First, SmartGrid (a set of technologies characterized by two-way grid communications, distributed sensors, automation, and supervisory control systems that assess and adjust for real-time supply/demand) is the single most transformative development in today's energy markets.
Second, MicroGrid (a structure that connects energy resources and needs from multiple end users with smaller "distributed" energy resources, all within clearly defined boundaries, acting as a single entity with respect to the grid) is the single most effective platform for SmartGrid technology deployment.
I then made the following remarks, noting three key trends driving the markets for SmartGrids and MicroGrids, by way of putting those propositions in context:
First Trend: The Shale Gas Boom. To paraphrase James Carville, "it's the economics, stupid." Do renewable resources have any chance of competing with cheap gas without some form of government mandate or subsidy? Are traditional mandates and subsidies viable under current law? Perhaps most importantly, how long will cheap gas be around? The simple fact of life is that you ignore market economics at your great peril.
Where does SmartGrid fit in? Virtually everywhere, but perhaps most notably by allowing customers to compare prices, choose between "green" and "brown" generation resources, and enable utility charges to be off-set using two-way meters. By expanding customer choice, the SmartGrid transforms abstract policy debates about clean energy and climate change into a mundane, but very important, decision about the environmental consequences of energy policy.
Second Trend: Uptick in Distributed Energy. Due to both economic and environmental considerations, smaller scale alternatives are proliferating. In New England, distributed energy capacity is projected to triple in the next ten years. In an environment where no one is rushing to build the next central station plant, small wind and solar facilities are increasing their share of the electric generation fleet.
On the legal and regulatory front, various forms of state, regional and federal gridlock virtually assure that the pace of central station plant construction will continue to slow. By contrast, Microgrids, which are essentially a scaled version of distributed energy, are taking off due to advantages in security and price stability.
SmartGrid technologies will facilitate the expansion of Microgrids. Equally important, SmartGrids will facilitate the "capacity shaping" that enables better integration of Microgrids and intermittent renewables with other generation resources. In short, the "demand-pull" effects of distributed energy and Microgrids should continue to drive the growth of SmartGrid technologies.
Third Trend: A Utility Business Model Under Siege. Increasingly parsimonious regulators have made it difficult for utilities to recover sunk costs in cancelled plants or plants that become uneconomic after start-up. These conditions present headwinds for new plant construction and provide further impetus to distributed energy growth. More generally, these headwinds are a challenge to the traditional utility model of growth through asset accretion.
In a recent interview with NPR, former Secretary of Energy Steven Chu stated that utilities should provide solar cells and batteries to customers much like the old AT&T provided phones. In this model, the utility owns and services the equipment and the customer buys the service best suited to his or her needs. Chu advocates a distributed energy business model that is a far cry from traditional central station generation. Interestingly, some utility executives agree with him.
For over a century, the utility industry has relied on a business model that requires economically "lumpy" capital investments. It's a trade-off that produces economies of scale at the expense of customer choice. SmartGrid technologies are disruptive, and possibly subversive, because they turn this paradigm on its head.
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So to sum up, you can think about SmartGrids as the product of a thirty-plus year case study in asymmetrical forces. IPP (independent power producer) efforts to compete at the wholesale generation level resulted in virtual repeal of the PURPA (Public Utility Regulatory Policy Act) and Holding Company statutes (Public Utility Holding Company Act) in 2005, NOT exactly a win for the IPPs. By contrast, today's market trends, and the SmartGrid, are propelling a retail-level business model that succeeds or fails one rooftop -- or one Microgrid -- at a time. In short, SmartGrid technologies have the potential to accelerate all three of the trends we've touched upon and, perhaps, move us into a whole new energy paradigm.
Roger Stark has been advising clients for over 20 years on energy project development, finance and regulatory matters. He has extensive experience in the renewable energy, "cleantech" and fossil fuel sectors, including project finance and other transactions in more than 30 states and 25 foreign countries. This piece was originally published on the Stoel Rives Renewable + Law Blog.