Will The US Smart Grid Policy Framework Channel Utility Investment?

Friday, 17 June 2011

Will power utilities in the United States move beyond smart meter programmes to wider smart grid implementation? Through the American Recovery & Reinvestment Act (ARRA) of 2009, the Obama administration directed $4.5 billion to fund smart grid projects, matched by $5.5 billion in private funding. Almost all of this was channelled into smart meter projects which are considered the first step to implementing a smart grid. In reality, to maximise the grid’s efficiency, reliability and flexibility, they have to form part of a wider smart grid programme including smarter distribution and substation automation systems, grid sensors and controls. The industry fears that activity will dwindle once ARRA funds are exhausted. On June 13, 2011, the US Department of Energy released a new policy framework to further smart grid development. Facilitating cost-effective smart grid investment, enabling grid innovation, promoting consumer empowerment and providing a secure grid are its four key pillars.

The $250 million loan facility announced at the same time is trivial when compared to the ARRA funding. The greatest value of this policy announcement is its potential to remove some of the recurring uncertainty in energy and environmental policy from the past 2 years. Utilities operate on 30 to 40 year investment time frames. They will not make large scale investments while there is uncertainty about technological standards, and the degree of integration which can be achieved from the patchwork of local jurisdictions dominating the US power utility sector. The capital requirements are significant but according to Bob Shapard, CEO of Texas utility Oncor, utilities can raise the capital themselves if they have enough clarity on the future shape of the grid. This framework points the industry in the right direction. But there is further to go before utilities will commit to more comprehensive smart grid programmes.

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