Smart Grid is Inevitable—and other Myths!

Did you read the story in the Wall Street Journal February 9th by Stephanie Simon about the experiences in Xcel Energy’s Smart Grid City in Boulder, Colorado? [1] Stephanie’s energy series is a terrific piece of writing offering practical insight into the challenges of new technology introduction.

This story caught my eye for several reasons.  First, I had just written about some of the ‘no good deed goes unpunished’ issues Xcel is facing with its investment in this experiment to bring smart grid to practical life in a place that is about as green as it gets.  And second, I also just read a recent interview of Bob Heile, chairman of the ZigBee Alliance, the open standards consortium of smart grid-enabled gadgets and sensors, who kept describing the ‘inevitability of smart grid’ as if it were pre-ordained that energy life as we know it will be transformed by cleantech gadgets. [2]

Smart Grid Success is Not Assured

Maybe I am just a skeptic, but I don’t yet consider smart grid a success.  In fact, I believe there is a reasonable probability it will fail not because the technology is lacking but because the convergence of human behavior, economics and politics is not aligned for this inevitability—yet.

As evidence I cite the following examples:

  1. Smart Grid Must be Easy to Use or Forget it. From Stephanie Simon’s story cited above you read the experience of one couple trying to change their old habits to take advantage of smart grid technology.  In the story Mrs. Peterson said making those changes was “cumbersome” and “boring” grumbling she had “to set more than a dozen data points just to get her bedroom temperature where she wants it through the week”.  I saw my own life at risk flash before my eyes with this, imagining trying to get my wife to make those same adjustments.
  2. Smart Grid Must be Convenient. In a separate story in this same series, the reporter describes the difficulties in Boulder getting people to follow through on installing energy efficiency. [3] This is one of the classic risks of demand response and efficiency.  Old habits are really tough to change even when you know they should be.  Some regulatory agencies are learning this the hard way after requiring their jurisdictional utilities to count energy efficiency as “first fuel” in their resource planning.  For the utility this is a big risk because, as this story shows, the utility has no way of assuring that demand response or efficiency will be there when it needs it.  Convenience will trump philosophy every time.
  3. Smart Grid May not Keep Up with Demand. In the interview of Bob Heile cited above, he expressed a view I often hear among cleantech people that we need this smart grid and cleantech investment because power generation cannot keep up with demand in the future.  The truth is more likely the reverse, in my opinion.  The biggest risk of smart grid failure is not the new technology or its cost.  It is the risk that we will not build enough electric transmission in the right places to bring all this clean and renewable power generation to market when we need it to meet demand, that the cost of such clean generation is much higher than power generation from natural gas combined cycle, and that regulators and politicians are not willing to impose real-time dynamic pricing on ratepayers especially in a weak recovering economy in order to make smart grid work.

Today we are being swept along the smart grid wave by Federal stimulus money trying to jump start acceptance and market penetration.  Utilities are spending our money like we had some on installing smart meters.  Mostly these smart meters are pretty dumb right now since there is no practical way for customers or vendors to yet extract the tsunami of data out of them, make sense of it, and then act on it to change our behaviors.  And guess what, that is not likely to change for the foreseeable future, but the cost of installing smart meters is going to be recovered in rates.

Pile-up on Smart Grid Freeway Ahead

Smart grid like renewable energy is cruising in the HOV lane toward a pileup ahead of ratepayer pushback and politicians running for cover as the true cost of our politicians’ aspirations are passed through in rates.  The only thing mitigating these increases is regulatory lag, looming fear by incumbents, and the fear of the impact of rate increases in the weak economy.   But this collision of forces will happen—and soon.  In California we have the added cost pressure from AB32, the Global Warming Solutions Act, driving up the costs on top of these other factors.

I predict the following:

  1. Ratepayer revolt over utility rate increases will grow and regulators and politicians will not be able to avoid it.  We will see more rate case denials like Florida and prudence reviews like Xcel is facing over the costs of Smart Grid city in Colorado even though the long term consequence of that adds risks for all.  Smart grid will be a victim of this backlash even if it is not the only cause of the rate increases.
  2. NIMBY will stall new electric transmission construction. Unless the Feds preempt the states’ siting and permitting process (unlikely) the NIMBY pressures, environmental review and cost of construction will stall or fatally delay much of the needed new electric transmission needed to enable renewable energy to get to market and for smart grid to realize its economies of scale.
  3. The economic recovery will happen and demand will increase. I expect electric demand to return to historic levels and when it does we will face energy shortages in faster growing markets.  If renewables cannot get to market and efficiency and demand response prove unreliable we will have to build new power plants likely natural gas combined cycle like crazy.

Got Gas?

Bob Heile has it backward—power generation will be easier, faster, and cheaper to build than smart grid any day, anyplace, anytime in the foreseeable future. Stephanie Simon has it right—it isn’t easy going green even in Boulder where customers turn out to be  the same as everywhere else.

Energy fundamentals still matter and smart grid is not changing the basic laws of supply and demand so when the inevitable recovery materializes power generation will turn out to be a smart investment for almost every grid.