By Richard Martin, Contributing Editor

With the federal government’s $3.4 billion in matching grants for smart grids now allocated it’s a good time to be one of those behind one of the awardee projects that are adding intelligence to electrical grids in towns and cities around the country.

Northern Colorado communities received two of these grants: Fort Collins received $18.1 million to install some 84,000 “smart meters,” which can continually track and display energy use and relay information like outages back to the power company, while Pueblo got $6.1 million to put in 42,000 new meters plus an Internet-like communications infrastructure.

Thse sums are small beans compared to what some other states will receive: “Florida Light and Power and PECO Energy Company received the maximum $200 million grant, while the tiny municipal utility EPB, which is building an unusual fiber-based smart grid in Chattanooga, Tenn., received $111.57 million,” reported Earth2Tech. Several prominent applicants did not receive funding: Pacific Gas & Electric and Southern California Edison, in California, as well as National Grid and the Tennessee Valley Authority, which was created in the Depression to bring electricity to remote parts of the Southeast.

Already funded is the smart grid being installed in Boulder by Xcel Energy, which will be among the country’s most advanced systems when it goes live later this year. Serving around 25,000 homes and businesses, Xcel says the new network will make Boulder “first fully functioning smart city in the world.”

Like early-childhood education, smart grids are a cause that nobody doesn’t like. But there are many related and necessary developments that must happen before the technology can fulfill its promise to reduce energy demand and lower consumers’ power bills. For one thing, displaying a home’s energy usage doesn’t mean much unless the residents are willing to act on that information.

“If we give our customers [price] signals, do they actually act on them?” wondered Tom Henley, a press spokesman for Xcel, in an interview with The New York Times.    

There’s also a fundamental conflict between the social goal of lowering demand and the utility’s incentive to keep revenues high. Xcel, in fact, does not even have regulatory approval yet to offer lower rates at times of reduced demand, such as at night.

In Boulder, one of the most progressive cities in the country, energy users are likely to adjust their usage accordingly. In other places that’s not a given; in fact, the promise of smart grids lowering energy expenses doesn’t always work out. Puget Sound Energy, in Seattle, tried a “dynamic pricing” scheme in the early 2000s which was supposed to reward consumers for using high-energy appliances, like dishwashers and clothes dryers, after 9 p.m. Unfortunately news reports demonstrated that many households on the plan actually ended up paying more than ordinary daytime users. The plan was canceled after less than two years. Partly as a result, “utilities and regulators in many states prefer not to touch dynamic pricing,” stated The Economist in a recent feature on smart grids.

Even if regulators, power companies, and consumers all work together to lower energy use, smart grids alone will not deliver the anticipated benefits. Another required element is the spread of distributed mini-producers, such as solar panels that can return power to the grid at times of sunlight and excess generation. While the “demand response” business is already well-established (many large retailers, for instance, use companies like EnerNOC to turn down their lights and their refrigerators at times of peak demand), most utilities are still wrestling with the issue of how to properly handle and credit such reverse-flow energy.

In fact, the biggest beneficiaries of the government’s $3.4 billion funding program, at least in the first five years, will not be communities or end users but the companie supplying the technology.

“The real winners are those who produce the smart grid devices,” writes Terence Chan on Seeking Alpha, the stock-market analysis blog. “The current trend is for small firms with cutting edge smart grid technology to partner with bigger firms who can better distribute and utilize the technology.”

Ultimately, providing better information to power producers and users is a single step in a process that has to arrive at more powerful incentives to conserve energy. The biggest step is a price on carbon emissions – which the U.S. Congress is supposedly going to impose in climate-change legislation that will likely not be passed until at least this year. “Technology,” points out The Economist, “is no substitute for policy.”