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Money to Burn

Smart-grid stimulus targets the wrong problem.

Fortnightly Magazine - March 2009

this young industry. The few big-bang rollouts of advanced metering infrastructure (AMI) to date have tested the constraints of technologies and companies that are still evolving and growing. Witness Southern California Edison’s fast-track bidding process, which forced bidders to develop and demonstrate custom-built technologies within the space of a few months. Some vendors opted not to participate in that $1.63 billion bid, because they couldn’t justify diverting so many of their resources into the race for a single contract.

Of course, with $9 billion in orders on the horizon, vendors might be expected to invest in their own growth, including hiring engineers, technicians and project managers. Legislators intended the bill to spur job creation, and by some estimates a smart-grid stimulus of this magnitude might create 150,000 new jobs in the first year. However, the number of workers in the job market who are qualified to design, build and install the smart grid might fall short of what’s needed for the industry to move $9 billion worth of projects ahead in the next 500 days. Ironically, the Achilles heel for the job-creating smart-grid stimulus might turn out to be a people shortage.

Money Shovel

The stimulus bill is supposed to prioritize so-called “shovel-ready” projects, accelerating investments that have been delayed by economic hardship. The stimulus might enable a cash-strapped state to replace a crumbling bridge, or allow a city to modernize its water-treatment system. Some smart-grid projects fit this description, because their sponsors have frozen capital spending as a result of the economic downturn and credit crunch. However, most projects that legitimately can be called “shovel ready” are moving forward, because they’re part of a long-term investment cycle. The toughest work—engineering, planning and obtaining regulatory approvals—already has been done. Plus utilities still enjoy reasonably good access to capital markets, so generally speaking, money isn’t a big obstacle for well-designed smart-grid projects.

As a result, federal smart-grid grants will be distributed to three types of projects: those that have been delayed because the sponsor had to freeze its capital spending; those that already were moving forward, irrespective of federal funding; and those that wouldn’t get built because they don’t make economic sense. Only the first type of project really deserves government funding. Whether the DOE will define the program in a way that excludes the other two types remains to be seen.

Nevertheless, all things being equal, federal dollars arguably could be spent in worse ways than on smart-grid investments, even if it means some less-deserving projects win grants. The stimulus might spur some of the country’s slowest-moving utilities to accelerate their transition to a smart grid. This might clear the way for game-changing growth in distributed resources, including demand response capacity, dispersed renewable generation and plug-in vehicles. Moreover, the smart-grid stimulus might free up money that utilities can spend in other ways that serve long-term strategies and policy goals, such as investments in renewable energy and carbon capture and sequestration projects—both of which qualify for other incentives under the stimulus bill, and prepare utilities to meet future compliance requirements.

To the degree