Transforming the U.S. Grid

Al Gore, in his recent New York Times op-ed titled "The Climate for Change," calls for a "$400 billion investment over ten years to construct a national smart grid to distribute renewable energy." Echelon supports these proposed investments. We also believe the answer is not just in constructing something new but in transforming the existing "overbuilt" grid in the U.S.

The Vision

To achieve this double goal, utilities must continue to look carefully at the technologies they select, especially to ensure that the smart grid really does deliver on the promise to save the U.S. energy and improve the global environment. Echelon also believes government will succeed more quickly if it begins to reward and incent cities, utilities, and building and home owners to find ways to continuously be more energy efficient — instead of maintaining the current of state of "disincentives."

For example, in many jurisdictions utilities are required to pass on immediately any operational savings to the consumer in the form of reduced rates. This means that, were a utility to invest in technologies that lowered the cost of reading and maintaining residential meters, it would pass on the savings rather than use the savings to offset the cost of the investment. In turn, such a utility would raise rates to recoup its investment — a perfect Catch-22 situation.

In addition, as companies in the grid ecosystem work together through this time of transformation, job creation and other economic stimulus events are inevitable. In the end, it will pay big to build intelligence into all the things that are connected on the U.S. smart grid. From improved services to energy savings and investment opportunities galore, a truly smart grid will improve our economic situation from start to finish, and for possibly centuries to come.

Taken at face value, Gore’s $400 billion estimate seems like an enormous amount of money. However, when you take into account that he also estimated annual losses to business to be $120 billion as a result of not having a modern electrical grid, then the payback for the investment would be less than three and a half years. It is absolutely imperative that our nation invest wisely in smart grid technologies today and ensure that they are future-proof for tomorrow.

Needing Regulatory and Policy Support

President Barack Obama also recently announced that he will pursue significant investments in our nation’s electric grid using smart metering, distributed storage, and other advanced technologies to accommodate 21st-century energy requirements. His goals are to greatly improve electric grid reliability and security and increase our use of renewable generation.

In order to accomplish his goals, utilities will need to make considerable investments in modernizing their systems. This will require regulatory support that will not only endorse adjusting rates to recover investments in a smart grid but, perhaps more importantly, also will create incentives for utilities to support customers who wish to reduce energy consumption and promote energy efficiencies.

The policy discussion regarding how to transform the nation’s existing electric grid into a smart grid is usually focused on energy efficiency, renewable energies, storage, and plug-in electric cars. However, emphasis also must be placed on the technology needed to create a foundation for a smart grid, because all of these solutions require a modern, intelligent electrical system to achieve proper scale and cost effectiveness.

The Backbone of a Real Smart Grid

The smart grid will not be truly smart until it connects every customer, residence, commercial space, and industrial building — absolutely anything connected to a power source. The grid needs to be able to offer energy efficiency services everywhere as well as obtain information and extend intelligence into every device that is powered by the electrical network.

The solution that should be supported and used to modernize the electrical grid is an advanced metering infrastructure (AMI) system. AMI systems provide the architecture to allow utilities to establish two-way communications with their customers’ meters as well as with in-home devices and can provide the foundation necessary to establish a true smart grid.

There has been talk about implementing time-of-use or real-time pricing rates to reduce energy consumption. The assumption is that customers would adjust their energy usage according to what they saw on a display in their homes. Unfortunately, this approach is not practical. Consumers can’t be expected to stare at the display constantly, nor run around the house to turn off appliances and lights during every higher-priced period.

In order to keep the smart grid user-friendly, it must be designed to include smart devices inside homes, where devices are networked together to operate and respond to different pricing conditions autonomously.

The Best News Yet

The technology is already available to enable these services and programs that can address the electric system problems. Now, more than ever, it is imperative that legislation and regulation be adjusted to support and reward utilities promoting energy efficiency and for the investment in implementation of a modern smart grid for the 21st century.

As we consider our next steps, we must ensure that we maintain a competitive market that encourages innovation, new methods of using existing technologies, and new ways of thinking about how, when, and why we use energy.

–Jeff Lund (jeffl@echelon.com) is vice president of business development at Echelon Corp.