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Smart Grid in America and Europe (Part II)

Past accomplishments and future plans.

Fortnightly Magazine - February 2011

the stranded cost and the cost of new technology from consumers. In reality, this is not always the case because the existing technology still functions in keeping the lights on and it is difficult to prove that the new technology is required or creates immediate consumer benefits. It is also politically unpopular to increase consumer electricity bills in the short term for unclear future savings. Consequently, one of the most important questions is how the utility will recover the cost of smart grid improvements. 

In the E.U. the consumers usually pay. 73 The directive requiring member states to have 80 percent smart meter penetration by 2020 did not include cost recovery guidance and the cost mechanisms vary by country. 74 The U.S. cost recovery approach is more particular given its federal and state division. Currently in the U.S., federal funding pays for some of the implementation. On the transmission side, the FERC interim rate recovery policy applies to smart grid devices and equipment used and useful if the applicant shows that the smart grid facilities will not adversely affect reliability and security of the grid, and that the applicant has minimized the possibility of stranded costs. 75 There is no E.U. equivalent to the FERC rule. 

Cost recovery at the distribution level will be especially challenging for two reasons. First there will simply be a greater quantity of cost recovery requests for distribution items than transmission items because much of the smart grid upgrades will happen at the distribution level ( e.g., smart meters, communication software, substation automation, technologies enhancing fault detection, isolation and restoration, and load management). Second, at least in the United States, distribution cost recovery depends on state governing bodies, which can vary in their standards of reviews. 76 Similarly, cost recovery will differ among E.U. member states. 

Neither the E.U. nor the U.S. has presented a comprehensive plan to address cost recovery for utilities. Although cost recovery may be specific to the particular group of consumers and the local governing body, smart grid deployment requires a consistent and supportive regulatory structure to allow the implementers to see how their investments will develop, with or without a return. Even if there is no specific legislation, there can be helpful guidance. In the end there must be clarity and consistency in government regulation. 

Both the E.U. and the U.S. recognize that a more sophisticated work force is crucial to implementing the smart grid. 77 While new technology will help with the work force transition, technology improvements cannot replace the 25 to 35 percent technical utility workforce that will retire in the next five years. 78 Often, reports highlight this issue, but only recently did it become part of U.S. planning. The DOE awarded $100 million to 33 projects that developed training programs, strategies, and curricula, and 22 projects to conduct workforce training programs for new hires. 79 Some of the funding will last as long as three years. The E.U. has not implemented a program targeted at increasing the depleting workforce. Both governments are investing heavily in the smart