Smart Grid Stimulus: The Pause That Distresses

Remember how we all cheered at the start of the year when the feds announced that the Smart Grid would be part of the stimulus package? What a tremendous boost to the sector, we all said.

Then reality set in. Far from accelerating 2009 Smart Grid spending, the stimulus bill slowed it down.

The Chief Marketing Officer at one leading Smart Grid company told me most projects have been delayed 9 to 12 months as utilities wait to hear whether the government will pay part of the price tag. I hear similar stories from almost all the Smart Grid technology companies. Some are blaming stimulus-related delays for missing sales forecasts. And all of that leads to four important questions.

Smart Grid Stimulus Winners

The first question: What’s going to happen with utilities that do get money? Will it prime the pump and lead to more projects by those same utilities? Or will it be a one-time bubble, with those utilities waiting a few years before they tackle something big again? Will the utilities – and their PUCs – get addicted to the 50% government match and reject future initiatives as too expensive?

Smart Grid Stimulus Losers

The second and even harder question: What’s going to happen with utilities that get their applications rejected? Will they regroup and push ahead with their projects on a smaller scale, since they’d already committed to a 50% share of the cost? Or will it be an excuse to throw up their hands, say oh well, we tried – and go back to business as usual?

A related third question: What about the effects on Smart Grid technology companies? Many of them have spent the last six months frantically assisting with stimulus applications. Clearly, they are hoping utilities will do the right thing and move forward with or without a check from Uncle Sam. But what about the vendors who don’t win any awards? Will they continue to have the confidence of their customers and their investors?

We’ve seen harsh setbacks in the wind and solar industries when faced with on-again, off-again government incentives. In fact, some economists think many subsidies do more harm to young industries than good. Companies come to depend on the subsidies, then collapse when they are removed.

The fourth question that many are forgetting to ask: What effect will all this have on regulators? The CEO of one AMI company tells me the worst problem to arise has been the loss of momentum with regulators. Just as they were getting the resolve and education to approve projects on their merits, everything has gone on hold. There’s no guarantee that they will regain their previous enthusiasm. Indeed, many of them may take a wait and see attitude, refusing to make any big awards until they see the results from the first round of stimulus projects… something that could take one to three years.

Thus, once the DOE announces its awards – which I suspect will include a significant number of smart metering projects and probably some decent money for distribution automation – the stakes get even higher for the initial rollouts to be fast, glitch-free and successful.

The Plus Side of the Smart Grid Stimulus

But don’t get me wrong. Even if the stimulus bill put the skids on some Smart Grid projects, we’ve seen positive developments too. IMS Research is forecasting double-digit growth in advanced metering in North America this year. It's not growing quite as fast as expected, but it's still a good story.

Here's another from Tropos President/CEO Tom Ayers: “The good thing is the cat’s out of the bag. To make the grant applications utilities were forced to do their homework and run the ROI calculations. Now that they’ve done that, they’ve seen the numbers and seen the benefits.”

The Smart Grid stimulus grant application process also got utilities, vendors and other stakeholders talking to each other, building spreadsheets and designing projects.

The Smart Grid stimulus also brought with it the fast-tracking of standards and security, laying the foundation for high-value, interoperable grid applications.

If there are early wins and early positive publicity, we should see a bandwagon effect. PUCs won’t feel like they can leave the citizens of their states out, especially if the PUCs in states that move forward quickly end up looking like heroes.

We’ll see the opposite, or course, if the early rollouts stumble. A lot of utilities and PUCs will put the brakes on.

In Coca Cola’s world, a pause refreshes. In our Smart Grid world, it distresses. And we won’t know how much longer the pain will go on until the DOE announces its awards and we see how winners, losers and regulators respond.

Smart Grid stimulus resources on SGN:

  Directory of Energy Awards

  State Stimulus Toolkits

  The Race for Stimulus Funds

  Smart Meter Market Q209