This action might not be possible to undo. Are you sure you want to continue?
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.
Three large grid systems Interlinked transmission
and distribution lines Nation’s energy regulated by Federal Energy Regulatory Commission (FERC)
Huge demand at certain time of day = “peak load” Cushion demand with reserve energy Immediate demand and supply not known Renewable energies not easily integrated
Cyber attacks Natural Hazards Foreign natural gas dependency
$150 billion annually
Uncommitted backup energy sources Increasing energy demand 17.7% increase in ten years
Solution: Smart Grid
What we could be exploiting… Efficiency Security Reliability Change initiated by contracts between utilities and
The Market Failures
Rate-based system Utilities unmotivated to look for alternatives Asymmetrical information Consumer lacks real-time pricing and market influence Immediate costs with delayed benefits Consumer energy costs Utilities transition investments Current utility financing programs
Congress President Bureaucrats
Department of Energy (DOE) Treasury Federal Energy Regulatory Commission (FERC)
Utilities Entrepreneurs Interest groups Think Tanks Consumers Society
Lack of innovation
1995 Electricity Industry Business Services Drugs & Medicines 0.2% 10.1% 10.1% 0.3% 10.2% 10.5% 1996
Table 1: Percentage of sales revenue directed toward R&D. National Science Foundation.1
Figure 1: Declining energy R&D investment by public and private sectors – Since 1980, energy R&D as a percentage of total US R&D investment has fallen from ten percent to two percent. (source)2
Figure 2: Federal outlays for Energy compared to those for Education, Training, Employment and Social Services
Renewable Energy and Electric Power Transmission
Loan Guarantee Program
American Recovery and Reinvestment Act (ARRA, the
Stimulus Bill) Section 406 Leverages federal dollars by guaranteeing the debt (loans) of private companies rather than investing directly through grants or tax subsidies Original appropriation of $6 billion enables the program to guarantee $40 - $120 billion worth of loans3
Fund has subsequently been raided, lowering funds down to $2.5 billion (losing $35 billion worth of leverage)4
Deadline: September 30, 2011
ARRA Section 1603 Treasury cash grant program Allows renewable energy projects to receive 30% of qualified costs as a cash grant, rather than receiving a tax credit As of April 6, 2011 5
7,957 projects funded $6.9 billion in federal funding as part of $23.2 billion in total private and federal investment
Deadline: December 31, 2011
Intellectual Property Rights Eased licensure process for patent applications – DOE provision of an online, streamlined template option Total upfront cost of licensing DOE patents to $1,000 for a portfolio of up to 3 patents (savings: $10,000 - $50,000) Easier access to use of national laboratories – companies need only make an advance payment covering first 60 days of research work rather than 90 days6 Deadline: December 15, 2011
• The American Recovery and Reinvestment Act (ARRA)
of 2009 allocated $4.5 billion for Electric Grid Modernization 7
• $3.5 billion for Smart Grid Investment Program • 570 applications from utilities requesting $14.6 billion –
only 100 applications approved under the $3.4 billion cap
• Deadline: Passed
So if all these great programs have been put in place, what’s the policy problem?
All these programs will expire by the end of 2011. America needs to continue providing a sound economic foundation for the nation’s energy infrastructure if the benefits of a smart grid are to be realized.
Our Policy Proposal
Extend the aforementioned finance programs Long-term rather than temporary Expand the scope of these programs
Loan Guarantee Program Restore the full $6 billion 1603 Treasury cash grants apply to smart grid technology; end ban against tax-exempt parties
Funding: surcharge, excise taxes on imports Establish a Revolving Loan Fund for smart grid
Figure 3: Flow diagram of the process of a revolving loan fund (RLF).9
Create a national Revolving Loan Fund program for
smart grid projects
Revolving Loan Fund Program
Reduce direct federal financing 10 Initial capital often already provided through ARRA –
State Energy Program (SEP) & Energy Efficiency and Conservation Block Grant Program (EECBG) funds DOE: Office of Energy Efficiency & Renewable Energy already familiar with setting up RLF programs (Guidelines11)
Portfolio & Oversight Commission
Establishes portfolio standards Energy project proposal Entrepreneurial connections Financial situation Rationale Implementation Top-down Bottom-up Incorporate learning and feedback
Controlling Bureaucrat Discretion
Ownership over policy Principal-agent problems Shirking (street-level bureaucrats)
Report to the Commission Required number of random evaluations on projects Limit interest group connections Implement a conflict of interest policy modeled on that of the North American Electric Reliability Corporation (NERC)12
Moral Hazard (Commission members)
“Consumers are the barrier”
Centrality of “the interest of the consumer” to impact nature of utilities’ operation models Overwhelmed by information required to operate customerend smart grid technologies (e.g., smart meters) Better positioned to design project standards Consumers want smart grid technologies Energy grid crosses state lines, outside the jurisdiction of any single state
“Initiatives should be led by the states”
Renewable Energy Our Policy – Focus on Utilities, Supply Side Alternative A – Focus on Consumers, Demand Side Alternative B – Initiatives led by the states Flexibility of Cost Response Effectiveness Deployment Efficiency
1 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. 2 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 . 3 Caperton, Richard W. “Congress, DOE’s loan guarantee program, and America’s Clean Energy Future.” ClimateProgress.org. 4 March 2011. Web. http://climateprogress.org/2011/03/04/congress-doe-loan-guarantee-programclean-energy/. 4 Caldwell, Jake, Richard W. Caperton. “End the Raids on Clean Energy Funding: Congress Shortchanges a Key Component of Our Clean Energy Future.” AmericanProgress.org. 11 August 2010. Web. http://www.americanprogress.org/issues/2010/08/clean_energy_raids.html.
5 Overview and Status Update of the §1603 Program. U.S. Treasury. 6 April 2011. Web. http://www.treasury.gov/initiatives/recovery/Documents/2011-0406%20-%20S1603%20Overview.pdf. 6 “Department of Energy Launches ‘America’s 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. 7 “Breakdown of Funding.” U.S. Department of Energy. Web. http://www.energy.gov/recovery/breakdown.htm. 8 Sulavik, Christopher. “Cleantech revolution: Building smart infrastructures.” Price Waterhouse Coopers US Thought Leadership Institute. December 2009. Web. http://www.pwc.com/en_US/us/technology/assets/pwc-cleantechrevolution.pdf. 9 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.
10 Ibid. 11 “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. 12 “Appendix A – Corporate Policies: Conflict of Interest and Business Ethics Policy for Trustees, Officers, and Employees.” North American Electric Reliability Corporation. 30 July 2008. Web. http://www.nerc.com/files/Conflict-of-Interest-and-Business-Ethics-7-08.pdf.
http://www.earthzine.org/wp-content/uploads/2010/04/transformers.jpg http://gigaom2.files.wordpress.com/2011/03/cloud_powerlines_streetlamps.jpg http://www.telegrid.com/SmartGrid.JPG https://www.cee.siemens.com/web/il/en/corporate/home/Siemens_Israel/Energysector/PowerDistribution/EnergyAu tomation/PublishingImages/Smart%20Grid.JPG http://www.guardian.com/stellentdev/groups/guardiandotcom/documents/native/gi_010643.jpg
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.