Smart Money and the Smart Grid: An Inside Look at Austin’s Pecan Street Project

By Jim Marston and Gregory Burkart

Two years ago, an all-volunteer collaboration of technology companies, university talent and political progressives in Austin, Texas, set out to prove the viability of the emerging Smart Grid.  The Pecan Street Project, named after one of the town’s more eclectic streets, incorporated as a non-profit organization in 2009, and it has already become an exemplary case study for the structure and financing of alternative energy projects.  

Shortly after the group’s incarnation, the U.S. Department of Energy awarded the Pecan Street Project $10.4 million to demonstrate Smart Grid technologies in a real-world setting.  Combining the federal award with $14.5 million in matching funds, the Pecan Street Project now has a budget of $25 million for the purposes of introducing, testing, verifying and touting the next generation of Smart Grid technologies. 

There are several unique aspects to the Pecan Street Project that make it an ideal proving ground for the Smart Grid’s potential.  First, the founders of Pecan Street Project drew upon their collective talents to create a vision for a new, web-based energy system.  The system will integrate rooftop solar, Smart Grid software, electric vehicles (new “V-2-G” cars) and green building initiatives by creating an open architecture for these components to “plug and play.”  Because many of the Smart Grid technologies have the potential to reduce the overall electrical demand, the founders are also hoping to beta-test a new utility business model that, in the midst of shrinking revenues, nevertheless improves profit margins and preserves cash flow. 

Second, in addition to electric technologies, the Pecan Street Project will integrate water management solutions.  The U.S. Geological Survey estimates that generating electricity accounts for almost half the nation's annual water use – and water systems use energy to treat and distribute supplies.  By integrating water resources into the energy Internet, the Pecan Street Project hopes to achieve long-term sustainability in the West by not only creating policies to encourage efficiency and conservation but also giving residents tools to manage their water and energy needs. 

Third, the Pecan Street Project has an ideal site for putting theory into practice. Mueller is a compact, mixed-use community located on 711 acres of an abandoned airport. One hundred percent of its new structures are constructed with green techniques, and the neighborhood includes affordable housing, native landscapes and reclaimed water. The Executive Director of the Pecan Street Project brags that in Mueller “even the public art has solar panels.”  With a real-world control group, the Pecan Street Project is able to meet the primary objective of the DOE’s funding award -- namely, “to quantify Smart Grid costs, benefits and cost-effectiveness, verify Smart Grid technology viability, and validate new Smart Grid business models, at a scale that can be readily adapted and replicated around the country.”

Finally, the region is using the initiative to transform its high-tech community into a new clean-tech cluster.  In addition to the DOE funding, the Pecan Street Project and the Capital Area Council of Governments recently received $290,000 from the U.S. Department of Commerce to focus on regional economic development spinning off from the Smart Grid.  If a company is located in the Austin region, it will be able to test its products at Pecan Street.  With partners such as Austin Energy, Bluebonnet Electric Cooperative, Pedernales Electric Cooperative and City Public Service and the Electric Reliability Council of Texas (ERCOT—the regional independent system operator), new technologies will have access to a real-world utility grid in Central Texas. The hope is that the proving ground will attract the best and brightest from the telecom, microprocessor, software and hardware elements of the digital economy, creating new jobs in Austin in the process.

Next Steps

Now that the Pecan Street Project has finished studying the opportunity and publishing its findings, the next step is to issue an RFP that will provide a range of companies a chance to collaborate with Austin Energy and the National Renewable Energy laboratory (NREL) and the University of Texas to demonstrate technologies at the Mueller Community in Austin. During this phase, companies such as Intel, Freescale, IBM, Applied Materials, Cisco and GE hope to deploy a suite of technologies and pricing models on a real world grid. This exciting development will converge hardware, software, telecom and environmental conservation ideas.

One of the seminal lessons of American capitalism is to follow the smart money.  In a recent article, Paul Holland, General Manager of Foundation Capital, said the energy web is the place to invest.  “It’s this combination of the open Internet and this upgrade in infrastructure around the Smart Grid … We think we’re beginning to see the pieces of the platform come together.”

Those pieces are coming together at the Pecan Street Project.

About the authors ...

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Jim Marston is founding director of the Texas office of Environmental Defense Fund, located in Austin, where he has served since its beginning in 1988. He also leads the organization's national energy program, which spans EDF offices from New York to California. Jim leads efforts on environmental policy in Texas, setting program and policy agenda on issues including air pollution, water quality, and energy. He led the successful fight to stop TXU from building a dozen coal plants in Texas and other states, and ultimately negotiated a first-of-its-kind deal with private equity buyers involving more than a dozen commitments on global warming.

Gregory Burkart is a managing director in the Detroit office of independent financial advisory and investment banking firm Duff & Phelps.  His 13 years of experience includes specialization in the structuring and negotiating of government-sponsored economic development incentive packages.  Having previously served as former Michigan Gov. John Engler’s Environmental Ombudsman, Gregory is an expert on domestic and international site selection; economic incentives negotiation; decision analysis; and demonstrating development projects' economic and fiscal impact to state and local governments.

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