A 'Smart' Approach to Energy Concerns


June 2009

A 'Smart' Approach to Energy Concerns

New legislation aims to create a national smart-grid system.


power linesThe smart grid barreled into popular culture this year with a $3 million Super Bowl ad, letting soccer moms and NASCAR dads in on the trendiest new way to save the planet. With $4.5 billion in stimulus funding and a broad congressional fan base, the smart grid—which combines traditional power lines with digital technology—promises to save consumers money, reduce carbon emissions, and end our dependence on foreign oil.

Clean energy legislation currently in the pipeline will encourage development of the smart grid. The American Clean Energy and Security Act of 2009, a recently released draft bill authored by House Energy and Commerce Committee Chairman Henry Waxman (D-CA) and the committee's Energy and Environment Subcommittee Chairman Ed Markey (D-MA), would establish energy efficiency and conservation standards, some surpassing those recommended by President Obama. Along with other provisions, the bill would set a nationwide renewable electricity standard that would reach 25% by 2025, deploy the smart grid to enable greater energy efficiency, and overhaul the federal transmission planning process. The bill also includes an "energy efficiency resource standard" that would require electric and gas utilities to ensure that customer demand drops: By 2020, electricity savings must reach 15%, and natural gas savings must reach 10%.

Waxman and Markey were hoping for a final committee vote before the Memorial Day recess. Senior House Republicans, however, have challenged the wisdom of moving climate legislation amid low public approval for action on global warming and the still-stagnant economy. The bill "marks a triumph of fear over good sense and science, and it couldn't come at a worse time, because it proposes to save the planet by sacrificing the economy," says Rep. Joe Barton (R-TX), ranking member of the Energy and Commerce Committee. Waxman and Markey, however, contend that the bill would create millions of new clean-energy jobs, save consumers hundreds of billions of dollars in energy costs, and reduce U.S. dependence on foreign oil.

Though alluring, the smart grid faces several challenges to its inception, including the deliberate pace of the federal government. Secretary of Energy Steven Chu complained in March that it was taking too long to begin building the smart grid. He also noted that the energy provisions enacted in the American Recovery and Reinvestment Act were not being implemented quickly enough, telling the House Science and Technology Committee that it might be another year before the Advanced Research Projects Agency, a new Energy Department research agency focusing on high-risk, high-payoff energy research, would be up and running.

Another obstacle to launching the smart grid is security. Lawmakers and experts cite the possibility that terrorists could hack into the digital grid, wreaking havoc with widespread power outages—or worse. Earlier this year, cyber-spies from China and Russia penetrated the U.S. electrical grid and left behind software programs that could be used to disrupt the system. They were believed to be on a mission to navigate the U.S. electrical system and its controls.

"Smart-grid technologies are supposed to result in a more reliable and secure grid, but if cyber-security issues are not addressed, we could be making ourselves more vulnerable to cyber-attacks," says Senator Lisa Murkowski (R-AK), ranking member of the Senate Energy and Natural Resources Committee.

The lack of technology standards also impedes the smart grid. For a smart-grid system to work, all of the hardware and software must be compatible, linked by a common technological standard. And as the smart grid grows in complexity and new information technology evolves, several sets of standards will be required to successfully run the smart-grid system. The Commerce Department's National Institute of Standards and Technology plans to release a draft of these standards this summer.

Assuming the challenges of implementing a smart-grid system can be overcome, the smart grid will completely transform the electricity rate structure. In most of the country, utilities' profits are based on the amount of power they sell. The smart grid is designed to increase the efficiency of electricity use, storage, and distribution and decrease the overall use of electricity—not so great for utility companies' bottom lines.

A possible solution is "decoupling," a rate-restructuring system in which utility companies' profits are no longer tied to how much electricity they sell. Chu and Waxman both support this potential fix. Six states are experimenting with compensating electric utility companies for improving energy efficiency, including by decoupling, but many lawmakers foresee a national rate restructuring before the smart grid can go live.


And as always, there is the issue of cost. Though smart-grid technology received $4.3 billion in the $787 billion stimulus package, experts estimate that it would cost $100 billion to build a national smart grid. The potential return on investment—consumer savings; independence from foreign oil; the opportunity to more efficiently generate, transmit, and store renewable sources of energy; and a healthier environment—make it a worthy venture. But for a country struggling to emerge from a severe recession, it will be a heavy outlay of resources.