savannah duby chelsea pestana - smart grid final proposal
TRANSCRIPT
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
1/27
Jump Start the Smart Grid,
Accelerate the Nation
Savannah Duby, Chelsea Pestana
19 May 2011PST220: Foundations of Policy Analysis
Grinnell College
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
2/27
IntroductionIn 2009, American consumers consumed about 3,741 billion kilowatt-hours (kWh) (EIA) of
electricity. Every light switch and appliance that drew a current depended on the utilities in charge
of generating, transmitting, and distributing that power. Additionally, state and national regulatory
standards are responsible for assuring quality service. The relative involvement of utilities and
government, at the state and national level, has changed over time in response to shifting
perspectives on electricity as a good and to increasing demand for energy. The North American
Electric Reliability Corporation (NERC) has been involved in monitoring the reliability of electricity
on a national level since 1968, but it has not been until 2007 that the federal government has had
the authority to regulate generation, transmission and distribution of energy on a national scale. In
this new appropriation of power, the U.S. Federal Energy Regulatory Commission (FERC) granted
NERC the legal authority to enforce reliability standards with all users, owners and operators of the
bulk power system in the United States and made compliance with those standards mandatory and
enforceable. Throughout the last decade, policy makers have scrutinized the existing grid system, as
alternative energy supply options have exposed some of its weaknesses. The current energy grid is
inefficient, insecure, and unreliable, and market incentives are insufficient for utilities or private
actors to drive innovation for upgrading the grid.
Problem BackgroundThe inefficiency of the current grid primarily stems from ignorance in supply and demand
that hurts both consumers and producers of energy. It costs producers more to provide energy
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
3/27
during peak load when demand is highest because they have to invest in reserve energy sources.
Consumers, even if they are knowledgeable about daily fluctuations in price, cannot choose to use
energy that would bring them a better price, since they are charged a flat rate for use. The second
inefficiency is in the current systems dependency on carbon-emitting fuels, including 23.3% on
natural gas and 44.5% on coal generation in 2009 (EIA, 2009). Although during that year renewable
sources (excluding hydroelectric) accounted for 3.6%, natural gas is still the fastest growing energy
generation sector (EIA 2009). The environmental externalities of impaired air quality and
contribution to global warming could be mitigated if the grid were more receptive to integration of
renewable energies.
The grid system is also insecure and unreliable. It is still vulnerable to cyber attacks, a
concern brought to congresss attention in 2008 with a hearing reviewing the weakness of the electric
power infrastructure, and then again as recently as 1 February 2011 with a joint initiative
spearheaded by the Office of Electricity Delivery and Energy Reliability, NERC, and the National
Institute of Standards and Technology (NIST).
In addition to this threat, international instability in countries that provide our petroleum
can threaten both the oil supply and price, fluctuations which are felt by both utilities and
consumers. Although petroleum currently accounts for roughly only one percent of electricity
generation within the United States (EIA 2009), it is the fuel of choice par excellenceof the nation's
transportation sector. Dependence on a volatile foreign petroleum market places the U.S. electricity
generation and delivery infrastructure at risk by endangering the transportation system necessary for
delivery of other fuels to power plants. Power outages in the U.S. currently range between a low of
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
4/27
92 minutes to a high of 214 minutes, numbers that are astonishingly high in comparison with those
of other developed nations, such as Japan, which averages onlyfour minutes of total interrupted
service each year(Patterson, 2010). These power outages have been estimated to run an annual cost
of $150 billion for Americans (DOE, 2008). The reliability of the grid will become more of a public
concern as utilities feel the pressure of energy demand increasing by about 17.7% in the next ten
years (NERC). With every year, the current system appears less sustainable.
The federal government has come to recognize inefficiencies in the grid and has begun to
incentivize utilities to develop a more interconnected, flexible, communicative grid. One model the
government has deemed a feasible solution to the electricity grid woes of the new millennium is a
smart grid. In brief, the smart grid may be described as an automated electricity system that
improves the reliability, security and efficiency of electric power. It more easily connects with new
energy sources, such as wind and solar, and is designed to charge electric vehicles and control home
appliances via [sic] 'smart' devices (Patterson, 2010). This would involve creating a more nationally
interconnected network with fluid interstate transmission of energy, as well as incorporating
technologies designed to provide better information about real-time supply and demand.
The physical network, enabling integration of a variety of energy sources, would improve
reliability and security. If one particular kind of energy production were to fail, the system would
have others to fall back on. Additionally, alternative energy sources could reduce dependency on
international fuel sources, thus insulating the system from fluctuations in fuel pricing overseas. These
alternative energy sources also offer greater efficiency through potential carbon emission reduction,
both by bringing more renewable energy online. The Electric Power Research Institute (EPRI)
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
5/27
estimates that a national smart grid could reduce annual greenhouse gas emissions by 60-211 million
metric tons of CO2 by 2030. Accompanying the physical grid would be technologies that give the
smart grid its intelligence. Programs, such as Advanced Metering Infrastructure (AMI), will enable
communication between energy suppliers and consumers, as well as improvements in repair response
time after outages. The responsiveness of the system could save as much as $49 billion in outage
costs per year (Massoud, 2011). The smart grid offers improvements to a suite of problems existing
in the electricity sector.
Market FailuresThe financial environment for spurring smart grid innovation and growth currently suffers
from the following market failures: the current business model adopted by utilities and government
regulators guaranteeing a rate of return based on kWhs sold, the system of rate-setting, and the
natural advantages held by monopolistic companies in a sector where sizable initial capital costs serve
as barriers to entry. The current rate-based system of pricing has guaranteed a certain rate of return
for utilities, which in turn disincentivizes investment in new technologies and innovative business
models. Instead, this guaranteed rate of return has lead to a tendency for utilities to favor traditional
baseload power from coal and nuclear plants, rather than renewable energy sources, programs
promoting energy efficiency, and demand response programs to more effectively balance energy
production with energy needs. The necessity of large amounts of starting capital creates high barriers
to entry that give existing energy producers and distributors a strong advantage as natural
monopolies largely immune to the effects of competition. Without competition, the electricity
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
6/27
industry is bereft of the primary driving force behind continued innovation. Table 1 and Figure 1
both illustrate the dwindling interest in energy infrastructure innovation.
1995 1996
Electricity Industry 0.2% 0.3%
Business Services 10.1% 10.2%
Drugs & Medicines 10.1% 10.5%
Table 1: Percentage of sales revenue directed toward R&D. Moynihan.
Figure 1: Declining energy R&D investment by public and private sectors Since 1980, energyR&D as a percentage of total U.S. R&D investment has fallen from ten percent to two percent.
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
7/27
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
8/27
Current ProgramsThe government, recognizing that there is room for improvement, has begun a series of
attempts to incentivize revision of the traditional energy system. American federal energy policy
framework currently relies on two primary programs for transitioning the U.S. energy grid to the
smart grid model: The Renewable Energy and Electric Power Transmission Loan Guarantee
Program and the Smart Grid Investment Grant Program (hereafter referred to as the Loan
Guarantee Program and SGIG, respectively). Two subsidiary programs, the ARRA Section 1603
Treasury cash grant program for renewable energy generation, and the DOEs recent alterations to
the licensure process for patent applications, provide additional support for developing the
infrastructure changes necessary for Americas energy future.
The Loan Guarantee Program was originally established under the Energy Policy Act of
2005, and then substantially modified for the better under Section 406 of the ARRA legislation of
2009. Its creation allowed for the leverage of federal dollars by guaranteeing the loans of private
companies working within the burgeoning smart grid technology sector. This Loan Guarantee
Program is analogous to the federal governments guarantee of college student loans. The Loan
Guarantee Program has a deadline set for 30 September 2011. By providing a level of financial
security for these companies with promises of repayment to the lending institutions, the U.S. federal
government injects greater stability into the market for smart grid technologies. Between the
programs inception in 2005 and its alteration in 2009, only three Department of Energy project
solicitations have been issued and not a single renewable energy project has received a loan
guarantee (Bastier, et al, 2009). This program failure has been attributed to the original programs
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
9/27
credit subsidy fee charged to the borrower for the guarantee, a fee which has since been eliminated.
Loan guarantee programs have the advantage of leveraging federal funds without relying on direct
investment. This leverage structure enables the government to guarantee between $40 billion and
$120 billion in loans using only $6 billion in original funds (Caperton, 2011). Unfortunately, since
the Loan Guarantee Programs 2009 modification, the original $6 billion fund has been raided
repeatedly, first for an extension in July 2009 of the Cash for Clunkers program, and then again to
help pay for the federal medical assistance (FMAP) legislation of August 2010, for a total reduction
of $3.5 billion. This cutback is estimated to cost $35 billion in possible loans, a roughly 30%
minimum downgrade of the programs original effectiveness. The 2009 ARRA legislation also
allocated $4.5 billion for electric grid modernization, with $3.5 billion of those funds reserved for
the Smart Grid Investment Grant Program (SGIG). The SGIG program has been authorized to
provide grants of up to 50% of qualifying smart grid investments (DOE, 2009). Direct cash grants
have been proven to have a large, immediate impact on promoting industry growth (Bipartisan
Policy Center, 2011) in comparison with the delayed effects of tax credit programs. Although the
Bipartisan Policy Centers study was strictly concerned with the renewable energy generation
industry, the principle applies equally well to the smart grid technology sector. The increased
effectiveness of cash grants over tax credits may be ascribed to the difficulty of finding initial funding
capital from private sources who are often wary of the possibility of reimbursement under the highly
unstable tax credit system, as well as the reliance on tax equity providers1
1The online journal EcoSeedbest clarifies tax equity providers with the following description: Tax equity providers are
large tax-paying financial entities that can use the tax incentives to offset future tax liabilities. These clean energy
developers then participate in a partnership structure that flips ownership of the project from the tax equity investor to
for project financing, a
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
10/27
dependence which hinders project flexibility as well as limits the scope of possible projects. Tax-
based incentives limit the industrys capital financing access to a small group of corporate investors,
whose numbers have further dwindled as a result of the credit crunch of the recent economic
downturn. Table 2 illustrates the reduction in this investor market. Sasha Mackler, energy research
director at the Bipartisan Policy Center, has stated that one dollar in cash has nearly double the
value of a dollar in tax credits to a project developer (Valdez, 2011). At the programs
commencement, 570 applications from utilities were received, requesting a total of $14.6 billion,
nearly six times the programs 100-project capacity as defined by its $3.5 billion cap. The huge
disparity between the number of applications and the number of approvals indicates that the SGIG
program has a large amount of untapped potential for spurring growth within the smart grid sector.
Other government policies with significant though as yet unexplored implications for
accelerating smart grid technology innovation and growth are the ARRA 1603 Treasury cash grant
program (1603 cash grant) and recent changes to the DOEs licensure process for patent
applications. The 1603 cash grant, allows renewable energy projects to receive 30% of qualified costs
as a cash grant directly from the Treasury rather than as a tax credit. The program benefits from all
of the advantages already outlined for cash grants compared to tax-based incentives. The 1603 cash
grant has been heralded as the star of ARRA, (Umanoff, 2011) with 7,597 projects funded as of 6
April 2011, using $6.9 billion in federal funding as part of a total of $23.2 billion in private and
federal investment. The program was originally set to expire on 30 September 2010, though it has
been extended to 31 December 2011 as part of the Tax Relief, Unemployment Reauthorization, and
the developer-owner once the tax benefits are realized. However, the transfer of the clean energy project would only take
place after the project developers pay a premium to the tax equity providers. (28 March 2011)
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
11/27
Job Creation Act of 2010. Currently the program cannot be applied to tax-exempt entities, such as
many institutions of higher learning, municipal utilities and electric cooperatives. Yet the 1603 cash
grant program only applies to renewable energy generation projects, thus cutting out the other smart
grid projects which are also concerned with energy transmission and distribution. The 1603 cash
grant program provides valuable insight into the possibilities of an extended, uncapped cash grant
program.
Table 2: TaxMotivatedInvestor MarketSources: U.S.
Partnership for
Renewable
Energy Finance
(PREF)
*Departed tax
equity base
during 2008-
2009 due to
insufficient
taxable income or
bankruptcy
Permanent
departure
These firms
only participate
in small-scalesolar financings
Tax Equity Investors
in 2007
Tax Equity Investors
in 2008
Tax Equity Investors
in 2009
JP Morgan Union Bank of California Wells Fargo New York Life Bank of America GE Capital Morgan Stanley
HSH Nordbank Key Northern Trust John Hancock* Prudential* NorthWestern Mutual* Citi* ABN Amro* Fortis* Lehman Brothers* Wachovia* AIG* Merill Lynch*
JP Morgan Union Bank of
California
Wells Fargo New York Life GE Capital Sempra Energy
Morgan Stanley Bank of America U.S. Bank HSH Nordbank Key Northern Trust Sun Trust
JP Morgan Union Bank of
California
Bank of America GE Capital Credit Suisse Morgan Stanley
Citi Wells Fargo U.S. Bank Key Northern Trust
Renewables Tax Equity Market $6.1 billion $3.4 billion $1.2 billion
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
12/27
The final major financial element of federal U.S. smart grid policy is the latest collection of
adjustments to the DOEs process for private companies to license DOE patents. Beginning 2 May
2011 and ending 15 December 2011, the Americas Next Top Energy Innovator Challenge will
reduce the total upfront cost of licensure to a $1,000 fee, a savings of between $10,000 and $50,000
on average for companies. Furthermore, the licensure process itself will be simplified, with a
standardized set of terms for start-ups, thus enabling the DOE to process more licenses in a shorter
time period while also curtailing costs for companies lacking the resources or expertise to negotiate
individual licensing agreements per the older licensing framework. Accompanying these changes is a
new regulation regarding company access to national laboratories, stating that companies need only
make an advance payment covering the first 60 days of research work rather than the first 90 days.
The ProposalIn response to the inadequate funding programs thus far, we propose to restructure and
refund current smart-grid research and development grant programs. By incentivizing utilities to
invest in innovative energy technology, the U.S. may achieve greater integration of increased
efficiency, security and reliability into the electricity system. To address the current market failures
preventing utilities from investing in smart grid technological innovation and commercialization as a
step toward the deployment and installation of smart grid products, we propose the following steps
be taken:
Extend the Loan Guarantee Program and SGIG program Restore the full $6 billion of the Loan Guarantee Program
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
13/27
Expand the scope of the 1603 cash grant program to apply to smart grid technologyand end the ban against project ownership by tax-exempt entities
Establish a Revolving Loan Fund (RLF) for smart grid projects Appoint a Portfolio & Oversight Commission
The extension of the Loan Guarantee and SGIG programs combined with the establishment
of a national smart grid RLF will signal a paradigm shift that emphasizes long-term rather than
short-term planning. The installation of smart grid infrastructure technologies is a continual process,
with most estimates of the implementation timeline extending to at least 2030, as with the Electric
Power Research Institutes (EPRI) preliminary estimate of the cost-benefit analysis of a fully
functioning smart grid (EPRI, 2011). A transition to a long-term financing plan will assure utilities
of the benefits and financial security of switching to a smart grid model. The restoration of the full
$6 billion for the Loan Guarantee Program will increase the programs effectiveness to the projected
$120 billion worth of leverage of private funding for smart grid projects.
Expanding the 1603 cash grant program to apply to smart grid technology will provide
additional avenues for smart grid technology and manufacturing companies to receive appropriate
funding for RD&D projects. Ending the ban against project ownership by tax-exempt entities will
permit experienced power players, such as municipal utilities and electric cooperatives, to increase
knowledge capital by injecting a higher degree of knowledge of the industry into the system,
thereby promoting smoother application of technological innovation to the transition process. This
regulatory change would also encourage utilities to enter the renewable energy industry, thus
functioning as an indirect incentive for utilities to invest in smart grid technologies which would
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
14/27
promote the use of renewable energy sources and assisting both the renewable energy industry and
initiatives within the smart grid sector.
Establishing a revolving loan fund (RLF) for smart grid projects will reduce direct the
amount of necessary direct federal financing while ensuring a steady stream of public investment
capital. Rather than constantly needing to approve outlays for federal financing programs in yearly
budgets, such financing would come from a one-time financial appropriation. RLFs function
operated based on the principle of constant fund recycling and reinvestment. The process begins
with a conventional loan situation, with a minimal interest charge used to cover operating costs.
Once the loan is repaid, the money is then immediately reinvested in another project. Readers may
find it helpful to draw an analogy between our proposed smart grid RLF and the activities of the
non-profit organization Kiva Microfunds. Figure 4 illustrates the RLF process. The DOE already has
familiarity with setting up RLF programs, and indeed the Department has guidelines for states to
create RLFs using ARRA funds as a means of extending their impact. An RLF at the national level
will ensure that companies whose projects would cross state borders will not be overlooked by state
RLFs with specific geographic and jurisdictional limitations.
In order to fund any additional costs incurred by the initial establishment and maintenance
of these programs, we propose two cost allocation measures. First, we advocate the elimination of
certain tax breaks for oil companies. These tax breaks, specifically the tertiary injectants deductions,
percentage depletion allowance, passive investments allowing oil and gas properties to become tax
shelters, and the foreign tax credit, all of which would create a $18.75 billion in total additional
revenue for the federal government (Gandhi, 2010). Ending these artificial economic structural
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
15/27
supports for the oil industry will induce a shift in the U.S. away from dependence on a volatile
foreign energy market while simultaneously buttressing the growing American renewable energy and
energy efficiency markets vital to the implementation of the smart grid. We also recognize the
potential necessity of an additional surcharge levied on the raet at which electricity consumers are
charged for their consumption. This additional surcharge would only apply in some cases for
instance, consumers who use below a defined level of electricity in a month, or those who live below
a specified income level, would be exempt. In this way, we hope to limit the instrument's regressive
nature as well as putting in place a pilot program for incentivizing energy conservation at the
consumer level.
Figure 4: Flow diagram of the process of a revolving loan fund (RLF).
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
16/27
Oversight CommissionAlthough making more money available to more utilities will increase funding for research,
development, and deployment of smart grid innovations, this does not necessarily guarantee the
successful fulfillment of the policy goals of energy reliability, security and efficiency. An Oversight
Commission, housed within the Department of Energy to expedite intra-governmental
communication, will provide assurance that the money invested by the government will be used
constructively. The Commission will set standards for utility grant requests and monitor the progress
of the project. The Commission will ensure that only deserving grant proposals will be funded by
requiring that utilities submit a portfolio that details the short and long-term project proposal,
references for existing and potential energy entrepreneur connections, the financial situation of the
utilities and their entrepreneurs, and finally a rationale for why they have confidence that their use of
funds will be constructive. Setting specific requirements for the portfolio will facilitate the grant
award process for bureaucrats and will ensure utilities identify necessary steps toward successful
smart grid development, as traditional utilities may learn from the examples of others already
transitioning to the smart grid model.
These requirements must also retain a degree of flexibility in light of the variety of energy
needs and challenges facing each region of the United States. For instance, projects which target
innovation regarding the installation and connection of renewable portfolio standards (RPS)
according to the specific profile of potential renewable energy supply of different regions. Utilities in
the Southwest would most likely prefer a project proposal with a strong emphasis on photovoltaic
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
17/27
solar arrays, whereas utilities located along the coasts might prefer ocean wave energy, or utilities in
the Northern Midwest may favor projects comprised largely of wind power.
The Commission will also monitor the progress of the utilitys proposed project, mainly
through frequent and random inspections. Such oversight would ensure projects remain on track,
that funds are used appropriately, and that a high level of detail si documented on the progress of the
project, so as to provide data for future evaluations of projects and feedback on best practices as well
as practices to avoid.
By personally connecting the utilities with the Commission review board, project monitors
will provide a useful source of information necessary for policy learning. Yet the actions of this
bureaucrat and others within the Commission will need to be regulated in order to avoid such
problems as moral hazard and shirking. Although the use of discretion may empower the monitoring
agents and give them a sense of engagement with and ownership over the policy implementation
process such that they would be less likely to fall prey to moral hazard, the question of shirking still
remains. To combat this possible principal-agent problem, the Commission will establish a
minimum number of inspections to be completed for each approved project and to be reported to
the Commission. This minimum will ensure that agents will conduct a comprehensive review of the
projects while still maintaining the element of surprise not permitted within a rigid, scheduled
system of administering project reviews. To mitigate the risk of moral hazard on the part of
Commission members, a conflict of interest policy will be adopted, modeled on that of NERC
(NERC, 2008). The potential for principal-agent problems will also be considered during the
selection of members to serve on the Commission. Individuals may not have specific ties to any
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
18/27
particular energy companies or manufacturers. That is, no board member could recently (within the
past two years) have been employed with any company in which it could be said they have a conflict
of interest. Another tool would be to require board members to give an extended advance notice of
leave, such as six months, to avoid a revolving door situation, in which board members enact
policies favorable to a specific entity and then immediately leave in order to work for that same
entity. With a longer period of time between when a board member can give notice of leave and
when he or she can actually end duties with the board, the risk of industry capture may be lowered.
When deciding which project proposals should receive grants, the commissioners will also have to
consider diversity among the projects. This will prevent bureaucrats from either intentionally
favoring a certain energy domain or from disproportionately awarding finds to more utilities that are
more well established. It is necessary to be flexible and optimistic in some innovative proposals in
order to preserve the diversity of the smart grid that contributes to its reliability, security, and
efficiency.
Perspectives of Policy StakeholdersThis policy will be reviewed by the U.S. congress, as transmission and distribution lines are
already across state boundaries and goals of the policy include creation of a national scale energy
market. Congresss support of the policy depends on how the representatives perceive it will be
received by the target population (utilities), its feasibility of implementation, and the benefits. The
president has veto power over the policy, but support from President Obama is likely in light of his
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
19/27
highlighting the smart grid as an issue for consideration on the agenda and has generally been in
favor of research and development.
Other official actors which may directly influence the passage of legislation for our proposal
are those which have a role in regulating the energy industry and providing funding for the research
and development in the energy sector. The DOE and FERC are both involved in reviewing energy
generation, transmission, and distribution and may prefer a policy which preserves their
authority. The U.S. Treasury is already funding some grant programs for renewable energy
generation and could be receptive to reworking their investment to a program that may have greater
payoffs. These groups will likely express their judgment about the feasibility of policy
implementation.
Utilities, the target population, will likely influence the passage of legislation as unofficial
actors, since they have the greatest immediate stake in the policy. Utilities will have to weigh the
benefit of immediate funds with the costs of initiating a smart grid system trajectory, just as they do
when approaching the existing grant programs. Our policy, which will make grant programs a more
lasting option, may incite disapproval of state governments, unofficial actors which are still highly
influential in localized electricity markets (Moynihan, 2010). This policy would include a shift in
power from states to utilities, since providing more long-term grant programs will give utilities more
autonomy in their generation, transmission, and distribution.
In opening up the market, energy entrepreneurs will become unofficial actors that will bring
strong support for the policy. This group, along with energy think tanks, has already been highly
visible and proactive in their support of funding for smart grid innovations (SmartGridNews.com,
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
20/27
2009; ClimateProtect.org, 2011). Though the policy requests some upfront increased funding from
the government, adoption of a smart grid would also help relieve outage burdens on the national
budget.
Congress will also consider the response of consumer-voters. As the program involves some
up-front transition costs to individual consumers and long-term benefits through strategic energy
management, Congress will not likely approve such legislation based solely on benefits to
consumers. The impact on society as a whole will need to be considered, including dispersed benefits
such as improved reliability and security. A more persuasive benefit would likely be the short-term
increase in employment. According to the American Solar Energy Society (ASES) and Management
Information Services, Inc. (MISI), aggressive development of the renewable energy and energy
efficiency industries could generate up to $4.5 trillion in revenue and create 40 million jobs by the
year 2030 (Bezdek, 2007).
Alternative ApproachesAlternative approaches to addressing the current problem of the impending obsolescence of
Americas electricity grid may include the opinion that Consumers are the barrier to effective smart
grid RD&D, or that Smart grid initiatives should be led by the states rather than the federal
government. The first alternative approach relies on assumptions of the centrality of the consumer
interest to affect the nature of utilities operation models and on the notion that consumers are
overwhelmed by the information increase inherent to the operation of customer-end smart grid
technologies (e.g., smart meters) such that they are antagonistic toward the entire model. These
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
21/27
assumptions are faulty. Research conducted by Energy Insights in 2007 indicates that consumers are
interested in opportunities afforded them by the smart grid, with 95% of Americans reporting
interest in receiving information on their energy consumption and 69% saying that they would
review real-time usage data if it were available (Oracle, 2009). Furthermore, this emphasis on the
consumer is misguided in light of the fact that utilities lie at the heart of the process of implementing
the smart grid, and they are unique positioned to set the tone for deployments, which in turn will
influence the total value realized as well as who captures it (Booth et al, 2010).
The second alternative approach implicitly emphasizes the need for flexibility in responding
to the variegated needs and strengths of different utilities and regional electricity grids. This concern
has been incorporated into our policy proposal for a national plan. Moreover, a state-centered plan
for the smart grid overlooks the fact that the electricity grid crosses state borders, so that it extends
beyond the jurisdiction of any single state. This demands inter-state interoperability standards which
can be set only by a higher authority, such as the federal government. Additionally, the states lack
the broader financial resources of the federal government, resources which are necessary to achieve
the smart grid implementation given its high estimated cost (EPRI, 2011).
Policy EvaluationTo evaluate our policy, we stress the importance of financial sustainability, deployment
efficiency and cost effectiveness. We use the following definitions for these terms:
Financial sustainability: the notion that our proposed financial programs will endurebeyond the yearly battles over the government budget so that an environment of
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
22/27
long-term stability may provide fertile ground for the growth of the smart grid
industry.
Deployment efficiency: program efficacy of pairing the target populations of utilitiesand energy entrepreneurs with the funds necessary for the commencement and
completion of projects contributing to innovation and commercialization of smart
grid technologies and products.
Cost effectiveness: programs which produce optimum results for the expenditure.We are prioritizing the goal of achieving energy efficiency with the smart grid in our policy
proposal, given that other significant legislation has been proposed regarding achievement of the
goals of security and reliability, namely with the recent Grid Reliability and Infrastructure Defense
(GRID) Act, which passed a vote in the U.S. House of Representatives on 10 June 2010, but it was
not included for consideration by the Senate (GovTrack.us). Despite its failure in the Senate, its
success in the House indicates that GRID is a strong piece of legislation. Thus, we rest assured that
the goals of energy security and reliability are being appropriately addressed by other actors within
the U.S. government.
The RLF component of our policy proposal has been designed specifically to address the
interest in financial sustainability. Its structural requirement of financial reinvestment in new
projects guarantees that the starting lump sum will provide for an ever-larger number of projects
over the life of the program. The Loan Guarantee Program will adjoin an additional dimension of
financial sustainability, given its high ratio of financial leverage between public funds and private
investment capital.
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
23/27
The interest in deployment efficiency has been included in our programs strong emphasis
on cash grant programs rather than tax-based incentives. Cash grant programs have the benefit of
providing immediate funds for project use, so that both a wider variety of projects may be
undertaken (given the elimination of the need for a tax equity investor, entities that have become
increasingly rare since 2007) and project start times may be moved up to earlier dates, since project
owners and managers will already have cash in hand and will no longer need to spend time searching
for more capital investors.
Finally, our proposed Oversight Commission will ensure a high level of cost effectiveness.
The processes of project analysis and review, both pre- and post-implementation, make certain that
the funds for such RD&D proposals are deployed in a manner that minimizes waste and assures
citizens that their tax dollars are doing the most good for Americas energy future.
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
24/27
-
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
25/27
References
Advocacy and Education. SmartGridNews.com. 12 May 2009. Web.
http://www.smartgridnews.com/artman/publish/Key_Players_Associations/Advocacy_and_E
ducation-883.html.
American Recovery and Reinvestment Act. 17 February 2009. Web.
http://www.gpo.gov/fdsys/pkg/PLAW-111publ5/html/PLAW-111publ5.htm.
Appendix A Corporate Policies: Conflict of Interest and Business Ethics Policy for Trustees,
Officers, and Employees. North American Electric Reliability Corporation (NERC). 30
July 2008. Web. http://www.nerc.com/files/Conflict-of-Interest-and-Business-Ethics-7-
08.pdf.
Bastier, Ellen L., et al. Temporary Federal Loan Guarantee Program for Rapid Deployment of
Renewable Energy and Electric Power Transmission Projects. Reed Smith. February 2009.Web. http://www.reedsmith.com/_db/_documents/alert09050_200902255041.pdf.
Bezdek, Roger. Renewable Energy and Energy Efficiency: Economic Drivers for the 21stCentury.
America Solar Energy Society (ASES) and Management Information Services, Inc. (MISI).
2007. Web. http://ases.org/ASES-JobsReport-Final.pdf.
Booth, Adrian, Mike Greene, and Humayun Tai. U.S. smart grid value at stake: The $130 billion
question. McKinsey & Company. 2010. Web.
http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/EPNG/PDFs/McK%2
0on%20smart%20grids/MoSG_130billionQuestion_VF.aspx.
Department of Energy Federal Loan Guarantees for Electric Power Transmission Infrastructure
Investment Projects. U.S. Department of Energy. 29 July 2009. Web.
http://lpo.energy.gov/wp-content/uploads/2010/09/2009-CPLX-TRANS-sol.pdf.
Department of Energy Funding Opportunity Announcement: Smart Grid Investment Grant
Program. U.S. Department of Energy, Office of Electricity Delivery and Energy Reliability.
25 June 2009. Web.
http://evpr.columbia.edu/files_sponsoredprojectprocedures/imce_shared/Smart_Grid_Invest
ments_FOA_0000058.pdf.
Department of Energy Launches Americas Next Top Energy Innovator. U.S. Department of
Energy, Office of Energy Efficiency and Renewable Energy. 29 March 2011. Web.
http://apps1.eere.energy.gov/news/progress_alerts.cfm/pa_id=508.
http://www.smartgridnews.com/artman/publish/Key_Players_Associations/Advocacy_and_Education-883.htmlhttp://www.smartgridnews.com/artman/publish/Key_Players_Associations/Advocacy_and_Education-883.htmlhttp://www.gpo.gov/fdsys/pkg/PLAW-111publ5/html/PLAW-111publ5.htmhttp://www.nerc.com/files/Conflict-of-Interest-and-Business-Ethics-7-08.pdfhttp://www.nerc.com/files/Conflict-of-Interest-and-Business-Ethics-7-08.pdfhttp://www.reedsmith.com/_db/_documents/alert09050_200902255041.pdfhttp://ases.org/ASES-JobsReport-Final.pdfhttp://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/EPNG/PDFs/McK%20on%20smart%20grids/MoSG_130billionQuestion_VF.aspxhttp://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/EPNG/PDFs/McK%20on%20smart%20grids/MoSG_130billionQuestion_VF.aspxhttp://lpo.energy.gov/wp-content/uploads/2010/09/2009-CPLX-TRANS-sol.pdfhttp://lpo.energy.gov/wp-content/uploads/2010/09/2009-CPLX-TRANS-sol.pdfhttp://evpr.columbia.edu/files_sponsoredprojectprocedures/imce_shared/Smart_Grid_Investments_FOA_0000058.pdfhttp://evpr.columbia.edu/files_sponsoredprojectprocedures/imce_shared/Smart_Grid_Investments_FOA_0000058.pdfhttp://apps1.eere.energy.gov/news/progress_alerts.cfm/pa_id=508http://apps1.eere.energy.gov/news/progress_alerts.cfm/pa_id=508http://evpr.columbia.edu/files_sponsoredprojectprocedures/imce_shared/Smart_Grid_Investments_FOA_0000058.pdfhttp://evpr.columbia.edu/files_sponsoredprojectprocedures/imce_shared/Smart_Grid_Investments_FOA_0000058.pdfhttp://lpo.energy.gov/wp-content/uploads/2010/09/2009-CPLX-TRANS-sol.pdfhttp://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/EPNG/PDFs/McK%20on%20smart%20grids/MoSG_130billionQuestion_VF.aspxhttp://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/EPNG/PDFs/McK%20on%20smart%20grids/MoSG_130billionQuestion_VF.aspxhttp://ases.org/ASES-JobsReport-Final.pdfhttp://www.reedsmith.com/_db/_documents/alert09050_200902255041.pdfhttp://www.nerc.com/files/Conflict-of-Interest-and-Business-Ethics-7-08.pdfhttp://www.nerc.com/files/Conflict-of-Interest-and-Business-Ethics-7-08.pdfhttp://www.gpo.gov/fdsys/pkg/PLAW-111publ5/html/PLAW-111publ5.htmhttp://www.smartgridnews.com/artman/publish/Key_Players_Associations/Advocacy_and_Education-883.htmlhttp://www.smartgridnews.com/artman/publish/Key_Players_Associations/Advocacy_and_Education-883.html -
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
26/27
Department of Energy Launches Cyber Security Initiative. U.S. Department of Energy, Office of
Electricity Delivery and Energy Reliability. 1 February 2011. Web.
http://www.oe.energy.gov/DocumentsandMedia/02-1-
11_OE_Press_Release_Risk_Management.pdf.
Estimating the Costs and Benefits of the Smart Grid: A Preliminary Estimate of the InvestmentRequirements and the Resultant Benefits of a Fully Functioning Smart Grid. Electric Power
Research Institute (EPRI). 29 March 2011. Web.
http://my.epri.com/portal/server.pt?Abstract_id=000000000001022519.
Gandhi, Sima J. Eliminating Tax Subsidies for Oil Companies. Center for American Progress. 13
May 2010. Web.
http://www.americanprogress.org/issues/2010/05/oil_company_subsidies.html.
"H.R. 5026111th Congress: GRID Act." GovTrack.us (database of federal legislation). 2010.
Web. http://www.govtrack.us/congress/bill.xpd?bill=h111-5026.
Kammen, Daniel M., Gregory F. Nemet. The Incredible Shrinking Energy R&D Budget. The
Access Almanac. Vol. 30, Spring 2007. Web.
http://www.uctc.net/access/30/Access%2030%20-%2006%20-%20Almanac%20-
%20R+D%20Budget.pdf.
Massoud, S. U.S. Electrical Grid Gets Less Reliable: Since 1995, outages have steadily increased as
R&D steadily declined. The Institute of Electrical and Electronics Engineers.IEEESpectrum. January 2011. Web.
http://spectrum.ieee.org/energy/policy/us-electrical-grid-gets-less-reliable
Moynihan, Michael. Electricity 2.0: Unlocking the Power of the Open Energy Network (OEN). Rep.
NDN and the New policy Institute, 4. Feb. 2010. Web.
http://ndn.org/sites/default/files/paper/Electricity2_0.pdf.
NERC. About NERC. Web. http://www.nerc.com/page.php?cid=1.
Otto, Garth. State Energy Revolving Loan Funds Overview and Trends. National Association of
State Energy (NASEO). 3 August 2010. Web.
http://www.naseo.org/resources/selfs/State_Energy_RLF_Report.pdf.
Our Work. The Alliance for Climate Protection. 2011. Web. http://www.climateprotect.org/our-
work/.
Patterson, Thom. U.S. electricity blackouts skyrocketing. CNN Tech. 15 October 2010.
http://www.cnn.com/2010/TECH/innovation/08/09/smart.grid/index.html.
http://www.oe.energy.gov/DocumentsandMedia/02-1-11_OE_Press_Release_Risk_Management.pdfhttp://www.oe.energy.gov/DocumentsandMedia/02-1-11_OE_Press_Release_Risk_Management.pdfhttp://my.epri.com/portal/server.pt?Abstract_id=000000000001022519http://www.americanprogress.org/issues/2010/05/oil_company_subsidies.htmlhttp://www.govtrack.us/congress/bill.xpd?bill=h111-5026http://www.uctc.net/access/30/Access%2030%20-%2006%20-%20Almanac%20-%20R+D%20Budget.pdfhttp://www.uctc.net/access/30/Access%2030%20-%2006%20-%20Almanac%20-%20R+D%20Budget.pdfhttps://mail.grinnell.edu/owa/redir.aspx?C=e3055df0a3ad48908800749028d62382&URL=http%3A%2F%2Fspectrum.ieee.org%2Fenergy%2Fpolicy%2Fus-electrical-grid-gets-less-reliablehttp://ndn.org/sites/default/files/paper/Electricity2_0.pdfhttp://www.nerc.com/page.php?cid=1http://www.naseo.org/resources/selfs/State_Energy_RLF_Report.pdfhttp://www.climateprotect.org/our-work/http://www.climateprotect.org/our-work/http://www.cnn.com/2010/TECH/innovation/08/09/smart.grid/index.htmlhttp://www.cnn.com/2010/TECH/innovation/08/09/smart.grid/index.htmlhttp://www.climateprotect.org/our-work/http://www.climateprotect.org/our-work/http://www.naseo.org/resources/selfs/State_Energy_RLF_Report.pdfhttp://www.nerc.com/page.php?cid=1http://ndn.org/sites/default/files/paper/Electricity2_0.pdfhttps://mail.grinnell.edu/owa/redir.aspx?C=e3055df0a3ad48908800749028d62382&URL=http%3A%2F%2Fspectrum.ieee.org%2Fenergy%2Fpolicy%2Fus-electrical-grid-gets-less-reliablehttp://www.uctc.net/access/30/Access%2030%20-%2006%20-%20Almanac%20-%20R+D%20Budget.pdfhttp://www.uctc.net/access/30/Access%2030%20-%2006%20-%20Almanac%20-%20R+D%20Budget.pdfhttp://www.govtrack.us/congress/bill.xpd?bill=h111-5026http://www.americanprogress.org/issues/2010/05/oil_company_subsidies.htmlhttp://my.epri.com/portal/server.pt?Abstract_id=000000000001022519http://www.oe.energy.gov/DocumentsandMedia/02-1-11_OE_Press_Release_Risk_Management.pdfhttp://www.oe.energy.gov/DocumentsandMedia/02-1-11_OE_Press_Release_Risk_Management.pdf -
8/6/2019 Savannah Duby Chelsea Pestana - Smart Grid Final Proposal
27/27
"Protecting the Grid from Cybersecurity Threats. U.S. House of Representatives Subcommittee on
Energy and Air Quality. 10 September 2008. Web.
http://democrats.energycommerce.house.gov/index.php?q=archive/110th-
congress/subcommittee-on-energy-and-air-quality-hearing-protecting-the-grid-from-
cyber&page=10
Reassessing Renewable Energy Subsidies. Bipartisan Policy Center. 22 March 2011. Web.
http://www.bipartisanpolicy.org/sites/default/files/BPC_RE%20Issue%20Brief_3-22.pdf.
Revolving Loan Funds and the State Energy Program. US Department of Energy, Office of
Energy Efficiency and Renewable Energy. 6 July 2009. Web.
http://www1.eere.energy.gov/wip/pdfs/sep_rlf.pdf.
Spector, Philip H., Craig M. Kline. Treasury Renewable Energy Cash Grant Extended. Renewable
Energy Insights. 2010. Web. http://www.renewableinsights.com/2010/12/treasury-renewable-
energy-cash-grant-extended/.
Spector, Philip H. Update: Financing Renewables with Treasury Grants. Renewable Energy
Insights. 2010. Web. http://www.renewableinsights.com/2010/03/update-financing-
renewables-with-treasury-grants/#more-250.
Turning Information Into Power Report: Moving Toward the Smart Grid. Oracle Utilities. 9
March 2009. Web. http://www.oracle.com/us/industries/utilities/turning-information-
power-195649.pdf.
Umanoff, Adam. A Report Card on Stimulus Support for Renewable Energy. Power: Business andTechnology for the Global Generation Industry. 1 March 2011. Web.
http://www.powermag.com/issues/departments/commentary/A-Report-Card-on-Stimulus-
Support-for-Renewable-Energy_3491.html.
U.S. Energy Information Administration. Electric Power Annual: 2009 report. Updated 2011.
http://www.eia.doe.gov/cneaf/electricity/epa/epa_sum.html
Valdez, Jhoanna Frances S. Cash grants more effective than tax credits for R.E. projects study.
Ecoseed: Bridging Environment and Economy. 28 March 2011. Web.
http://www.ecoseed.org/politics-article-list/article/3-politics/9350-cash-grants-more-effective-than-tax-credits-for-r-e-projects
http://democrats.energycommerce.house.gov/index.php?q=archive/110th-congress/subcommittee-on-energy-and-air-quality-hearing-protecting-the-grid-from-cyber&page=10http://democrats.energycommerce.house.gov/index.php?q=archive/110th-congress/subcommittee-on-energy-and-air-quality-hearing-protecting-the-grid-from-cyber&page=10http://democrats.energycommerce.house.gov/index.php?q=archive/110th-congress/subcommittee-on-energy-and-air-quality-hearing-protecting-the-grid-from-cyber&page=10http://democrats.energycommerce.house.gov/index.php?q=archive/110th-congress/subcommittee-on-energy-and-air-quality-hearing-protecting-the-grid-from-cyber&page=10http://www.bipartisanpolicy.org/sites/default/files/BPC_RE%20Issue%20Brief_3-22.pdfhttp://www1.eere.energy.gov/wip/pdfs/sep_rlf.pdfhttp://www.renewableinsights.com/2010/12/treasury-renewable-energy-cash-grant-extended/http://www.renewableinsights.com/2010/12/treasury-renewable-energy-cash-grant-extended/http://www.renewableinsights.com/2010/03/update-financing-renewables-with-treasury-grants/#more-250http://www.renewableinsights.com/2010/03/update-financing-renewables-with-treasury-grants/#more-250http://www.oracle.com/us/industries/utilities/turning-information-power-195649.pdfhttp://www.oracle.com/us/industries/utilities/turning-information-power-195649.pdfhttp://www.powermag.com/issues/departments/commentary/A-Report-Card-on-Stimulus-Support-for-Renewable-Energy_3491.htmlhttp://www.powermag.com/issues/departments/commentary/A-Report-Card-on-Stimulus-Support-for-Renewable-Energy_3491.htmlhttps://mail.grinnell.edu/owa/redir.aspx?C=e3055df0a3ad48908800749028d62382&URL=http%3A%2F%2Fwww.eia.doe.gov%2Fcneaf%2Felectricity%2Fepa%2Fepa_sum.htmlhttp://www.ecoseed.org/politics-article-list/article/3-politics/9350-cash-grants-more-effective-than-tax-credits-for-r-e-projechttp://www.ecoseed.org/politics-article-list/article/3-politics/9350-cash-grants-more-effective-than-tax-credits-for-r-e-projechttp://www.ecoseed.org/politics-article-list/article/3-politics/9350-cash-grants-more-effective-than-tax-credits-for-r-e-projechttp://www.ecoseed.org/politics-article-list/article/3-politics/9350-cash-grants-more-effective-than-tax-credits-for-r-e-projechttps://mail.grinnell.edu/owa/redir.aspx?C=e3055df0a3ad48908800749028d62382&URL=http%3A%2F%2Fwww.eia.doe.gov%2Fcneaf%2Felectricity%2Fepa%2Fepa_sum.htmlhttp://www.powermag.com/issues/departments/commentary/A-Report-Card-on-Stimulus-Support-for-Renewable-Energy_3491.htmlhttp://www.powermag.com/issues/departments/commentary/A-Report-Card-on-Stimulus-Support-for-Renewable-Energy_3491.htmlhttp://www.oracle.com/us/industries/utilities/turning-information-power-195649.pdfhttp://www.oracle.com/us/industries/utilities/turning-information-power-195649.pdfhttp://www.renewableinsights.com/2010/03/update-financing-renewables-with-treasury-grants/#more-250http://www.renewableinsights.com/2010/03/update-financing-renewables-with-treasury-grants/#more-250http://www.renewableinsights.com/2010/12/treasury-renewable-energy-cash-grant-extended/http://www.renewableinsights.com/2010/12/treasury-renewable-energy-cash-grant-extended/http://www1.eere.energy.gov/wip/pdfs/sep_rlf.pdfhttp://www.bipartisanpolicy.org/sites/default/files/BPC_RE%20Issue%20Brief_3-22.pdfhttp://democrats.energycommerce.house.gov/index.php?q=archive/110th-congress/subcommittee-on-energy-and-air-quality-hearing-protecting-the-grid-from-cyber&page=10http://democrats.energycommerce.house.gov/index.php?q=archive/110th-congress/subcommittee-on-energy-and-air-quality-hearing-protecting-the-grid-from-cyber&page=10http://democrats.energycommerce.house.gov/index.php?q=archive/110th-congress/subcommittee-on-energy-and-air-quality-hearing-protecting-the-grid-from-cyber&page=10