Ending the Smart Grid Stalemate

 We need smart policy - and here's how to get it?

When lay people talk about delays in implementing smart grid, there’s a tendency to blame the energy industry for “dragging its feet” regarding technologies that update the old grid. Ask industry insiders, though, and you get a different perspective. To utility leaders and experts, the single greatest roadblock to smart grid in the United States is regulation.

A recent smart grid forum in Washington, D.C exposed “lack of uniformity” in regulations as a key obstacle to smart grid adoption. The energy industry today must contend with complex, overlapping and sometimes competing rules that depress new investment by creating uncertainty over utilities’ ability to recoup their costs. In a statement, forum panelists agreed that “until energy companies sense some degree of regulatory support for smart grid, coupled with a relatively normalized set of costing rules, the deployment and offering of smart grid will remain limited.”   How did we arrive at this stalemate? Call it a classic case of market need and technology outpacing policy. The existing regulatory structure is the historic residue of overlapping jurisdictions, an operating system based on consumption growth instead of conservation and efficient management of energy resources.

The last line of defense against... progress?

A look to Europe provides a cautionary note on what can happen if state policymakers don’t take action on their own. Fed up with a patchwork regulatory approach that kept smart grid implementation on idle, the European Commission implemented rules requiring EC member states to get moving on smart grid. As a result, European nations are now in a race to deploy smart grid. Not only within their borders, but also to ensure interoperability continent-wide.

Where policy should focus

Smart grid policy is based on the principle of a digital integrated network that facilitates communication in real time and across political and geographic boundaries. As energy networks continue to evolve, utilities will be well-positioned to support the demands of billions of machine-to-machine transactions, including roaming energy-consuming end-points such as electrical vehicles (EVs).

Likewise, the new network’s focus on efficiency and conservation, rather than consumption, changes the tone of consumer protection. Whether through actual revenue decoupling schemes or subtler changes to pricing models, smart grid must focus on efficient consumption, alternative source flexibility and greater reliability.

The role of utilities

In the United States, utilities now have an opportunity to follow suit, with or without EU-style regulatory intervention. But first they must take steps to present a more convincing case to policymakers. 

The term “smart” isn’t just a marketing ploy -- it’s an apt description of a re-imagined network that supplies both actionable information and energy in a way that benefits end user and utility alike. As just one example, a smart electricity infrastructure that responds in real time to outage alerts and routing requirements benefits the customer, ensuring power availability. At the same time, the system can increase operational savings, drive new revenue streams and help contain capacity generation facilities’ CAPEX for the utility.

This intelligence – the “smarts” in smart grid – will rely on a sophisticated next-generation Customer Information Systems (CIS) that introduce evolution and flexibility into what has been largely a closed system. CIS will enable utilities to act with agility towards their customers, analyzing in real time their demand curves, and prescribing ways to proactively respond to it.

State-level regulators tend to view themselves as the last line of defense between consumers and rate increases, a perspective that conflicts with the cost of smart grid technology. The end result is that state Public Utility Commissions (PUCs) and many state governments from Maine to Hawaii have rejected rate increases tied to smart meter upgrades and imposed limitations on systems that are still struggling to get off the ground. Of equal concern, half the states haven’t even begun to address smart grid rate-making.