Smart grid revolution should lead to job creation boom.
The following article is an abbreviated version of a larger study that KEMA prepared for the GridWise Alliance.
To view this article in its entirety with associated exhibits, please use link to download the PDF version.
As President-elect Obama takes office later this month, the Smart Grid sector of the energy industry will be watching closely to see the extent to which promises made will be delivered. The new administration plans to establish a Grid Modernization Commission to facilitate the adoption of Smart Grid practices and direct the Secretary of Energy to (i) establish a Smart Grid Investment Matching Grant Program, (ii) conduct programs designed to deploy Smart Grid advanced technologies, and (iii) establish demonstration projects focused on Smart Grid advanced technologies.
Further, a high-level DOE advisory panel is likely to recommend that the department create an office dedicated exclusively to the development of Smart Grid technologies and policies, according to the panel's deliberations and draft documents. The DOE Electricity Advisory Committee, tasked with submitting policy recommendations to the incoming Assistant Secretary for Electricity Delivery and Energy Reliability, will likely recommend that the DOE create a "Smart Grid Program Office," according to the draft. The office would disseminate information on Smart Grid, develop Smart Grid educational materials for state regulators, and coordinate various Smart Grid activities with other organizations.
All of this bodes well, not only for the utilities and technology providers actively developing the Smart Grid’s future, but also for the U.S. economy as a whole, which as we all know is facing the worst financial challenges in many decades.
During the next four years, KEMA’s projection anticipates that a potential disbursement of $16 billion in Smart Grid incentives would act as a catalyst in driving associated Smart Grid[1] projects that are worth $64 billion. The impact of these projects would result in the direct creation of approximately 280,000 new positions across various categories, of which more than 150,000 will be created by the end of 2009. Furthermore, we estimate that nearly 140,000 new direct jobs would persist beyond the Smart Grid deployment as permanent, on-going high-value positions.
The indirect jobs, while more difficult to quantify, are substantially larger. Smart Grid is universally understood to be the key enabling technology for the nation's ambitions for renewable energy development, electric vehicle adoption, and energy efficiency improvements. In the absence of Smart Grid investments, many more hundreds of thousands of jobs in these related sectors will either be deferred or not created due to the inability of the electric infrastructure to incorporate these new technologies. Smart Grid is to the electric energy sector what the Internet was to the communications sector and should be viewed and supported on that basis.
Job creation projections by category are summarized in Exhibit 1. These jobs are created by Smart Grid projects which are already planned and “shovel ready”; however, some await final regulatory approval. The impetus of Smart Grid incentives should result in rapidly advancing the approval and commencement of these projects in 2009, in time to spur the employment growth forecast between 2009 and 2012, as shown in Exhibit 2, and to create 150,000 new jobs by the end of 2009.
These positions would result from a number of key factors that are driven by the accelerated deployment of Smart Grid technologies and systems over the next 10 years. The analysis examines the net impact of increased jobs that would be required to satisfy the needs in the following areas:
Direct Utility Smart Grid - this category is the net of the addition of new skills and transition of displaced, lower-skilled workers
Contractors – employees and/or outside services providers who would be employed to accelerate the installation and deployment of these services
Direct (Tier 1[2]) Utility Suppliers - supply chain providers whose equipment would be procured and deployed by utilities. This would include:
Meter manufacturers
Intelligent Transmission and Distribution (T&D) automation device producers
Communications system products and services providers
Software system providers and integrators
Indirect Utility Supply Chain – suppliers of raw materials and finished components to the direct, Tier 1, equipment manufacturers. Many meter manufacturers, for example, source components from third-party suppliers, who are expected to meet the volumetric requirements associated with market growth
New Utility/ Energy Service Companies (ESCOs) - providers and aggregator jobs created in the broad "Energy Services" sector, whether at utilities or other independent firms, which would be derived from the richer and more varied business of structuring and managing consumer relationships with energy providers. While largely non-existent today, there is considerable expectation that multiple products and cottage industries will emerge in relation to the broader adoption of automation and communications technologies by the utility industry. As previously referenced, this includes new jobs formed for related service industries, including the installation, servicing, and operation of new technologies such as rooftop solar energy and Home Area Network devices and systems such as thermostats, display units and other new technologies.
Additionally, there are many Industries related to the utility sector whose business will be accelerated by the adoption of these devices. Job creation in these industries is not calculated as part of the Smart Grid jobs creation. Those jobs are often quoted under the heading of those industries. This would include:
Renewable Energy Source suppliers whose jobs would be stimulated and accelerated by the advancement of enabling technologies
Distributed Generation suppliers of products and services for which demand would increase as a result of increasing end-user demand for the products
Plug-in Electric Hybrid Vehicles (PHEV) providers whose products have a success dependency on supporting charging and billing systems
Direct utility employees job estimate
Presently, approximately 70 utilities have filed some form of AMI plan which also include pilots of this technology. Many have also filed business cases for implementation approval with their respective regulatory body. This activity represents progress in nearly 30 states.
Assuming a full-scale implementation for these AMI programs, the total number of electric meters that would be involved represents a potential of more than 70 million meters, though the total number of projects that are approved to-date represent a market size of approximately 30 million meters. Likewise, since many of these projects are in early stages of deployment or are in limited deployment pilots, fewer than 1 million AMI devices are actually deployed.
Typical AMI and Smart Grid regulatory filings present a business case with favorable benefit-to-cost ratios that may also include social benefits such as improved reliability and lower wholesale energy prices at peak. When these societal benefits are also factored in, the overall consumer benefit will further improve the financial attractiveness of AMI and Smart Grid as an investment.
Implementing a Smart Grid represents an enterprise-wide initiative and impacts virtually the entire utility organization. Therefore, these projects will require a wide range of new skills, education, and talent. The following list describes the typical position types that will have full-time job allocations at some level. These jobs would be expected to be filled by a mix of existing utility employees and outside consultants.
Typically, utility jobs such as equipment installation and testing require specific training and experience. It normally takes several years to qualify to do this work. Given the level of training required for these jobs, the use of outside resources in this area would be limited to existing outside contractors that are already are under contract to utility companies. However, there could be more extensive use of outside resource for IT, communications, and other system integration and support services.
Calculation
There are an estimated 150 million meters in the U.S. This number has to be reduced by 10-15 percent to account for the deployments already underway in California and Texas and other utilities that are already in AMI deployment, and where many of the jobs are already being created. So we used 128 million meters as a remaining population. To facilitate the simplicity of the calculations, we also assumed that there would be approximately 128 Smart Grid projects at 1 million meters per project. We then used the $500 million dollar projected projects cost, times 150, to get the estimated $64 billion Smart Grid spend.
We could project a "potential" Smart Grid jobs impact assuming that every eligible utility in the U.S. moved to full deployment immediately. However, we realize that some reduced percentage of implementation exists based on local power system economics, regulatory perspectives, public/private utility ownership, and the level of Smart Grid incentives. Additionally, there will be some limitations on the ability of the utilities and their suppliers to find and train some of the more demanding positions created by Smart Grid. We therefore used an estimate of the percentage of potential Smart Grid projects that start in each of the four years, 2009-2012, (as shown in Exhibit 8) of 30 percent, 40 percent, 25 percent, and 5 percent, respectively. We also used the Smart Utility projected budget over a three to five year deployment period as a proxy for how labor and other costs are dispersed over time. The Smart Utility filing has 30 percent of the total budget planned as utility labor; at an average cost of $75,000 per Full Time Equivalent (FTE), which we can then translate the budgeted spend over time into FTEs over time. The projects started per year and the Smart Grid spending is shown in Exhibit 3.
In addition, once a Smart Grid system is deployed, there will be several thousand utility jobs needed to maintain the Smart Gird. We estimated this number as just under 5,800 new positions. The on-going number is not expected to be higher due to the operational efficiencies gained.
Broad industry job estimates
Accelerated deployment of a Smart Grid would provide an incentive for accelerated development and deployment of new technologies, such as plug-in hybrid electric vehicles (PHEVs), smart appliances, home automation hardware and software, and distributed renewable energy resources (e.g., rooftop photovoltaic systems, small wind turbines, geothermal heat pumps).
By enabling accelerated deployment of these technologies, an investment in the Smart Grid has the potential to create additional jobs in these sectors. As these are emerging technologies in a sector of the economy with significant entrepreneurial activity, it is difficult to assess just how many jobs could be created in these sectors. One proxy for identifying the level of economic growth that could be anticipated is the interest from venture capital groups like Goldman Sachs and Kleiner Perkins Caufield & Byers (KPCB) and the commitment of funding from technology powerhouse Google.
In June 2007, Google announced the launch of the RechargeIT initiative to accelerate adoption of PHEVs. Google awarded $1 million in grants and promised another $10 million to fund development, adoption and commercialization of PHEVs and vehicle-to-grid technology.[3] In July 2008, Google awarded $5.8 million to ActaCell, to advance commercialization of its lithium-ion battery, and $2.5 million to Aptera, for market integration of its all-electric Typ-1 supercar.[4]
VentureBeat, an online portal that tracks venture capital funding, reported in May 2008 that funding in the Smart Grid space was “hot and heavy,” with well over half a dozen large fundings in the months preceding the article.[5] Among the companies receiving funding were Optimal Technologies ($25 million from Goldman Sachs), a start-up company with technology to manage electricity allocation on local utility grids, and SmartSynch ($20 million from Credit Suisse), a company that supplies major meter manufactures with internal communication technology for their smart meters. In October 2008, KPCB announced that it was investing $75 million through its Green Growth Fund in Silver Spring Networks, a Smart Grid solution provider with technology to help consumers manage their energy use more efficiently.[6]
In addition to increasing venture capital investment in the “clean” technology sector, and Smart Grid in particular, electric utilities are investing in distributed renewable generation, for which the deployment of a Smart Grid is an enabling factor. In March 2008, Southern California Edison (SCE) announced an $875 million program to install 250 MW of solar photovoltaic (PV) systems on commercial rooftops throughout their service territory.[7] The 1 to 2 MW utility-owned PV systems will be installed on unused commercial rooftops and connected directly to the distribution system to meet the energy needs of the fastest growing areas in the region. The SCE program is intended to drive down the current cost of solar photovoltaic systems and to help California meet goals set forth in the Renewable Portfolio Standard and the California Solar Initiative (“Million Solar Roofs”).
The SCE program has been a model for other electric utilities trying to achieve goals for renewable and distributed energy, including Duke Energy, which has proposed a $50 million program to install 16 MW of solar PV systems at up to 850 North Carolina sites, including homes, schools, and commercial and industrial facilities.[8] Smart Grid technologies, including smart meters with net metering capabilities, greatly facilitate the increasing penetration of distributed renewable energy technologies, which creates jobs for solar system manufacturers and installers.
Summary and recommendations
The Obama-Biden plan for Smart Grid incentives would compensate qualifying Smart Grid projects for up to 25 percent of the initial investment cost. By reducing the utility investment by 25 percent this will make the cost benefit analysis that much more favorable.
In conclusion, Smart Grid incentives should focus on achieving the benefits of Smart Grid. The Grid Modernization Commission can be a vehicle for achieving best practices and comprehensive benefits from Smart Grid projects. Smart Grid investments have the potential to accomplish numerous benefits for the industry and the nation, including:
Generate 280,000 new positions, many of which are high-value.
Spur development of a domestic Smart Grid supplier’s industry, which will create 140,000 ongoing high-value jobs.
Position the U.S. as a global supplier of Smart Grid technologies, given the parallel rising interest in international Smart Grid efforts.
Click here to view the full report prepared by KEMA for the GridWise Alliance.
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[1] The term “Smart Grid” in this document refers to the networked application of digital technology to the energy delivery and consumption segments of the utility industry. More specically, it incorporates advanced applications and use of distributed energy resources, communications, information management, advanced metering infrastructure (AMI), and automated control technologies to modernize, optimize, and transform electric power and gas infrastructure. The Smart Grid vision seeks to bring together these technologies to make the grid self-healing, more reliable, safer, and more efficient, as well as empower customers to use electricity more efficiently. It also seeks to contribute to a sustainable future with improvements to national security, economic growth, and climate change.
[2] Tier 1 suppliers are those firms that sell complete products and systems directly to utilities.
[3] Google Launches RechargeIT Plug-In Hybrid Car Initiative and Unveils Solar Installation, June 18, 2007. www.google.com, retrieved December 18, 2008.
[4] Google RechargeIT Fund Recipients Announced. July 24, 2008. www.pcmag.com, retrieved December 18, 2008.
[5] Smart Grid investments come hot and heavy – SmartSynch gets another $20M for talkative electrical meters. May 22, 2008. http://venturebeat.com, retrieved December 18, 2008.
[6] Venture capital for Smart Grid technology expansion, October 9, 2008. www.metering.com, retrieved December 18, 2008.
[7] Application of Southern California Edison Company (U 338-E) for Authority to Implement and Recover in Rates the Cost of its Proposed Solar Photovoltaic (PV) Program (Application number A0803015). Filed with CPUC on March 27, 2008.
[8] Carr, Housley. Duke Energy plans to invest $100 million in solar projects to expand renewable portfolio. Global Power Report, June 12, 2008.