Will anyone pay for the 'smart' power grid?

AUSTIN, Texas--To get an idea of what the future electricity grid will look like, think of the Internet.

Like the Internet today, the electricity network needs to be able to connect billions of devices and still operate reliably. Because of growing environmental concerns, the grid needs to become far more flexible than it is today, accommodating distributed power generation from renewable sources and use several energy-efficiency techniques.

But while many people can agree on the vision of tomorrow's utility grid, few are willing to pay for it, according to experts who spoke at the Clean Energy Venture Summit on Tuesday.

A number of technologies need to be put in place to make the power grid smarter, notably more automation within the network and tools to give end users better information. But utilities are "grossly risk-averse and grossly hesitant to adopt new technology," said energy industry consultant Alison Silverstein.

"The utilities all want someone else to make the mistakes and take the risk (of adopting new technologies) for 5 or 10 years," Silverstein said. "And regulators are not willing to get out of their way and let them take those risks. It will require a transformation."

There are a handful of progressive utilities making long-term investments, but they are the exceptions, Silverstein said.

Representatives from two of them--Austin Energy in Texas and Pacific Gas & Electric in California--were on Tuesday's panel and said their companies are willing to spend money on energy conservation programs and incentives for renewable energy sources.

The overall change that the utility grid needs to make is to go from a centralized generation and distribution model to one that is more distributed and diverse, said Roger Duncan, deputy general manager at Austin Energy.

That means that peaks in demand on the utility grid will be offset by distributed renewable sources, such as solar panels feeding power into the grid. Demand management systems, another smart-grid feature, can automatically dial down the consumers' power consumption to prevent outages.

"We're sitting on an aged, old infrastructure while emerging countries like India and China are moving to the next generation of networks and generation sources."

--Brad Gammons, vice president, IBM global energy and utilities industry group

Austin Energy is one of many proponents of another potential smart-grid feature, plug-in hybrid vehicles that can be recharged at night, when demand is lower, and can act as a backup power supply for a home. The utility company also has one of the oldest green-building programs in the country.

But Austin Energy's dream to be more environmentally friendly is also the utility's nightmare, said Duncan.

Utilities are not necessarily adequately prepared to incorporate the many smart-grid technologies needed, he said. And the utility itself, like others in the industry, needs to wean itself from making nearly all its money from retail power generation and distribution.

"We haven't figured out the business models...(that) work well for the utility and the city government and the citizens," Duncan said. "Austin Energy has to figure out how to diversify its revenue sources."

How to build a smart grid
The primary problem with today's electricity distribution system is that wall sockets are the power equivalent of dumb terminals connected to a mainframe computer.

What's needed are access points that can be identified, much like how every computer device on the Internet has an Internet address, said Robert Howard, vice president of gas transmission and distribution at PG&E, who spoke on the utility panel.

With a smarter two-way communications mechanism between a power consumer and provider, both parties get far more control over consumption, he said.

PG&E could draw energy from the 15,000 solar installations in its regions rather than firing up an auxiliary power plant in the middle of a hot day, for example. Plug-in hybrids, which are hybrid cars with larger battery packs, can store about 10 kilowatts of power. Because the average home consumes about 2 kilowatts in an hour, that means a car battery could fuel a home for about five hours.

"Every device can be identified, not anonymous, and be addressable. Then the utility is fundamentally transformed," said Howard. "We can merge transportation with the utility network and fundamentally change the way we live and work."

At the Clean Energy Venture Summit, a few start-up companies pitched their smart-grid technologies to investors.

One company, Boulder, Colo.-based GridAgents, has developed a software system that allows utilities to better manage different kinds of distributed power generation, from solar panels to combined heat and power systems, said CEO David Cohen.

Another company, Silver Spring Networks, provides a way for utilities to monitor their networks, which would allow them to get notifications before a power outage. The key to smart grids is using the Internet protocol on home devices like power meters to shuttle information back and forth between the utility and the customer, said Eric Dresselhuys, Silver Spring's vice president of marketing and business development.

Greenhouse-gas regulations
The advantages of a smart-grid system for consumers is that they have better information about their power consumption and can make choices about purchasing contracts, Dresselhuys said. One consumer might be happy locking into a fixed rate, while others may try to reduce overall consumption by letting the utility tap into its storage, for example.

Silver Spring Networks is testing its system with Florida Power and Light, but Dresselhuys said that even with some activity in smart grids, resistance to the technology is high among both utilities and regulators.

"It's all about money. We tend to take a very short view; but if we would charge each customer less than two dollars per month, we could do everything we're talking about with smart grids," he said. However, regulators--as well as consumer advocacy groups--have shown that they will stand in the way of rate hikes imposed in order to upgrade the grid, he said.

Without a clear commitment to investing in upgrading the aging U.S. electrical grid, panelists suggested that regulations to restrict greenhouse gases could act as an impetus.

"We need that kind of pull to get the attention of the country, which would allow us to push forward," said Paul Thomas, president and CEO of Green Mountain Energy Company. "And it will get people willing to put up investments in technologies that allow us to achieve our vision."

A market-based system to reduce greenhouse-gas emissions could act "like a gun to the head" for regulators reluctant to take any bold measures, said energy-consultant Silverstein.

Brad Gammons, vice president of IBM's global energy and utilities industry group, said investors and energy company executives are counting on coming regulations around greenhouse-gas emissions. But overall the funding level from private and government sources is far lower than that for the rest of the world, he said.

"We're sitting on an aged, old infrastructure while emerging countries like India and China are moving to the next generation of networks and generation sources," he said.

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