happen unless regulators force utilities to adopt those smart grid technologies.
Without a doubt, market acceptance has been slow. Industrial and commercial concerns have more to gain than homeowners, who have less financial incentive to monitor their daily energy consumption.
Utilities, though, want to optimize their grids so as to avoid any outages — and the smart grid can do just that. A more efficiently run system, meantime, would make room for green energy. Management’s job is to now convince regulators to allow the costs of the tools to pass through to ratepayers.
But the wave of praise has not yet impressed the skeptics. Consider the Maryland Utility Commission: It has said that it understands the potential benefits. But it will not treat the deployment of smart meters in its jurisdiction any different from other big-ticket items. In essence, Baltimore Gas & Electric had wanted to be able to pass through the entire cost without first having to file a rate case.
The commission said to the company that it could not bypass the established regulatory procedures and that it must be able to demonstrate why the benefits outweigh the costs. It must also show that its costs are reasonable and prudent.
That day will come, insists LeRoy Nosbaum, former head of Itron. Whereas energy conservation has typically been a back-burner subject, today it is up front. That awareness in combination with a difficult economy means that people will continue to search out ways to cut energy consumption, and costs.
“It will get there, but the smart grid really is still being defined,” says Nosbaum, who spoke earlier with this reporter.
The smart grid supports the Obama’s administration’s green initiatives. As such, the president allocated $4.5 billion in the 2009 stimulus plan to various projects. NextEra of Florida and CenterPoint of Houston, for example, each got $200 million to rollout more than 1 million modern meters.
Over time, DNV KEMA says that a total of $16 billion in incentives will be targeted to the smart grid. That, in turn, will multiply and create a total of $64 billion in projects tied to the efficient production, transport and use of energy. The consultancy adds that such investments will produce 280,000 new jobs.
The smart grid is not without its detractors, some of whom are critical of the public financing involved. Its advocates, however, are convinced that the government’s investment will pay off once the technologies gain market acceptance and after state utility commissions witness their track record. If that is the case, President Obama will deserve credit for helping to foster this facet of the green economy.