Editor’s Note: Colorado Energy News is delighted to welcome Peter  Edwards to our contributing editorial team. Peter is a technology and finance attorney with the prominent Denver firm, Fairfield and Woods, focusing on renewable energy technology and projects. He serves on the Executive Committee of the Colorado Cleantech Industry Association and the Governor’s Carbon Fund Advisory Committee. He was one of the first two partners in the energy venture capital firm, Altira Group, from 1998-2008. Peter’s background as a principal investor, venture capitalist and corporate lawyer enables him to offer energy growth-stage companies a rare combination of legal expertise, practical advice and capital market experience.

By  Peter Edwards, Director
Fairfield and Woods, P.C.

Welcome to Counselor’s Corner. Every few weeks this column will present some new items of interest for business and legal professionals in the energy world of the future, particularly in Colorado.

The smart grid is the single most important facet of the new energy economy. It is the only technology (actually, a group of technologies) that touches and enables all the ingredients we need to transition to the energy world of the future: alternative power generation, transmission capacity, reliability, energy efficiency, and price rationalization.

Three years ago, the term “smart grid” was known to few people outside the utility industry. Now it’s on the tip of everyone’s tongue. That’s what $4.5 billion in ARRA stimulus money can do. Those funds are for the smart grid alone and don’t even include the $14 billion for grid infrastructure development. This money is here, now. DOE recently announced $3.5 billion available for 50% cost-share grants of up to $200 million.

Just as the Internet is a network that enables us to connect diverse information appliances through a common medium of information exchange (digital bits), the smart grid promises to be a network allowing us to connect diverse energy appliances using a common medium of exchange - electricity. Why electricity? Electric power technology has been around since Ben Franklin, and we have a vast storehouse of knowledge about it. We know how to generate it, transport it, use it, convert it, and account for it. Almost every appliance and machine that works on fossil fuels comes in an electric-powered version, even aircraft.

Utility engineers and managers tell us that the existing power grid is largely unmonitored. Incredibly, most utilities can’t sense outages; they rely on customer complaints. The grid is also largely a manual operation. Electricity cannot be stored as a practical matter, and electricity demand at any moment is almost entirely determined by what customers are doing. This means utilities must perform a gargantuan balancing act, making sure that the generation levels of all generators on the system - which might be diversely owned - match the ever-changing, but nonetheless unchangeable demand. It’s a little bit like street performers keeping plates spinning on the end of sticks, except if the utilities fail to balance properly, the consequences are a lot more severe than a few broken plates.

The smart grid would improve this process greatly, making grid management more like an Internet router and less like O’Hare air traffic control. Human grid managers would know instantly what’s happening with the transmission and distribution system and could make real-time operational adjustments. With sensor-enabled devices hooked into the smart grid, like monitors that predict monstrously expensive transformer failures, maintenance costs could be reduced. Wind, solar and geothermal power could be connected to the grid no matter where and when it is generated, without manual scheduling, and grid operators would be able to balance supply (generation) and demand (load) in real time.

And that’s just the beginning. We haven’t said anything yet about the consumer side. While General Electric has announced plans for smart grid equipment in the big-grey-box utility market, more consumer-oriented companies like Cisco (owners of Linksys, the home wireless company), Microsoft and Google have all announced plans to create smart grid products for the home. Microsoft recently began beta testing of a software program for home energy management. By giving it the clever name “Hohm” rather than some generic name (like “Media Player”), Microsoft has acknowledged that it doesn’t own the market yet.

The smart grid is also consumer-facing in that it enables electric power price adjustments on a real-time basis, also known as time-of-use pricing. Electric power might go for as little as $.03 per kWh at night, when generation capacity is underused, while peaking to $.50 per kWh in the late summer afternoons, when people typically flip on the A/C. Some of the most drastic changes might be in store for plug-in electric vehicles (PHEVs) that typically re-charge their batteries at night. With smart grid technology, the cost-per-mile of operating a PHEV can be a mere fraction of what it is now with the internal combustion engine.

Arguments are flying back and forth about smart grid costs vs. benefits. The Electric Power Research Institute - an R&D arm of the utility industry - has estimated that the smart grid could save between 56 and 203 billion kilowatt hours (kWh) annually. At $.10 a kilowatt hour, that’s $5.6 billion a year, minimum. But if the smart grid costs $100 billion, as some estimate, it will never be cost-justified on that basis alone. When you consider that power quality and reliability issues cost American businesses an estimated $100 billion a year, though, you can see the light of economic viability at the end of the tunnel.

More important, our predictive abilities with something as monumental as the smart grid are inadequate to perform a useful cost-benefit analysis, since we have little prescience regarding either its costs or its benefits. These sorts of projects have a way of growing way beyond anyone’s imagination. Just consider the Interstate Highway System. It was founded in 1956 with a $25 billion appropriation and was scheduled to take 12 years to complete. It ended up costing $114 billion over 35 years. And yet despite a cost escalation to rival Boston’s “Big Dig”, few would argue that it wasn’t worth it. Our smart grid may well be another such project.

Note: This article is published for general information, not to provide specific legal advice. The application of any matter discussed in this article to anyone’s particular situation requires knowledge and analysis of the specific facts involved.