Smart Grid Needs High-Level Policy Push

Some projects are just too big to let the private sector handle them alone. Updating our aging one-way system of centralized power production to a smart grid is one of those projects. Left mostly to its own initiative, the energy industry has done very little in technology innovation during the past fifty years to make the grid more efficient and to accommodate distributed power production.

The need is so clear that even a group that supports limited government agrees that building a smart grid that conserves energy, integrates renewables, and diminishes peak power requires the guiding hand of the federal government.

The Lexington Institute has published a paper that neatly summarizes the smart grid challenges, and concludes that “Just as the grid of today required presidential initiative, the smart grid will take a high-level policy push, too.” The public policy research group, which says it “actively opposes the unnecessary intrusion of the federal government into the commerce and culture of the nation,” adds that “Smart grid will most likely require federal, state and local government incentives” and that “Policy action is worthwhile to move promising technologies closer to full adoption.”

The “Moving Forward on Smart Grid” report cites the Rural Electrification Project of the 1930’s as a success story where the federal government helped to bring electricity to farms.

The Lexington Institute’s seemingly contradictory position on government intervention is understandable given its energy independence/security and climate concerns. And the logic is sound. The demand for energy is likely to increase by 40 percent by 2030, and the choice is to either greatly increase efficiency while adding renewable power, or to plan on building hundreds more coal and nuclear power plants.

Utilities, whose business model has traditionally been to increase revenue by selling more power, will not change behaviors without federal incentives. Many utilities are in the midst of rollouts of thousands of smart meters to enable commercial and residential customers to manage their energy consumption. Federal grants, such as the Recovery Act funds, are enabling energy efficiency projects. For example, the Mississippi Development Authority, in partnership with smart grid company, SmartSynch, is installing smart meters at 1,500 state-run public facilities.

Also instrumental in prompting utility action are the investment tax credits and loan guarantees. Loan guarantees for energy efficiency make fiscal sense because the loans can be repaid through savings. One option would be to allow utilities to provide smart meters to customers, and instead of permanent rate hikes, have temporary rate increases that wouldn’t raise customer’s monthly bills above present levels as long as the expected reduction in consumption is met. Then, after the equipment is paid off, rates can be lowered.

Also, to get hundreds of power producers and sellers to design equipment that will work together requires federally mandated standards, and that process is already underway.

Appearing courtesy of Matter Network.

[photo credit: Flickr]