Smart-grid questionsQuestions raised about Obama's smart grid funding

Published 29 October 2009

For the smart grid project to succeed, the business case for it needs to be widely accepted by the stakeholders involved (skeptics would say that if efficiency-mindedness was at the top of the agenda in utility boardrooms and state regulatory agencies, then no federal stimulus money would be needed to install these kinds of technologies); also: the Obama plan envisions a joint public-private smart grid expenditure of $8.1 billion — the government’s $3.4 billion is being matched by $4.7 billion in private investment; a recent analysis of what it would take to build a unified national smart grid put the tab for such a grid at $400 billion

The white correctly described President Barack Obama’s Tuesday smart-grid announcement as “the largest single energy-grid modernization investment in U.S. history” — although the some may dispute the term “single” (the $3.4 billion in stimulus funds help pay for a collection of projects involving different utilities and companies in 49 out of 50 states). The money will pay for, among other things, several million “smart meters” that allow customers to manage their electricity use. Consumers will be able, for example, to take advantage of dynamic pricing and trim consumption at expensive peak times. They can save money while helping utilities make the grid more efficient and reduce emissions.

Technology Review’s David Talbot writes that the move should prod utilities finally to start offering the dynamic pricing — cheapest at night, with differing prices at various times of day — needed to make the most use of the technology. “By giving electric utility systems across the country the tools that allow them to realize billions of benefits from dynamic pricing, they are hoping to induce the states to modernize their retail pricing policies,” Peter Fox-Penner, principal with the Brattle Group, a consultancy in Cambridge, Massachusetts, told Talbot. “There are many signs this inducement will cause a historic shift in retail utility pricing policies, but the outcome is not fully visible yet.”

The stimulus funds are going to be very helpful, as far as it goes. The White House says that the expenditures will, taken together, “reduce peak electricity demand by more than 1,400 [megawatts], which is the equivalent of several larger power plants, and can save ratepayers more than $1.5 billion in capital costs and help lower utility bills.” Talbot writes that, if true, this is a remarkable testament to the power of investing in smart grid and other energy-efficiency technologies (interested readers may find a good example of such an installation in Boulder, Colorado, here; a good recent analysis of the issues here, as well as a longer piece about building a green grid here).

There are a couple of caveats, though. First, Talbot says, the White House move does not change the fundamental rationale behind most utility investments. Today it is often too easy for utilities to make a business case for building new power plants to burn more energy in support of wasteful consumption, rather than installing software and smart meters and control systems geared toward saving a similar amount of energy — even though it is possible for them to make such a case. “If this thinking had really changed — meaning, if efficiency-mindedness was really top-of-mind in utility boardrooms and state regulatory agencies — no federal stimulus money would be needed to install these kinds of technologies. Instead, utilities would already be installing them — based on the documented energy and dollar savings they’d be projected to realize,” Talbot writes.

The second caveat is that, structural issues aside, $3.4 billion is not very much money (even if, as the White House says, the $3.4 billion is being matched by $4.7 billion in private investment). In fact, this total sum ($8.1 billion) is still only about 2 percent of where we need to be — that is, if you believe Obama’s fellow Nobel Peace Prize laureate, Al Gore. Just last summer, Gore made a fairly sensible call for a unified national smart grid that would move power from remote, renewable sources of wind and solar power and, in particular, increase the efficiency of electricity use through smart meters and other technologies installed across the nation, to move beyond today’s scattered projects. The analysis by Gore’s people put the tab for such a grid at $400 billion.

We’re on the cusp of a new energy future,” Obama said today. “True enough,” Talbot writes, “but the operative word is still ‘cusp’.”