Smartgrid Modernization Requires Regulatory Reform

Published January 21, 2010

The fledgling smartgrid for electricity got some feathers on its wings in October 2009 with the federal government’s investment in projects covering a wide variety of areas, including advanced metering infrastructure; customer systems such as demand-response capabilities; electric distribution systems, transmission systems, and equipment manufacturing; and integrated and crosscutting systems.

In all, a hundred private companies, utilities, manufacturers, cities, and other partners were recipients of the $3.4 billion government investment, which together with matching private support amounts to a funding initiative of more than $8 billion to get the grid modernization effort underway.

This is laudable, but far more investment will be needed–perhaps trillions of dollars, the bulk of it coming from the private sector–to fully modernize the nation’s grid system, and the undertaking will take decades. If there is a sensible regulatory structure, business and industry stand ready to make the needed investments.

Modernization Benefits

Grid modernization could improve efficiency, system reliability, and the ability to respond rapidly to threats of widespread critical power outages.

There are other potential benefits. According to one estimate a smart electric grid built on better information and communication could reduce annual carbon dioxide emissions by 230 million to 480 million metric tons and save $15 billion to $35 billion in energy and fuel costs.

Transportation could be affected as well. A modernized grid system could facilitate use of upcoming innovations such as plug-in hybrid technology.

The smartgrid also could facilitate integration of more renewable power into the grid, assuming demand-response, power storage, and other innovations are available to meet the challenge of renewable power supply intermittency.

Challenges Loom

However, many issues still require attention. More progress on development of interoperability standards is needed. There are also cybersecurity challenges, and what to do about them is not entirely clear.

Additionally, there are concerns about the siting and permitting of smartgrid structures; failure to address these could leave grid modernization projects mired in obstructive litigation and delay.

Also, the regulatory landscape is largely virgin territory. Building out a fully interoperable smartgrid will create a system of enormous complexity, bringing on a risk that government regulation of the smartgrid may be made too complex.

Regulations Could Be Costly

The Electric Power Research Institute (EPRI) recommends policymakers carefully consider what regulations are critical to smartgrid evolution. According to EPRI, minor differences in regulation may require major investment in technology to satisfy regulatory requirements.

Business and industry have additional concerns. The development and evolution of the smartgrid will spur a greatly increased need for data access (to information indicating the real-time operating status of the grid at spatial, geographical, device, resolution, and other levels) and data sharing (by all the various entities that have responsibility for managing and regulating the grid and ensuring its security).

Regulations conceivably can facilitate these needs but also should accommodate the needs of business and industry to protect confidential business information and ensure a competitive marketplace.

Agency Coordination Essential

Numerous government agencies–FERC, DOE, FCC, NIST, DHS, DOT, etc.–are engaged in smartgrid policy development. Ideally, all these agencies should meet and work in a coordinated manner to minimize potential regulatory overlap, confusion, redundancies, contradictions, and inefficiencies and ensure a cohesive understanding of regulatory needs.

To minimize uncertainty, provision of readily available, transparent, and routine accounts of governmental coordination meetings should be made available to aid business and industry stakeholders in making investment decisions and assist business planning, mitigate uncertainties, and ensure a fuller engagement of stakeholders in smartgrid planning, development, and deployment.

Just as the smartgrid will evolve over time, so must regulatory policy. Historically, once established, regulations often become locked in stone. This is problematic because as the smartgrid evolves, entrenched regulations could become increasingly out of synch with smartgrid development needs. This could introduce growing regulatory inefficiencies that will work against progress in smartgrid development and competition objectives.

What must be agreed on and implemented is a process by which smartgrid regulations are periodically reviewed for their utility and effectiveness, and where inefficiencies are observed, such regulations are revised, removed, or replaced.

William L. Kovacs ([email protected]) is senior vice president of the U.S. Chamber of Commerce’s Environment, Technology, and Regulatory Affairs Division.