The Smart-Grid Dilemma

[sfc_oliver]

I may be just a retired old Sergeant but the more I hear about Green this and green that, The more I see my green going to someone else.

[Why?Town]

Any talk of them losing money is just ruse, the electric companies will gladly raise rates to cancel out any losses. They are in business to make money after all.

Any groups that are pushing for the government to provide incentives for this to happen haven't really thought it out very well IMHO.

About your personal electric use, You seem to be more focused on reducing your electric consumption than most people I know. I applaud you for that but all those blinking digital clocks would drive me nuts.

[Why?Town]

rusty,

Are you saying that your refrigerator, furnace, and A/C don't run on electricity?

And whether we use real numbers or theoretical numbers, I can't believe the utility companys want to invest in a smart grid (or anything really) that will end up saving you or me money. I predict most will pay more, the rest will only be saving by comparison.

[Rick Rowlands]

I did a bit of research on the "smart grid".  GE's website doesn't go into specifics, because if they did public support would wuickly fall away from this scheme.  One of the benefits of the smart grid is the ability to charge you for electricity at rates that vary from minute to minute.  So instead of paying .04 cents a KW you might pay .02 at midnight and .25 at noon.  It all depends upon how much demand is being placed on the grid at one time.   It is an attempt to change your behavior and to place more control by govt. and big business over our lives. So before falling for the hype please educate yourself.

[irishbobcat]

The Smart-Grid Dilemma
 

  Mar 27, 2009
Forbes
   
Sramana Mitra

I am no expert on smart grids. But like any intelligent person in the world today, I have asked what steps would shepherd us toward smarter energy usage. Smart grids come back as an answer from the innovation angle.

Let's explore what a world with smart grids would enable.

Today, consumers pay an average price for their energy consumption, irrespective of their usage patterns (peak, non-peak), even though the wholesale price swings wildly. Utilities have to manage distribution and availability to ensure they can cover peak demand. Consumers do not have access to data that reflects their consumption patterns broken down by time of day. Utilities do not have billing systems that can bill based on peak versus non-peak consumption.

The obvious solution that comes to mind is a smart meter, right? Wrong.

What do utilities make money on? Energy consumption. So, what incentive do they have to install smart meters in your house and make this a transparent process with variable pricing if that means it would eventually reduce your energy bill, hence their revenue?

There are many companies playing in the smart-meter market, and they all bump up against this one critical resistance factor. President Obama's energy policy, therefore, needs to create an incentive structure for utilities to roll-out smart meters, and regulated utilities should make as much money promoting demand-response and energy conservation as they do building power plants and selling electricity.

Yet today, based on an archaic set of policies, utilities actually make money by investing in infrastructure--they make 12.5% on CapEx. This incentive was set up when utilities were mandated to build infrastructure to make energy available to people in faraway places, not just the urban wealthy. At the end of the first decade of the 21st century, the policy still remains in force, so utilities prefer to build more power plants and sell more energy to consumers and businesses, rather than installing smart grids to cut power consumption.

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Now, throw renewable energy into this dysfunctional maze. Let's say, Obama's energy policy incentivizes consumers and businesses to install solar panels and sell energy back to the utilities or build wind farms or biofuel farms. These transactions can only be possible if all parties can do proper accounting.

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Without smart grids and intelligent information systems inside the utilities, none of this is viable.

EMeter, a small San Mateo, Calif.-based company, has built an enterprise class utility information management solution based on the assumption that utilities will want to have better control over their data and be able to control their pricing and billing with more intelligence. A dozen of the 300 largest utilities worldwide have purchased eMeter's solution. "Most utilities are sitting back and watching right now," says eMeter Chief Executive Cree Edwards. "There is no incentive to being first, and there is not a large disincentive to being last." (Read my interview with Cree Edwards here.)

The situation is not dissimilar to health care IT, where claims-processing costs are high because of a lack of investment in information systems and the lack of incentive for the constituencies to invest in upgrading their IT infrastructures, although physicians are starting to invest in technology-enabled services to break the chain of inefficiency. (Read my interview with athenahealth CEO Jonathan Bush here.)

The real driver behind Obama's energy policy, unfortunately, is global warming, and not the market. Energy consumption needs to be contained. Renewable energy usage needs to become a larger portion of the portfolio. But none of this is driven by market forces, because renewable energy, so far, is more expensive, and less energy consumption would mean lower revenues and profits for the biggest players in the market.

So how does innovation gain a foothold in this environment? The only solution is government policy. Let's say, grid parity will be achieved by 2012 or sooner. Through innovation, the cost of renewable energy will presumably become equivalent to fossil-fuel based energy.

Government policy will still need to mandate that utilities draw a significant portion of their energy from a renewable portfolio. In fact, incentives can make renewable cheaper than fossil energy, which then offers the incentive for utilities to install information systems to manage the smart distribution of energy, better peak management and so on.

There is no market force pushing for the adoption of smart-grid innovations, and it is not clear to me that policymakers have looked at the issue with adequately savvy lenses.

Thus, smart-grid innovation will fall in the realm of corporate social responsibility, unless government throws a lot of money into the utilities' pockets to install smart meters across the board. Google (nasdaq: GOOG - news - people ), IBM (nyse: IBM - news - people ) and other tech majors are lobbying hard to make this happen.

IBM provides smart-meter technology to CenterPoint Energy (nyse: CNP - news - people ), a Houston utility that plans to deploy 2.4 million meters over the next five years. IBM is pushing for stimulus money to be showered into the utilities, so that they can invest in smart meters and master data-management systems. And in doing so, they are using the jobs card. Installing new meters could create hundreds of thousands of new jobs per year, and Obama can give stimulus money to utilities. I see nothing wrong in this, frankly. In fact, instead of stimulus money going to General Motors (nyse: GM - news - people ), I'd rather it went into the smart-grid drive.

But let's also acknowledge that without stimulus, smart grids would not take off. Pure market forces are against it. It is fair to say that smart-grid investments do not directly increase utility shareholder value--the end result of market forces.

Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley.She has founded three companies and writes a business blog, Sramana Mitra on Strategy.She has a master's degree in electrical engineering and computer science from the Massachusetts Institute of Technology.Her first book, Entrepreneur Journeys (Volume One),is available from Amazon.com.
   
   

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We need a smart grid in place in order for solar, wind, and geothermal heating to take off here in America like overseas in Europe!


Dennis Spisak

Mahoning Valley Greens

Ohio Green Party



www.ohiogreens.org

www.votespisak.org/thinkgreen/