The stimulus and the smart grid
In December 2008 and into January of this year, the U.S. Department of Energy (DOE) began releasing a series of reports from its Electricity Advisory Committee that detailed the critical need for enhancing the electricity infrastructure of the United States. The Committee revealed an “electricity supply and delivery infrastructure nearing the end of its useful life” and went on to conclude that the current infrastructure “will be unable to ensure a reliable, cost-effective, secure, and environmentally sustainable supply of electricity for the next two decades.” At the same time, the U.S. economy continued its decline with no indications of improvement. In the search for answers to jump-starting the U.S. economy, the creation of a new, improved, and updated electricity infrastructure came to be seen as one of the key investments of any Federal stimulus package.
One of the most important components of a new U.S. electricity supply and delivery infrastructure is the creation of a Smart Grid. The development of a U.S. Smart Grid has been recognized by most energy experts, stakeholders, and agencies within the federal government as the key enabling system for a new energy infrastructure and the basis for a new energy economy. Investments in a Smart Grid offer the dual rewards of a short-term jolt to the U.S. economy (both in job creation and in economic growth) and the long-term benefits associated with improving a system vital to the economic and social well-being of the country. The signing of the Stimulus Package in February reinvigorated the development of a U.S. Smart Grid and will likely accelerate the timeline for full deployment.
The American Recovery and Reinvestment Act contains approximately $787 billion in federal incentives for stimulating the U.S. economy. Of this $787 billion, $20 billion dollars was the budget allocated for electricity infrastructure projects that directly or indirectly relate to the deployment of a U.S. Smart Grid. These incentives include federal loan guarantees for the rapid deployment of renewable energy and electric power transmission projects; federal funding for the manufacturing of advanced batteries and components; federal funding for electricity delivery and energy reliability; federal loan guarantees for new or upgraded transmission in the Pacific Northwest; and federal loan guarantees for innovative technologies.
At a quick glance, some of these incentives do not appear to be related to developing a Smart Grid. However, upon closer examination, deep linkages emerge. The Smart Grid is a holistic solution that offers different functions and solutions for the many different aspects of electricity generation, transmission, distribution, renewable power, and battery storage. More investments in renewable energy sources create a greater need for a grid that is both smart enough and capable enough to efficiently handle the intermittency issues of renewable power. More transmission lines means more opportunities for the transfer of electricity at all levels of electricity supply and a fully conceptualized Smart Grid offers the best answer for efficiently transferring electricity in an economical and reliable manner plus more demand response opportunities. Also, more advanced battery components means more vehicles will eventually want to plug-in to the grid, which creates a myriad of challenges and opportunities that only a Smart Grid would be able to answer and provide. The common factor in all of these different investments is that they create an even greater need for a Smart Grid and thus further drive its development forward.
In terms of structure, the Reinvestment Act is divided into two divisions – (1) Appropriations Provisions and (2) Tax, Unemployment, Health, State Fiscal Relief and Other Provisions – that in total contain a total of twenty-three titles. The primary source of funds for Smart Grid related projects comes from the Appropriations Provisions, specifically Title IV -- Energy and Water Development.
Appropriations provisions
The Smart Grid Provision
The largest, most direct allocation of funds for the Smart Grid is the $4.5 billion designated for ‘Electricity Delivery and Energy Reliability.’ This provision has largely been perceived as ‘the Smart Grid provision’ due to the language and specifics of the bill. In fact, Energy Secretary Chu himself referred to this provision as the Smart Grid provision in his first public address on the Recovery Act.
The actual legislation declares that “funds shall be available for expenses necessary for electricity delivery and energy reliability activities to modernize the electric grid, to include demand responsive equipment, enhance security and reliability of the energy infrastructure, energy storage research, development, demonstration and deployment, and facilitate recovery from disruptions to the energy supply and for implementation of programs authorized by title XII of EISA 2007.” In addition, the Electricity Delivery and Energy Reliability provision also includes significant amendments to the Smart Grid sections of the Energy Independence Security Act of 2007 (EISA 2007) that will open up tremendous funding opportunities for Smart Grid demonstration projects and Smart Grid investments whose funding will also fall under DOE authority.
In terms of specific dollars allocated for the Smart Grid under the Electricity Delivery and Energy Reliability provision, $100 million was allocated for “worker training activities,”; $80 million for a resource assessment and an analysis of “future demand and transmission requirements” that will be conducted by the DOE’s Office of Electricity Delivery and Energy Reliability; and $10 million for a “Smart Grid Interoperability Framework.” The inclusion of money for training workers is a key component for Smart Grid success as the need for a new generation of trained, capable workers to run the 21st century grid is recognized as a certain fact by the electric utility industry and the DOE. In addition, the interoperability of Smart Grid devices and systems is a requirement for the system to function and the $10 million devoted to this objective will aid in the creation an interoperability framework. The Director of National Institute and Standards and Technology (NIST) will have primary responsibility for developing interoperability standards. Both programs, worker training and the Smart Grid interoperability framework, are small yet important components that will directly contribute toward the implementation of a Smart Grid.
The resource assessment funding objective is indirectly related to Smart Grid deployment as it seeks to “facilitate the development of regional transmission plans” and requires that the DOE consult and coordinate with the FERC to provide technical assistance to “NARUC, regional reliability entities, the States, and other transmission based operators for the formation of interconnection-based transmission plans for the Eastern and Western Interconnections and ERCOT.” While not specifically for Smart Grid technologies or Advanced Metering deployment, collaboration and coordination among key industry stakeholders is a driver for Smart Grid success. Deeper understanding of interconnection resources allows for smarter application of Smart Grid technologies. The resource assessment funding further continues the current trend of more federal involvement in regional transmission and interconnection planning.
The Smart Grid Amendments
The first key amendment enacted by the Stimulus Bill was made to the ‘Smart Grid Regional Demonstration Initiative’ (Section 1304b) of EISA 2007. The language of the amendment opens up more types of electricity areas to Smart Grid demonstration projects, with more types of ownership structures and more federal funding. Prior to the Stimulus Package, the DOE was authorized to provide financial assistance for 50 percent of the cost of a Smart Grid demonstration project with a cap of $100 million per fiscal year. The length of the funding was to run from 2008 to 2012, which thus created a cap of $500 million dollars for Smart Grid demonstration projects. Under the Stimulus Bill, the DOE will continue to provide financial assistance towards 50 percent of projects costs but now the cap is “such sums as necessary.” The implications of this change in funding and project criteria are very positive for Smart Grid deployment. In fact, regional Smart Grid demonstration projects appear to be at the forefront for receiving stimulus funds.
In March 2009, the DOE issued a Notice of Intent to Issue a Funding Opportunity Announcement (FOA) entitled “Smart Grid Demonstrations” that was eventually retracted by the DOE for further review. However, the NOI is a useful indicator of how the DOE intends to begin deploying Stimulus dollars for Smart Grid projects. The NOI included specific selection criteria for “three topical areas of interest: Regional Smart Grid Demonstrations, Utility-Scale Energy Storage Demonstrations, and Regional Synchrophasor Demonstrations.” In general, the approach of the DOE appears to focus on leveraging regionally unique experiences in Smart Grid demonstration projects towards full deployment. Key requirements for widespread deployment include the demonstrated viability of Smart Grid technology; quantification of benefits and costs; cyber security; and validated business models.
The second key amendment made by the Stimulus Bill was to the ‘Federal Matching Fund for Smart Grid Investment Costs’ (Section 1306) of EISA 2007. The Fund had been set up under EISA 2007 to provide 20 percent reimbursement of the costs of qualifying Smart Grid investments. The Stimulus Bill amended the Fund to now provide up to 50 percent reimbursement. In addition, the Recovery Act called for a “notice of intent and subsequent solicitation of grant proposals” within 60 days of the bill’s enactment. This second level of funding for Smart Grid technologies will likely build upon the experience of the demonstration projects initiated and funded under the Regional Demonstration Initiative.
A crucial determinant to success of the Smart Grid Regional Demonstration Initiative and the Federal Matching Fund for Smart Grid Investment Costs is the actual amount of funding that these programs receive. For instance, the Stimulus Package does not explicitly allocate precise sums of money for either program. Rather, the vast majority of the funds have been delegated for implementation and allocation under the authority of the DOE. In essence, the DOE will now have its own treasury department for dispersing stimulus dollars. The ability of the DOE to adapt to this new role will be crucial to the success of establishing a U.S. Smart Grid and the overall process for how the DOE will coordinate the flow of funds for Smart Grid projects remains to be seen. In terms of selection criteria for grant eligible Smart Grid projects, it is likely that some (or all) of the following criteria will be required in the application process:
Potential Selection Criteria for Grant Eligible Projects
Loans
Innovative Technology Loan Guarantee Program
The Reinvestment Act conferred $6 billion in guaranteed loans for renewable technologies and transmission technologies as defined by Congress in the Energy Policy Act of 2005. The Joint Explanatory Statement of the Committee of Conference states that the “$6 billion in appropriated funds is expected to support more than $60 billion in loans for these projects.” There is significant potential within this loan program to incorporate distributed, renewable generation and more advanced transmission into the overall Smart Grid deployment efforts. More renewable systems and more transmission also deepen the need for a Smart Grid and drive its development forward. Further accelerating the issue is a new program created within EPAct 2005 by the Stimulus Bill. The “Temporary Program for Rapid Deployment of Renewable Energy and Electric Power Transmission Projects” provides $500 million in loan guarantees to be used by Sept. 30, 2011. Notably, the program includes selection criteria for electric power transmission systems. The factors that the Secretary of Energy may consider are:
Viability of the project without guarantees
Availability of other Federal and State incentives
Importance of the project in meeting reliability needs
Effect of the project in meeting State or region’s environment (including climate change) and energy goals
Bonneville Power Administration Borrowing Authority
The Stimulus Act makes $3.25 billion in borrowing authority (under the Federal Columbia River Transmission System Act) available to “finance the construction, acquisition, and replacement of the transmission system of the Bonneville Power Administration (BPA).” As the BPA moves forward in updating its transmission system, there will be opportunities for Smart Grid applications to be applied to the new transmission infrastructure. Potential projects include:
Retrofits to transmission apparatus with Smart Grid capabilities
Transmission monitoring, control, and optimization including sensors, communications, and computer systems and software
Western Area Power Administration Borrowing Authority
The Western Area Power Administration (WAPA) has been given the authority to borrow up to $3.25 billion for “constructing, financing, facilitating, planning, operating, maintaining, or studying construction of new or upgraded electric power transmission lines and relate facilities with at least one terminus within the area served by Western Power Administration,” as well as the “delivering or facilitating the delivery of power generated by renewable energy resources constructed or reasonably expected to be constructed after the date of enactment.” Interest rates will be fixed by the Secretary of Energy and the WAPA may refinance the loans. The WAPA has the authority to utilize $1.75 billion at any one time and may even borrow above $1.75 billion unless a joint resolution is passed within 90 days that bars further disbursement. The repayment of each project is treated as “separate and distinct from each other such project and all other Western Area Power Administration power and transmission facilities.” Proceeds from the use of transmission capacity for each individual project are required for repayment; however, the WAPA may first allocate the proceeds for any ancillary services provided and/or the operation and maintenance costs of the new project. Criteria for potential projects include certification that “(a) the project is in the public interest, (b) the project will not adversely impact system reliability or operations, or other statutory obligations, and (c) it is reasonable to expect that proceeds from the project shall be adequate to make repayment of the loan”. In addition, outstanding balances on a loan may be forgiven if the project completes its “useful life.”
Potential Smart Grid applications include:
Retrofits to transmission apparatus with Smart Grid capabilities
Transmission monitoring, control, and optimization including sensors, communications, and computer systems and software
Smart Grid technologies focused on renewables facilitation
DOE knowledge management
Smart Grid Clearinghouse
The Stimulus Bill directs the Secretary of Energy to establish a Smart Grid information clearinghouse that will be available to the public and will use the data from Smart Grid demonstration projects and other sources. In essence, the clearinghouse will be the national knowledge manager for Smart Grid. The importance of this tool is underscored by the fact that the DOE has already issued a Funding Opportunity to develop the Smart Grid Clearinghouse. The purpose of the clearinghouse, as described by the DOE, is to:
Serve as an additional tool for Smart Grid stakeholders to utilize in advancing the Smart Grid concept and implementation.
Provide an effective venue for many Federal and State agencies and public and private sector organizations to assess Smart Grid development and practices, with respect to progressing toward achieving the seven defining functions above.
Enable direct sharing and dissemination of information on knowledge gained, lessons learned, and best practices in order to promote and facilitate coordination and collaboration in Smart Grid development and practices.
Serve as a decision support tool for both State and Federal Regulators.
Serve as a public forum for information outreach to all interested parties including the general public.
Support the advancement of the Smart Grid for the benefit of the United States.
2009 Renewable Electricity Transmission Study
The Stimulus Act directs the Secretary of Energy to complete a 2009 Electric Transmission Congestion Study that will include:
An analysis of potential renewable energy sources that are constrained in reaching appropriate markets by lack of adequate transmission capacity
An analysis of reasons for failure to develop the adequate transmission capacity
Recommendations for achieving adequate transmission capacity
An analysis of the extent that legal challenges filed at State and Federal level are delaying construction of the necessary transmission to access renewable energy
Explanation of assumptions used in the study
The Electric Transmission Study should prove to be an extremely useful tool in developing a national Smart Grid for several reasons. First of all, it is important for policymakers and stakeholders to understand the exact nature of the problems facing them. Second, the study results should further clarify the need for a Smart Grid that efficiently and reliably connects stranded renewable sources to U.S. customers. Third, the results of the legal analysis of the U.S. regulatory regime should provide a framework for streamlining transmission access to renewable energy.
Conclusions
With stimulus dollars scheduled for dispersion at the end of April and the beginning of May, much of the current confusion about funding should begin to be resolved in the coming weeks. Secretary Chu has repeatedly signaled his desire to fast-track loan guarantees and has stated that it is a DOE goal to disperse 70 percent of the investment from the Stimulus Bill by the end of 2010. The ability of the DOE to overhaul its process for issuing direct loans and loan guarantees will be one of the key determinants for fast deployment. Furthermore, the DOE must begin clarifying what the level of grant funding will be for the programs listed under the Electricity Delivery and Energy Reliability provision.
The first Stimulus funds for Smart Grid technologies and Advanced Metering Infrastructure projects appear to be going towards regional demonstration projects and knowledge management. Early adopters of AMI and Smart Grid technologies will now have the capacity to accelerate deployment of Smart Grid demonstration projects and AMI projects. These early movers will now be aided by a Federal Government that is actively financing Smart Grid development with larger grants, bigger loans, and faster turn-around on applications. More Smart Grid projects means more knowledge, better research, and more development opportunities for companies actively involved in Smart Grid deployment and those companies considering getting into the Smart Grid game. The funding within the Stimulus Package should significantly contribute to the creation of a solid foundation of projects, knowledge and experience for establishing a future Smart Grid and for overcoming existing barriers.
Going forward, the key outstanding issues include better interoperability standards and protocols, cyber security, and program metrics. While these barriers appear surmountable, they must be addressed. Overall, the outlook for Smart Grid and Advancement Metering Infrastructure projects looks very positive for both the short and long term. The passage of the Stimulus Bill means that the tipping point for Smart Grid deployment in the U.S. has arrived.
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