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The Department of Energy last week issued its first preliminary guidelines for Smart Grid stimulus projects. The result appears to be a bias against investor-owned utilities (IOUs) and smart meters.
Note: Smart Grid News is developing consensus criteria for evaluating Smart Grid stimulus projects. Go to our Smart Grid Scorecard and use the comment form at the bottom to share your opinions. Please comment before April 24 so we have the advantage of your suggestions before we send a revised version to state governors and the DOE.
For an up-to-the-minute recap of stimulus development, click on our Stimulus News Roundup.
In general, the solicitation seems to indicate that the DOE favors:
Below we outline the major provisions and then give you a quick explanation of the five points above. We finish up with links to the DOE materials plus useful news stories and commentary.
The Major Provisions
In remarks delivered in Jefferson City, Missouri, Vice President Joe Biden and Commerce Secretary Gary Locke announced the Department of Energy’s initial disbursal of funds for Smart Grid projects as provided for in the American Recovery and Reinvestment Act of 2009, or stimulus bill.
“We need an upgraded electrical grid to take full advantage of the vast renewable resources in this country — to take the wind from the Midwest and the sun from the Southwest and power areas across the country,” remarked Vice President Biden in his prepared statement. “By investing in updating the grid now, we will lower utility bills for American families and businesses, lessen our dependence on foreign oil and create good jobs that will drive our economic recovery — a strong return on our investment.”
The outlined plans included two broad categories: $3.375 billion in grants for Smart Grid development and $615 million for Smart Grid demonstration projects. The Grant Program consists of two kinds of grants:
The second, or demonstration funding category, provides grants for three kinds of demonstrations:
Among the eligible grant applicants listed in the draft “Notice of Intent” are the following:
Finally, Secretary Locke acknowledged the need for standards before development goes much further. “A smart electricity grid will revolutionize the way we use energy, but we need standards in place to ensure that all this new technology is compatible and operating at the highest cyber security standards to protect the smart grid from hackers and natural disasters,” said Locke. Locke spoke of the summit meetings of industry leaders to be held starting next week in Reston, Virginia, to address standards issues, as previously reported in SGN.
The draft Notice of Intent has a 20-day comment period before becoming final. SGN will be presenting a revised version of to our Smart Grid Scorecard.
What It All Means
Before we start with our analysis, we want to acknowledge the difficulty of the DOE’s challenge. They are doing the very best they can to juggle competing interests and come up with the right compromise. They have far too few people and far too little time for this immense challenge.
We wouldn’t want this job.
That said, it behooves us all to be very thoughtful and critical about the DOE’s decisions. We’re borrowing the Stimulus money from our children and grandchildren. We owe it to them to spend it wisely.
Viewed from that perspective, the Notice of Intent includes some good news — but also some disappointments.
Favoring Coops and Munis
IOUs are welcome to submit projects, but the relatively small grant size -- $20M tops plus $20M in matching funds – is viewed as a disappointment by most IOUs, who were hoping for something in the $50-$100M range. One Wall Street analyst told his private clients he now believes that the grants will not be a material incentive for large or medium IOUs to deploy smart meters. For example, $20M will only cover about 5% of the cost for a large smart metering deployment.
The low ceiling and the decision to fund lots of small projects seem to favor municipals and coops, assuming those smaller organizations have the staff, funding, and expertise to crank out proposals quickly.
Favoring Science Projects over Deployments
$40 million projects have merit, to be sure, but they are too small to have systemic impact on an entire region. Xcel Energy’s Smart Grid City is a $100 million project on its own and involves only a single city within Xcel’s large territory.
In addition, the DOE is asking projects to test a wide variety of technologies, even though many utilities already know which technologies they prefer. The CEO of a Pacific Northwest utility told SGN Executive Editor Jesse Berst over dinner recently that “we don’t need any more #!^& pilots and science projects! We need help to pay for the foundational technologies. Then we can start building out applications.”
Our understanding is that the DOE was afraid a few large IOUs would swoop in and grab all the money. By putting such a low cap, the DOE seems to have solved that problem while creating a new one. (As we said, we wouldn’t want this job.)
Favoring Isolation over Interoperability
Instead of 30 to 60 regional projects with multiple utilities, the DOE is likely to end up with 150 to 250 small projects with individual utilities. This will perpetuate our country’s current system, where every utility reinvents the wheel and duplicates basic functionality, with almost no thought to efficiencies of scale or interoperability with other utilities.
Favoring Rate Increases
At a maximum match of $20 million, private financiers will find these projects too small to bother with, especially considering the extra red tape and the uncertainty of winning. That means the DOE prefers to see utilities supply the matching funds themselves by raising their rates. (You’ll also see lots of utilities trying to claim “in-kind” contributions by asking to count salaries and utility equipment as part of the match.”)
Favoring Almost Anything over Smart Meters
The language in the NOI suggests that DOE wants to see most of the stimulus funds directed to non-smart meter projects. We suspect the traditional T&D providers were able to successfully lobby to deemphasize smart meters. This is bad news for meter makers, but good news for those who sell distribution automation, D-VARs, storage, control room software, superconducting cables, and perhaps demand response equipment (as long as it does not require smart meters to function).
What’s your take? Hit the Comment button below.
Government site summarizing the new programs DOE’s Notice of Intent of the new funding scheme (PDF) SGN report on upcoming standards summit Leave comments on the Smart Grid Scorecard
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