Could SmartGrid Turn Out to be a Dumb Idea?

While there is enormous promise in smart grid technology, it will take more than intelligent meters than can spin both ways to realize its true potential.  The Administration is focused on pouring stimulus money into smart grid technology both to create jobs and to advance the pace of clean energy adoption.

But the electric transmission sector is the last unreformed part of the electric power value chain.  There are several substantial policy, political and business problems that can undermine all the technology investment in smart grid equipment we are about to make.  Yet little attention is being paid to these barriers to our smart grid future.  They include:

Grid Fragmentation

There are three separate North American power grids.   The Eastern Interconnect includes the US and Canada from the Atlantic Ocean to the Rockies.  The WECC covers the Western States, a small part of Baja California in Mexico and the Western Canadian Provinces, and then there is ERCOT—the Republic of Texas is alive and separate with a distinct grid covering much of that state.

Moving electricity North and South within each grid is relatively easy, but East-West movement between the grids is impracticable.  Doing so requires converting alternating current to direct current to move it to the adjacent grid and then converting it back to alternating current.  There are a few places where this is done, but it represents a small fraction of the vast need to move energy for optimal use.  This becomes even more important when we consider the desire for access to renewable energy resources such as geothermal and solar in the West or the wind resources of ERCOT or the Midwest.

Congress dabbles with policy solutions.  In the Energy Policy Act of 2005 it first authorized US DOE to designate National Interest Electric Transmission Corridors (NIETC) where future high voltage DC power lines could be built.  Two were designated including one in the Southwest US for solar energy and one in the Northeast.  But scores of politicians objected to US DOE “intrusion” into the regional or local role of states.

We are now awaiting release of US DOE’s 2009 Congestion study to learn whether the Department plans to designate additional NIETC corridors.  If it does not or fails to address assertively the integration of these three un-synchronized power grids then the investment in Smart Grid will be restricted to use in each of the respective grids based upon the progress in retrofit.

Grid fragmentation prevents the North American wide scaling of markets that gives renewable energy developers bigger markets for their projects.  SmartGrid is primarily an IT play and scale is necessary for these start-ups and investors to realize the potential for their products.  Defragging the transmission system improves the ROI in smart grid investment and drives down the costs of conversion faster for all of us.  Grid fragmentation prevents the optimization of grid resources so that each market can take advantage of the resources and capabilities of all the markets.

There are two ways to end grid fragmentation. The first, is to build the transmission interstate highway system equivalent often discussed straddling the interconnects with high voltage DC backbone transmission sufficient to satisfy the smart grid objectives.  This will require large financial investments by the industry and the preemption by the Federal Government of the morass of state, regional, local planning, permitting, environmental and other land use reviews which has, to date, been the NIMBY death to most transmission construction projects.

The second alternative, (I suggest facetiously) is maybe we can just turn the power off in two of the three grids and on the count of three flip the switches at the same time to get them to function the same. Just kidding!

Creating a truly North American scale electric power grid opens the full potential of SmartGrid to create continental markets and competition for both renewable energy and clean technology, transmission congestion services, demand response, energy efficiency and customer aggregation.  Unleashing the forces of wholesale and retail competition is the sure way to the SmartGrid promise.

Grid Balkanization

The second problem is like the first except it is policy driven not technology driven.  Grid fragmentation resulted in balkanizing the authority to manage power grids.

In the beginning this was done by state public utility regulators and their jurisdictional vertically integrated utilities.  FERC and Congress sought to prevent utilities from using their monopoly ownership of transmission to prevent competition so utilities were forced to turn over control of transmission to independent system operators in order to take advantage of the benefits of wholesale power competition.

The result was amending the Federal Power Act adding new laws creating USDOE and FERC, adopting the Energy Policy Act of 1992 and a series of FERC Orders implementing these laws clarifying Federal jurisdiction over interstate transmission. One result was creation of regional transmission organizations in many parts of the country with the notable exceptions of the Southeast and Pacific Northwest.  By forcing utilities to turn over operational control of transmission to these RTOs or independent system operators, FERC thought it was doing the industry a favor.  While we got less utility control, we substituted an even more complex bureaucracy and drove up the cost of transmission operation substantially.

Today the promise of SmartGrid requires renewable energy developers and other technology players to navigate a complex web of stakeholder committees, business process reviews, transmission planning requirements and the like.

Even if we get interoperability standards in place among SmartGrid equipment and appliance builders, we still have the problem of this balkanized policy setting process across the country driving up the cost, slowing down progress, and forcing a mind-number process of planning consultation in the absence of clear strategic direction.

Left to the fate of RTO/ISO process as usual SmartGrid will suffer the death of a thousand meetings, cost vastly more to implement, and take longer—much longer.

Who’s on First? The Politics of Federal-State Relations

The third problem is pure politics.  SmartGrid forces the Federal government and States to talk to each other.  It requires active collaboration on action plans around share objectives.  State regulators are loath to give up jurisdiction and control over utilities and the transmission siting and permitting process.  This creates a system where an interstate transmission line is subject to being held hostage to regulatory proceedings in each state, country, municipality or special district is passes through.  Good luck with that.

Watch what happens when USDOE issues its 2009 Congestion Report.  That study is complete and due to Congress by the end of September, but DOE officials says release is being held up by Administrative clearances.  This is code for a fear that certain members of Congress are going to have reactions ranging from irritation to apoplexy over the DOE’s recommendations.

The more you hear about political conflict this 2009 Congestion study in the press, the better job US DOE is likely to have done on the report.

So what?

Spending a king’s ransom on SmartGrid technology offers the promise of transforming the way we use energy, but it may not deliver on that promise because of these problems.  It offers the potential for cleaner power generation technology, more efficient use of energy, the ability to turn appliances on and off to optimize our energy use.  But none of this will matter if the transmission grids remain fragmented, control balkanized and bureaucratic, and politics takes precedence over economics of energy efficiency, optimization and security.

Which will we get?