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With smart micro-grids, power could be shut off to a small area without disturbing service to other areas. Smart grids could also incorporate alternative energy sources like wind power.

Funding a brighter future: Paying for the smart grid

by Kellen M. Henry
June 03, 2009

We can rebuild it. We have the technology. The U.S. electricity grid can be made better, stronger and faster, according to energy and security experts.

With increasing concern over cyber attacks and the push for greater energy independence, revolutionizing how electricity reaches consumers through smart grid technology is no longer the stuff of science fiction.

However, the challenges lie in financing unproven technology for an overhaul of one of the most complex transmission systems in the world.

“Ultimately everything comes down to who pays,” said Ray Dotter, spokesman for PJM Interconnection LLC, the organization that operates the electrical grid in thirteen states, including the Chicago area of Illinois.

“We can accomplish revolutionary things with the existing technology. It’s just a matter of bringing it together and helping it talk to each other,” he said.

The term ‘smart grid’ refers to a diverse pool of technologies that would modernize the transmission of electricity to consumers using digital technology to reduce costs, increase reliability and protect the grid from hostile invasion. This type of electrical system would allow operators to more accurately monitor and correct problems quickly.

Several studies have indicated that a sustained annual investment of $10 billion would be necessary for the existing technology to evolve, but research and development investment is at an all-time low and utility companies have little incentive to invest long term, said Massoud Amin, director of the Center for the Development of Technological Leadership at the University of Minnesota. Amin, a professor of electrical and computer engineering, directed all security-related research and development for the Electric Power Research Institute after Sept. 11, 2001.

Government appropriations for energy research and development declined nearly 60 percent to $2.75 billion from 1978 to 2004, according to the Department of Energy. Data on private sector research and development is less complete but also show a decline in funding and capital investment as a percentage of revenue.

“We are at a historical low,” Amin said. “The dog food industry spends more in research and development than does the electricity industry.”

At the same time, power outages are becoming more frequent and more costly. The aging of transmission facilities and the increasing reliance on devices that use electricity mean outages and disturbances now cost the U.S. economy more than $100 billion per year, according to Amin. This is equivalent to a 50-cent surcharge on every dollar consumers spend on electricity.

With a growing emphasis on bringing renewable energy sources to the grid, the Obama administration’s stimulus funding in February’s American Recovery and Reinvestment Act in included $4.5 billion to be used in upgrading and modernizing the nation’s electricity grid.

However, states are the primary regulators of energy transmission and smart-grid proponents are looking to the federal government to further incentivize states to reform rate structures to encourage utilities to invest in the grid.

A smart grid with efficient communication and information processes could save $15 billion to $35 billion in energy and fuel costs, according to a November 2008 report by the Global e-Sustainability Initiative, formed by information and telecommunications companies with the goal of promoting United Nations energy and sustainability goals.

In addition to the money-saving benefits, a smarter grid would also have intangible benefits, including reduction of carbon dioxide emissions by between 40 million and 100 million metric tons by the year 2020, according to the GeSI report.

The Illinois Institute of Technology is developing a “Perfect Power” system with the Galvin Electricity Initiative that both entities say would fulfill many of the same environmental and reliability goals that leaders are seeking in smart technology.

The “Perfect Power” system would work through a microgrid, allowing operators to isolate problem areas and prevent massive blackouts. It would also incorporate security measures in the design, rather than add them as an afterthought.

“There’s no plug and play capability in the current design,” said Kurt Yeager, executive director of the Galvin Electricity Initiative. “The smart grid with digital control can see [outages] coming and correct for it or reconnect the system. It’s localized and not spread over a whole state.”

PJM is also looking closely at the development of these self-healing grids, as developers and transmission utilities consider investments in these technologies. But the regulators’ utility members want to see actual benefits in investing in the technology that may not be immediately profitable.

“One of the challenges is, how do you monetize the value of certain things?” Dotter said. “Reducing the risk of an outage, alone, has value. Being able to squeeze more use out of the existing system has value. There is real potential that higher efficiencies make the investment worthwhile.”